Fiduciaries of an IBM 401(k) plan have once again asked the U.S. Supreme Court to overturn a pro-plaintiff ruling in June by a New York federal appeals court in a stock-drop case.
They argue that the appeals court ruling creates a circuit split — a conflict with other appeals courts — and that the Supreme Court should issue guidance so that there is uniformity among lower courts in reviewing stock-drop cases.
For the fiduciaries' first petition, the Supreme Court in January vacated and remanded the IBM case to the appeals court with instructions to review issues that lower courts had not addressed.
The appeals court in December 2018 had reversed a district court's dismissal of a 401(k) plan participant's allegations — a rare victory for plaintiffs in stock-drop cases.
The district court had dismissed in September 2016 and again in September 2017 arguments by the participant, filed in 2015, that fiduciaries should have acted to protect those who held company stock in the plan.
However, in June 2020, the three-judge New York appeals court panel issued a unanimous unsigned opinion reinstating its December 2018 ruling. It had invited both parties, the federal government and various trade groups to submit supplemental briefs "not previously raised."
After reviewing the documents, the appeals court sent the case back to the district court.
"To the extent that the arguments were previously considered, we will not revisit them," the judges wrote. "To the extent that they were not properly raised, they have been forfeited, and we decline to entertain them."
The IBM fiduciaries asked the Supreme Court on Sept. 1 to review the appeals court decision in the case of Retirement Plans Committee of IBM et al. vs. Larry W. Jander et al. They asked the justices to resolve differing lower courts' interpretations of Supreme Court rulings on stock-drop cases.
"Three courts of appeals have now correctly rejected as legally insufficient generalized allegations that the harm from inevitable disclosure only increases over time and thus earlier disclosure is always prudent," IBM fiduciaries wrote in their petition to the Supreme Court. The New York court "has doubled down on its contrary view."
The central issue is the Supreme Court's unanimous 2014 decision in Fifth Third Bancorp et al. vs. Dudenhoeffer et al., as well as another Supreme Court ruling, Harris vs. Amgen in 2016, that outlined guidance for lower courts to determine if they should dismiss stock-drop complaints or allow cases to go to trial.
The Dudenhoeffer case "was designed to focus on the circumstances of individual cases to separate 'the plausible sheep from the meritless goats,' not to simply require plaintiffs to incant generic allegations that can (and will) be leveled in every stock-drop case," the IBM fiduciaries' petition said.
The New York appeals court had ruled that the IBM 401(k) participant's allegations had met the Supreme Court's guidelines.
The participant contended that fiduciaries should have taken corrective action because 401(k) plan investors in company stock were harmed when the stock fell following IBM's disclosure, asset write-down and subsequent sale of a money-losing microelectronics unit.