Steve Harris v. Amgen, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

STEVE HARRIS; DENNIS F. RAMOS, No. 10-56014

AKA Dennis Ramos; DONALD

HANKS; JORGE TORRES; ALBERT D.C. No.

CAPPA , On Behalf of Themselves 2:07-cv-05442-

and All Others Similarly Situated, PSG-PLA

Plaintiffs - Appellants,

v. OPINION

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

2 HARRIS V . AMGEN

BENEFITS COMMITTEE; AMGEN

FIDUCIARY COMMITTEE,

Defendants.

Appeal from the United States District Court

for the Central District of California

Philip S. Gutierrez, District Judge, Presiding

Argued and Submitted

February 17, 2012—Pasadena, California

Filed June 4, 2013

Before: Jerome Farris and William A. Fletcher, Circuit

Judges, and Edward R. Korman, Senior District Judge.*

Opinion by Judge W. Fletcher

*

The Honorable Edward R. Korman, Senior United States District Judge

for the Eastern District of New York, sitting by designation.

HARRIS V . AMGEN 3

SUMMARY**

ERISA

Reversing the dismissal of an ERISA class action brought

by current and former employees of Amgen, Inc., and an

Amgen subsidiary, the panel held that a presumption of

prudence did not apply and that, in the absence of the

presumption, the plaintiffs sufficiently alleged violation of

defendants’ fiduciary duties regarding two employer-

sponsored pension plans.

Agreeing with the Second Circuit, the panel concluded

that the plan terms did not require or encourage the defendant

fiduciaries to invest primarily in employer stock.

Accordingly, the presumption of prudence articulated in

Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir.

2010), did not apply to a claim that defendants acted

imprudently and 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 due to material

omissions and misrepresentations, as well as illegal off-label

sales. The panel held that, in the absence of the presumption,

the first amended class action consolidated complaint stated

a claim for violation of the duty of care.

The panel also held that the plaintiffs sufficiently alleged

that defendants violated their duties of loyalty and care by

failing to provide material information to plan participants

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

4 HARRIS V . AMGEN

about investment in the Amgen Common Stock Fund. The

panel stated that defendants’ duties of loyalty and care to plan

participants under ERISA, with respect to company stock,

were not less than the duties they owed the general public

under securities laws. The panel held that the plaintiffs, like

other investors in publicly traded stock, could rely on a

rebuttable presumption of reliance based on the “fraud-on-

the-market” theory.

Finally, the panel held that Amgen was an adequately

alleged fiduciary of the Amgen Plan.

COUNSEL

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.

HARRIS V . AMGEN 5

OPINION

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 an ERISA class action 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 Amgen as a defendant from the suit on the

ground that it 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,

it dismissed on the ground that defendants did not violate

their fiduciary duties.

We reverse. We conclude that the presumption of

prudence does not apply, and that, in the absence of the

6 HARRIS V . AMGEN

presumption, plaintiffs have sufficiently alleged violation of

the defendants’ fiduciary duties. We further conclude that

Amgen is an adequately alleged fiduciary of the Amgen Plan.

I. Background

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 (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.

HARRIS V . AMGEN 7

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,

8 HARRIS V . AMGEN

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.”

HARRIS V . AMGEN 9

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

10 HARRIS V . AMGEN

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.” 103 Study tested Aranesp in 939 patients with

anemia secondary to cancer. The FDA later described the

HARRIS V . AMGEN 11

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.

12 HARRIS V . AMGEN

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 $1,000 payments to physician attendees were

“paid from [Amgen’s] marketing budget.”

Amgen educated medical providers about the profit they

could obtain by prescribing its ESAs. Before January 1,

2005, Medicare calculated drug reimbursement rates based on

the average wholesale price (“AWP”) of drugs. Medical

providers could purchase Amgen’s ESAs at a price lower

than the AWP, but could charge Medicare the AWP. Amgen

created spreadsheets and other tools to help providers

calculate the profit. Amgen also encouraged doctors to use

its ESAs inefficiently. For example, it encouraged doctors to

deliver Epogen intravenously rather than subcutaneously,

because an intravenous delivery of the drug requires a

substantially larger dose to achieve the same effect.

