STEVE HARRIS; DENNIS F. RAMOS, AKA Dennis Ramos; DONALD HANKS; JORGE TORRES; ALBERT CAPPA, On Behalf of Themselves and All Others Similarly Situated, Plaintiffs-Appellants,
AMGEN, INC.; AMGEN MANUFACTURING, LIMITED; FRANK J. BIONDI, JR.; JERRY D. CHOATE; FRANK C. HERRINGER; GILBERT S. OMENN; DAVID BALTIMORE; JUDITH C. PELHAM; KEVIN W. SHARER; FREDERICK W. GLUCK; LEONARD D. SCHAEFFER; CHARLES BELL; JACQUELINE ALLRED; AMGEN PLAN FIDUCIARY COMMITTEE; RAUL CERMENO; JACKIE CROUSE; FIDUCIARY COMMITTEE OF THE AMGEN MANUFACTURING LIMITED PLAN; LORI JOHNSTON; MICHAEL KELLY, Defendants-Appellees, DENNIS M. FENTON; RICHARD NANULA; THE FIDUCIARY COMMITTEE; AMGEN GLOBAL BENEFITS COMMITTEE; AMGEN FIDUCIARY COMMITTEE, Defendants
[Copyrighted Material Omitted]
On Remand From The United States Supreme Court. D.C. No. 2:07-cv-05442-PSG-PLA.
On remand from the United States Supreme Court for reconsideration in light of Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), the panel reversed the district court's dismissal of a class action brought by current and former employees of Amgen, Inc., and an Amgen subsidiary under the Employee Retirement Income Security Act, alleging breach of fiduciary duties regarding two employer-sponsored pension plans.
The plans were employee stock ownership plans that qualified as " eligible individual account plans," or " EIAPs." All of the plaintiffs' EIAPs included holdings in the Amgen Common Stock Fund, which held only Amgen common stock.
The Supreme Court held in Fifth Third that there is no presumption of prudence for employee stock ownership plan fiduciaries beyond the statutory exemption from the otherwise applicable duty to diversify. The panel held, therefore, that the plaintiffs were not required to satisfy the criteria of Quan v. Computer Sciences Corp.., 623 F.3d 870 (9th Cir. 2010), in order to show that no presumption of prudence applied.
The panel held that the plaintiffs stated a claim that the defendants acted imprudently, and thereby violated their duty of care, by continuing to provide Amgen common stock as an investment alternative when they knew or should have known that the stock was being sold at an artificially inflated price.
The panel held that the plaintiffs sufficiently alleged that the defendants violated their duty of loyalty and care by failing to provide material information to plan participants about investment of the Amgen Common Stock Fund. Agreeing with the Sixth Circuit, the panel held that the defendants' preparation and distribution of summary plan distributions, including their incorporation of Amgen's SEC filings by reference, were acts performed in their fiduciary capacity.
The panel also reversed the dismissal of derivative claims, as well as a claim that the defendants caused the plans directly or indirectly to sell or exchange property with a party-in-interest. Because the Amgen Plan contained no clear delegation of executive authority, the panel reversed the district court's dismissal of Amgen from the case as a nonfiduciary. The panel remanded for further proceedings consistent with its opinion.
Stephen J. Fearon, Jr. and Garry T. Stevens, Jr., Squitieri & Fearon, LLP, New York, New York; Stephen M. Fishback and Daniel L. Keller, Keller, Fishback & Jackson, LLP, Tarzana, California; Francis M. Gregorek, Betsy C. Manifold, and Rachele R. Rickert, Wolf Haldenstein Adler Freeman & Herz, LLP, San Diego, California, Mark C. Rifkin (argued), Wolf Haldenstein Adler Freeman & Herz, LLP, New York, New York; and Thomas James McKenna, Gainey & McKenna, New York, New York, for Appellants.
Emily Seymour Costin, Sheppard Mullin Richter & Hampton, LLP, Washington, D.C.; Steven Oliver Kramer and Jonathan David Moss, Sheppard Mullin Richter & Hampton, LLP, Los Angeles, California; Jonathan Rose, Alston & Bird, LLP, Washington, D.C.; John Nadolenco, Mayer Brown, LLP, Los Angeles, California; Brian David Netter, Mayer Brown, LLP, Washington, D.C.; and Robert P. Davis (argued), Mayer Brown, LLP, New York, New York, for Appellees.
