The US Supreme Court on Tuesday issued a per curiam opinion in Retirement Plans Committee of IBM v. Jander, “leaving it to the Second Circuit whether to determine their merits, taking such action as it deems appropriate” regarding arguments raised in the petitioners’ brief.
IBM offered employees the opportunity to invest in the company through an Employee Stock Ownership Plan (ESOP), in which respondent Larry Jander, along with others, took part. In 2013 IBM was projected to lose $700 million. It did not disclose the losses, and instead incorrectly valued its business at $2 billion. IBM’s stock consequently dropped by more than $12 a share. Jander and other retirement participants had purchased over $100 million in ESOP shares before the price dropped.
Jander brought suit in the US District Court for the Southern District of New York, arguing that the Retirement Plans Committee of IBM should have disclosed the true value of the business or at least frozen further stock investments. The district court dismissed the case, and Jander appealed to the US Court of Appeals for the Second Circuit, which reversed the district court’s decision and found that the disclosure of the true value of the microelectronics business was inevitable. The Second Circuit denied the Retirement Plans Committee’s request for a rehearing en banc, so a petition for a writ of certiorari was filed in March. This petition was granted in June, and the case was argued in November.
The question presented in this case primarily concerned whether the “more harm than good” pleading standard, established in 2013 by the Supreme Court ruling in Fifth Third Bancorp v. Dudenhoeffer, could be satisfied by allegations that an inevitable disclosure of an alleged fraud generally increases harm over time. In Dudenhoeffer, the court held that a plaintiff must “plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it” in order to state claim for “breach of a duty of prudence” imposed on plan fiduciaries by the Employee Retirement Income Security Act of 1974 (ERISA).
The opinion noted that the IBM Retirement Plans Committee had argued that ERISA imposes no duty on an ESOP fiduciary to act on inside information. However, the court decided not to address those issues because the lower court had not.
Overall, the court determined that the Second Circuit should have the opportunity to decide whether to “entertain these arguments in the first instance,” and so it vacated the judgment below and remanded the case.