HARRIS V . AMGEN 13

Amgen marketing efforts were successful. For example,

Amgen’s worldwide sales of Aranesp increased fourteen

percent during the first quarter of 2007 compared to the same

quarter in 2006. Amgen told investors on several occasions

that its marketing practices were proper. In public SEC

filings, Amgen stated that it marketed its products only for

on-label uses. In December 2006, in response to negative

publicity about off-label uses, Amgen issued a press release

“intended to clarify Amgen’s position on the use of EPOGEN

and Aranesp and to correct what the company believes are

misleading and inaccurate news reports regarding the use of

its drugs.” The company clarified that “Amgen only

promotes the use of EPOGEN and Aranesp consistent with

the FDA label.” On a January 2007 conference call, Amgen

stated that “our promotion [of EPOGEN] has always been

strictly according to our label, we do not anticipate a major

shift in clinical practice.”

In February 2007, The Cancer Letter published an article

entitled “Amgen Didn’t Tell Wall Street About Results of

[DAHANCA] Study.” The article reported that the

DAHANCA trial had been temporarily halted due to the

“significantly inferior therapeutic outcome from adding

Aranesp to radiation treatment of patients with head and neck

cancer.” On February 23, the Associated Press announced

that the USP DI, an influential drug reference guide, had

delisted Aransep as a treatment for anemia in cancer patients

not undergoing chemotherapy. On February 27, the New

York Times published an article stating:

New studies are raising questions about

whether drugs that have been used by millions

of cancer patients might actually be harming

them. The drugs, sold by Amgen, Roche, and

14 HARRIS V . AMGEN

Johnson & Johnson, are used to treat anemia

caused by chemotherapy and meant to reduce

the need for blood transfusions and give

patients more energy. But the new results

suggest that the drugs may make the cancer

itself worse. . . . [S]ome cancer specialists and

securities analysts say the new information

may make doctors more cautious in using the

drugs, which have combined sales for the

three companies exceeding $11 billion and

have been heavily promoted through efforts

that include television commercials.

On March 9, the FDA mandated a “black box” warning

for off-label use of Aranesp and Epogen. A black box

warning is the strongest warning the FDA can require. Cf.

21 C.F.R. § 201.57(c)(1) (2012). The black box warning

read:

Recently completed studies describe an

increased risk of death, blood clots, strokes,

and heart attacks in patients with kidney

failure where ESAs were given at higher than

recommended doses. In other studies, more

rapid tumor growth occurred in patients with

head and neck cancer who received these

higher doses. In studies where ESAs were

given at recommended doses, an increased

risk of death was reported in patients with

cancer who were not receiving chemotherapy

and an increased risk of blood clots was

observed in patients following orthopedic

surgery.

HARRIS V . AMGEN 15

On March 21, 2007, two House of Representatives

subcommittees opened an investigation into the safety profile

of Aranesp and Epogen as well as into Amgen’s off-label

marketing practices. The Chairs of those two subcommittees

“ordered” Amgen to halt direct-to-consumer advertising and

physician incentives pending further FDA action. On May 8,

the FDA noted on its website that Aranesp and Epogen “were

clearly demonstrated to be unacceptable” in high doses. On

May 10, ODAC reconvened and voted to restrict the use of

ESAs, to expand existing warnings, and to require ESA

manufacturers to conduct further studies.

Defendant Sharer, Amgen’s President and CEO, told a

Wall Street Journal reporter in an interview that 2007 was the

“most difficult [year] in [Amgen’s] history.” According to

Sharer, there was an “unexpected $800 million to $1 billion

hit to operating income due to safety concerns” about

Aranesp. Sales of Aranesp decreased by fifty percent.

Amgen stock, and thus the Amgen Common Stock Fund,

lost significant value as a result of these safety concerns. The

class period runs from May 4, 2005, to March 9, 2007.