Before: Jerome Farris and William A. Fletcher, Circuit Judges, and Edward R. Korman, Senior District Judge.[*]
W. FLETCHER, Circuit Judge:
Plaintiffs, current and former employees of Amgen, Inc. (" Amgen" ) and its subsidiary Amgen Manufacturing, Limited (" AML" ), participated in two employer-sponsored pension plans, the Amgen Retirement and Savings Plan (the " Amgen Plan" ) and the Retirement and Savings Plan for Amgen Manufacturing, Limited (the " AML Plan" ) (collectively, " the Plans" ). The Plans were employee stock-ownership plans that qualified as " eligible individual account plans" (" EIAPs" ) under 29 U.S.C. § 1107(d)(3)(A). All of the plaintiffs' EIAPs included holdings in the Amgen Common Stock Fund, one of the investments available to plan participants. The Amgen Common Stock Fund held only Amgen common stock.
After the value of Amgen common stock fell, plaintiffs filed a class action under the Employee Retirement Income Security Act (" ERISA" ) against Amgen, AML, Amgen's board of directors, and the Fiduciary Committees of the Plans (collectively, " defendants" ), alleging that defendants breached their fiduciary duties under ERISA. The district court dismissed the complaint against Amgen under Federal Rule of Civil Procedure 12(b)(6) on the ground that Amgen was not a fiduciary. It dismissed the complaint against the other defendants, who were fiduciaries, after applying the " presumption of prudence" articulated in Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010). Alternatively, even assuming the absence of the presumption, the district court dismissed the complaint on the ground that defendants had not violated their fiduciary duties.
In an earlier opinion, we reversed the district court's dismissal of the complaint. Harris v. Amgen, Inc., 738 F.3d 1026 (9th Cir. 2013). Applying Quan, we held that the presumption of prudence did not apply. We held, further, that, in the absence of the presumption, plaintiffs had sufficiently alleged violation of the defendants' fiduciary duties. Finally, we held that Amgen was an adequately alleged fiduciary of the Amgen Plan.
Defendants petitioned for a writ of certiorari. The Supreme Court deferred ruling on the petition while it considered Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), another ERISA case in which the presumption of prudence was at issue. In Quan, we had held that the presumption of prudence was available to ERISA fiduciaries for both EIAPs and employee stock
ownership plans (" ESOPs" ) " when the plan terms require or encourage the fiduciary to invest primarily in employer stock." Quan, 623 F.3d at 881. Overruling Quan and similar decisions by our sister circuits, the Supreme Court held in Fifth Third that there was no presumption of prudence for ESOP fiduciaries beyond the statutory exemption from the otherwise applicable duty to diversify. Fifth Third, 134 S.Ct. at 2467; 29 U.S.C. § 1104(a)(2). After deciding Fifth Third, the Court granted certiorari, and vacated and remanded for reconsideration in light of its decision. Amgen, Inc. v. Harris, 134 S.Ct. 2870, 189 L.Ed.2d 828 (2014).
On reconsideration in light of Fifth Third, we again reverse the district court's dismissal.
The following narrative is taken from the complaint and documents that provide uncontested facts. On a motion to dismiss, we assume the allegations of the complaint to be true. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Amgen is a global biotechnology company that develops and markets pharmaceutical drugs. AML, a wholly owned subsidiary of Amgen, operates a manufacturing facility in Puerto Rico. To provide retirement benefits to their employees, Amgen set up the Amgen Plan on April 1, 1985. AML set up the AML Plan in 2002 and it became effective on January 1, 2006.
The Plans are covered by the Employee Retirement Income Security Act (" ERISA" ). Both qualify as " individual account plans." See 29 U.S.C. § 1002(34). Plan participants contribute a portion of their pre-tax compensation to individual investment accounts. They receive benefits based solely upon their contributions, adjusted for any gains and losses in assets held by the Plans. Participants may contribute up to thirty percent of their pre-tax compensation. They may select from a number of investment funds offered by the Plans. One of those is the Amgen Common Stock Fund, which holds only Amgen stock. Amgen stock constituted the largest single asset of both Plans in 2004 and 2005.
