Key Supreme Court Cases From the 2019-20 Term and a Look Ahead to the 2020-21 Term

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Securities Law

Mr. Marcus then went on to discuss the Court’s per curiam dismissal and remand in Retirement Plans Committee of IBM v. Jander, 140 S. Ct. 592 (2020), regarding the intersection of the securities laws and the Employee Retirement Income Security Act (ERISA). Mr. Marcus noted that despite the Court not reaching a decision in the matter, its per curiam opinion and concurrences address important issues. Employee stock retirement plans allow employees to invest in their company’s stock. Because the fiduciaries of these plans are typically corporate employees, they sometimes acquire inside information about the company that would counsel them to take certain actions, such as disclosing the inside information or refraining from buying further company stock. In Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), the Court held that, to allege that fiduciaries of an employment stock ownership plan violated ERISA by not acting on inside information, a plaintiff must plausibly allege an alternative action that (1) the fiduciaries could have taken that would have been consistent with the securities laws and (2) a prudent fiduciary would not have viewed as more likely to harm the fund than to help it.

Jander was poised to deal with the second prong of Dudenhoeffer, namely whether plaintiffs could make generalized allegations of harm from a failure to disclose inside information to satisfy the more-harm-than-good standard, but instead evolved into a reconsideration of Dudenhoeffer’s place within the framework of the securities laws. In their brief-ing on the merits, the fiduciaries argued that ERISA could not impose a duty on them to act on inside information. The government, presenting the views of the SEC and Department of Labor, argued that the duty to act on inside information was very narrow and would only arise where the securities laws would mandate disclosure. Because these arguments were not presented in the lower courts, the Supreme Court remanded the action to the U.S. Court of Appeals for the Second Circuit. In a concurrence, Justice Kagan wrote that these new arguments were inconsistent with the Court’s holding in Dudenhoeffer that presupposed there is a duty to act on inside information in certain circumstances. Justice Gorsuch, separately concurring, expressed his view that a fiduciaries who learn information in their capacity as corporate officers can never have a duty to disclose under ERISA. Asked about how to interpret the Court’s remand, Mr. Marcus said he believed that the Court’s decision signals that it is receptive to reconsidering aspects of Dudenhoeffer.