Amgen common stock was at its high of $86.17 on

September 19, 2005. On February 16, 2007, when The

Cancer Letter published its article revealing that Amgen had

not been forthcoming about the result of the DAHANCA 10

Trial, Amgen stock sold for $66.73. When ODAC voted to

restrict the use of ESA drugs, on or shortly after May 10, the

price of Amgen stock dropped to $57.33, the class period

low. Between September 19, 2005 and the ODAC vote, the

price of Amgen stock dropped $28.83, or thirty-three percent.

On August 20, 2007, plaintiffs Steve Harris, a participant

in the Amgen Plan, and Dennis Ramos, a participant in the

16 HARRIS V . AMGEN

AML Plan, filed a complaint alleging that defendants

breached their fiduciary duties under ERISA. The district

court dismissed Harris’s claims for lack of standing, on the

ground that Harris no longer owned assets in the Amgen Plan

on the date he filed his complaint. Harris v. Amgen, Inc.,

573 F.3d 728, 731 (9th Cir. 2009). The court dismissed

Ramos’s claims without leave to amend on the ground that he

had failed to identify the proper fiduciaries of the AML Plan.

Id. We reversed, holding that Harris had standing as a

“participant” of the Amgen Plan during the Class Period, and

that Ramos should have been allowed to amend the

complaint. Id.

The complaint now at issue is the First Amended Class

Action Consolidated Complaint (“FAC”), filed on March 23,

2010, by five plaintiffs, including Harris and Ramos. The

FAC alleges six counts of violation of fiduciary duty under

ERISA against Amgen, AML, nine Directors of the Amgen

Board (“the Directors”), and the Plans’ Fiduciary Committees

and their members. The district court dismissed the FAC

against Amgen on the ground that it was not a fiduciary. It

dismissed the FAC against the remaining defendants under

Rule 12(b)(6) for failure to state a claim.

In a separate class action simultaneously pending before

the same district judge, investors in Amgen common stock

claimed violations of federal securities laws based on the

same alleged facts as in the ERISA action now before us. In

a careful thirty-five page order, the district court concluded

that the investors had sufficiently alleged material

misrepresentations and omissions, scienter, reliance, and

resulting economic loss to state claims under Sections 10(b)

and 20(a) of the 1934 Exchange Act. See 15 U.S.C.

§§ 78j(b), 78t(a). The district court certified a class based on

HARRIS V . AMGEN 17

the facts alleged in the complaint. We affirmed the district

court’s class certification in Conn. Ret. Plans & Trust Funds

v. Amgen, Inc., 660 F.3d 1170 (9th Cir. 2011). The Supreme

Court affirmed in Amgen, Inc. v. Conn. Ret. Plans & Trust

Funds, __ U.S.__, 133 S. Ct. 1184 (2013).

For the reasons that follow, we reverse the district court’s

decision in the ERISA case before us.

II. Standard of Review

“We review de novo the district court’s grant of a motion

to dismiss under Rule 12(b)(6), accepting all factual

allegations in the complaint as true and construing them in

the light most favorable to the nonmoving party.” Skilstaf,

Inc. v. CVS Caremark Corp., 669 F.3d 1005, 1014 (9th Cir.

2012). “[C]ourts must consider the complaint in its entirety,

as well as other sources courts ordinarily examine when

ruling on Rule 12(b)(6) motions to dismiss, in particular,

documents incorporated into the complaint by reference, and

matters of which a court may take judicial notice.” Tellabs,

Inc., 551 U.S. at 322. We then determine whether the

allegations in the complaint and information from other

permissible sources “plausibly suggest an entitlement to

relief.” Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009); Starr v.

Baca, 652 F.3d 1202, 1216 (9th Cir. 2011) (quoting Iqbal).

III. Discussion

Congress enacted ERISA to provide “minimum standards

. . . assuring the equitable character of [employee benefit]

plans and their financial soundness.” 29 U.S.C. § 1001(a).

These minimum standards regulate the “conduct,

responsibility, and obligation for fiduciaries of employee

18 HARRIS V . AMGEN

benefit plans . . . .” Id. § 1001(b). “Congress painted with a

broad brush, expecting the federal courts to develop a ‘federal

common law of rights and obligations’ interpreting ERISA’s

fiduciary standards.” Bins v. Exxon Co. U.S.A., 220 F.3d

1042, 1047 (9th Cir. 2000) (en banc) (citation omitted).