This litigation arises out of a controversy concerning Amgen drugs used for the treatment of anemia. Anemia is a condition in which blood is deficient in red blood cells or hemoglobin. Causes of anemia include an iron-deficient diet, excessive bleeding, certain cancers and cancer treatments, and kidney or liver failure. In the early 1980s, Amgen scientists discovered how to make artificial erythropoietin, a protein formed in the kidneys that stimulates erythropoiesis, the formation of red blood cells. After this discovery, Amgen commercialized the manufacture of a class of drugs known as erythropoiesis-stimulating agents (" ESAs" ) to treat anemia.
In 1989, the Federal Drug Administration (" FDA" ) approved Amgen's first commercial ESA, epoetin alfa, for the treatment of anemia associated with chronic kidney failure. Amgen marketed epoetin alfa for approved uses under the brand name EPOGEN (" Epogen" ), and licensed patents to Johnson & Johnson (" J& J" ) to develop additional marketable uses. J& J obtained FDA approval between 1991 and 1996 to market epoetin alfa under the brand name PROCRIT (" Procrit" ) for anemia associated with chemotherapy and HIV therapies, for chronic kidney diseases, and for pre-surgery support of anemic patients. J& J had exclusive marketing rights for Procrit under its licensing agreement with Amgen.
Sometime before 2001, Amgen developed a new ESA, darbepoetin alfa, whose sales by Amgen were not restricted by J& J's exclusive marketing rights for Procrit. Darbepoetin alfa, marketed as Aranesp, lasts longer in the bloodstream than epoetin alfa. The FDA approved Aranesp for treatment of anemia associated with chronic kidney failure and cancer chemotherapy. Aranesp has taken significant market share from J& J's Procrit. At the time the complaint was filed, Aranesp " control[led] half the market" for non-dialysis ESA. Sales of EPOGEN and Aranesp have been " core to [Amgen's] survival and success," making up roughly half of Amgen's $14.3 billion in revenue in 2006.
In the late 1990s and early 2000s, several clinical trials raised safety concerns regarding the use of ESAs for particular anemic populations. In 1998, the Normal Hematocrit Study tested the efficacy of ESAs on anemia patients with pre-existing heart disease. The study was terminated because the test group experienced statistically significant higher rates of blood clotting. In 2003 and early 2004, two trials -- ENHANCE and BEST -- tested ESAs on cancer patients in Europe. The ENHANCE trial showed shorter progression-free survival and shorter overall survival of head and neck cancer patients for the ESA group than the placebo group. The BEST trial was terminated after four months because breast cancer patients in the group taking epoetin alfa had a higher rate of death than those in the placebo group.
ENHANCE and BEST did not test the safety of ESAs for the specific uses and doses for which they had been approved in the United States. In March 2004, the FDA published notice in the Federal Register that the Oncology Drug Advisory Committee (" ODAC" ), an FDA-sponsored group of oncology experts, would convene in May 2004 to discuss safety concerns about Aranesp. In April, before the ODAC meeting, an Amgen spokesperson stated during a conference call with investors, analysts, and plan participants that " the focus [of the ODAC meeting] was not on Aranesp" and that " the safety for Aranesp has been comparable to placebo."
During its two-day meeting with ODAC, the FDA urged Amgen to conduct further clinical trials to test the safety of ESAs for uses that had already been approved by the FDA. Amgen made a presentation at the meeting outlining what it called the " Amgen Pharmacovigilance Program," consisting of five ongoing or planned clinical trials testing Aranesp " in different tumor treatment settings." Amgen's Vice President for Oncology Clinical Development described the Amgen program as the " responsible and credible approach to definitively resolv[e] the questions raise[d]" by the FDA.
One of the trials under Amgen's program was the Danish Head and Neck Cancer Group (" DAHANCA" ) 10 Trial. The DAHANCA 10 Trial tested whether high doses of Aranesp could help shrink tumors in patients receiving radiation therapy for head and neck cancer. On October 18, 2006, DAHANCA investigators temporarily halted the study " due to information about potential unexpected negative effects." Amgen was informed of the temporary halt of the study on or near that day. Amgen did not disclose that the DAHANCA 10 Trial had been temporarily halted.
An analysis of the halted DAHANCA 10 Trial was completed on November 28, 2006. The principal investigator reported that " [b]ased on these outcome results the DAHANCA group concluded that the likelihood of a reverse outcome, i.e. that Aranesp would be significantly better than in control[,] was almost non-existing." The
DAHANCA 10 Trial was permanently terminated on December 1, 2006. DAHANCA investigators concluded that " there is a small but significant poor outcome in the patients treated with Aranesp" in that tumor growth was worse for patients who took Aranesp compared to patients who did not. Amgen was informed in December 2006 that the study had been permanently terminated.
Another clinical trial, CHOIR, raised additional safety concerns about ESAs. The CHOIR trial investigated the safety of epoetin alfa (EPOGEN) when used to treat chronic kidney disease patients. The safety monitoring board for CHOIR terminated the trial when a higher incidence of death and cardiovascular hospitalization was observed among epoetin alfa users. Yet another clinical trial, CREATE, tested the benefit provided by Roche Pharmaceuticals's ESA in raising hemoglobin levels in patients with chronic kidney disease. On November 16, 2006, Roche announced that the results of the CREATE trial " clearly show that there is no additional cardiovascular benefit from treating to higher hemoglobin levels in this patient group."
On November 20, Amgen posted a public statement responding to the CHOIR and CREATE trials. Amgen wrote, " A very substantial body of evidence, developed over the past 17 years, demonstrates that anemia associated with chronic kidney disease can be treated safely and effectively with EPOGEN and Aranesp when administered according to the Food and Drug Administration (FDA)-approved dosing guidelines." Two weeks later, Amgen issued a press release to correct " what the company believes are misleading and inaccurate news reports regarding the use of its drugs." Amgen reiterated, " EPOGEN and Aranesp are effective and safe medicines when administered according to the Food and Drug Administration (FDA) label."
Amgen also conducted its own clinical trial, the " 103 Study." The 103 Study tested Aranesp in 939 patients with anemia secondary to cancer. The FDA later described the 103 Study as " demonstrat[ing] significantly shorter survival rate[s] in cancer patients receiving ESAs as compared to th[o]se receiving transfusion support." However, during a January 2007 conference call, an Amgen representative described the 103 Study as not demonstrating a " statistically significant adverse [e]ffect of Aranesp on overall mortality in this patient population." He said that " the risk benefit ratio for Aranesp in these extremely ill patients with anemia secondary to malignancy is, at best, neutral and perhaps negative." During what may have been the same conference call, discussing Amgen's fourth-quarter earnings on January 25, an Amgen representative stated, in response to concerns expressed about the 103 Study, that " we have a well established risk benefit profile."
During a February 16, 2007, investor conference call, defendant Kevin Sharer, Amgen's President, Chief Executive Officer, and Chairman of the Board, stated, " We strongly believe, as we have consistently stated, that Aranesp and EPOGEN are safe and effective medicines when used in accordance with label indications." During a March conference call, defendant Sharer reiterated, " When we look at the totality of data, we believe our products are safe and effective when used on-label." On March 9, 2007, Amgen posted a statement on the company website available to plan participants under the title " Amgen's Statement on the Safety of Aranesp (darbepoetin alfa) and EPOGEN (Epoetin alfa)" :
Aranesp (darbepoetin alfa) and EPOGEN (Epoetin alfa) have favorable risk/benefit profiles in approximately four million patients with chemotherapy-induced anemia or CKD when administered according to the FDA-approved dosing guidelines.
Amgen engaged in extensive marketing, encouraging both on- and off-label uses of its ESAs. Amgen trained its sales representatives to ask questions that steered doctors to discussions about off-label uses. In an Amgen sales personnel manual, Amgen gave an " expanded list" of " excellent questions" to ask doctors in order to move the discussions toward off-label uses. Examples include, " What is keeping you from using Aranesp in all your MDS/HIV/CIA patients?" MDS is myelodysplastic syndrome, an illness often resulting in anemia. The FDA has never approved Aranesp to treat MDS or HIV patients.
Amgen created a speakers program in which Amgen paid for dinners at which " expert" speakers talked to physicians and other providers about off-label uses for Aranesp. Speakers program events were not accredited as continuing medical education seminars conducted by an independent medical association. Amgen paid not only the speakers but also the doctors and other medical providers who attended the events. The ...