The Supreme Court has established certain interpretive

rules specific to ERISA’s fiduciary duties. These duties,

including those governing fiduciary status, “draw much of

their content from the common law of trusts, the law that

governed most benefit plans before ERISA’s enactment.”

Varity Corp. v. Howe, 516 U.S. 489, 496 (1996). ERISA

reflects a “congressional determination that the common law

of trusts did not offer completely satisfactory protection.” Id.

at 497. The law of trusts “often . . . inform[s]” but does “not

necessarily determine the outcome of” an interpretation of

ERISA’s fiduciary duties. Id. The common law of trusts

offers “only a starting point” that must yield to the “language

of the statute, its structure, or its purposes,” if necessary. Id.

We first address the sufficiency of the FAC against each

properly named fiduciary. We then address whether the

plaintiffs have adequately alleged that Amgen is a fiduciary.

A. Sufficiency of the FAC

The district court dismissed all six counts of the FAC

under Rule 12(b)(6). Plaintiffs have appealed only the

dismissal of Counts II through VI.

1. Count II

Plaintiffs allege in Count II that defendants acted

imprudently, and thereby violated their duty of care under

HARRIS V . AMGEN 19

29 U.S.C. § 1104(a)(1)(B), 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. Defendants contend that they are

entitled to a “presumption of prudence” under Quan v.

Computer Sci. Corp., 623 F.3d 870 (9th Cir. 2010). They

contend that if this presumption is applied, their action in

continuing to provide Amgen stock as an investment

alternative was prudent. Defendants contend, further, that

their action was prudent even if the presumption of prudence

does not apply.

a. Presumption of Prudence

In Quan, we agreed with several of our sister circuits that

the “presumption of prudence” applies to certain investment

decisions by ERISA fiduciaries. See 623 F.3d at 880–81

(citing Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995)); see

also In re Citigroup ERISA Litig., 662 F.3d 128, 138 (2d Cir.

2011); Kirschbaum v. Reliant Energy, Inc., 526 F.3d 243, 254

(5th Cir. 2008); Kuper v. Iovenko, 66 F.3d 1447, 1457 (6th

Cir. 1995). The question presented in Quan was whether the

prudent investor standard that is normally applicable to

ERISA fiduciaries should apply to fiduciaries of plans that

invest in stock of an employee’s company.

The basic problem may be seen in the text of ERISA

itself. In relevant part, it provides:

(a) Prudent man standard of care

(1) fiduciary shall discharge his duties with

respect to a plan solely in the interest of the

participants and beneficiaries and —

20 HARRIS V . AMGEN

...

(B) with the care, skill, prudence, and

diligence under the circumstances then

prevailing that a prudent man acting in a

like capacity and familiar with such

matters would use in the conduct of an

enterprise of a like character and with like

aims;

(C) by diversifying the investments of the

plan so as to minimize the risk of large

losses, unless under the circumstances it is

clearly prudent not to do so . . .

...

(2) In the case of an eligible individual

account plan . . . , the diversification

requirement of paragraph (1)(C) and the

prudence requirement (only to the extent that

it requires diversification) of paragraph (1)(B)

is not violated by acquisition or holding of

qualifying employer real property or

qualifying employer securities . . . .

29 U.S.C. § 1104. On the one hand, Congress desired to

protect plan investments of employees. It therefore specified

that the prudent man standard of care requires a fiduciary to

diversify investments held by a plan. See id. § 1104(a)(1)(B)

and (C). On the other hand, Congress desired to permit

employers to provide loyalty incentives to their employees.

It therefore specified that the prudent man diversification

requirement is not violated when an employer’s stock is

HARRIS V . AMGEN 21

acquired or held in an employee’s individual account plan.

See id.§ 1104(2). However, Congress did not specify that

anything other than a failure to diversify is exempt from the

prudent man standard of care.

For reasons we explained in detail in Quan, we adopted

the presumption of prudence, first articulated by the Third

Circuit in Moench, to reconcile the tension between

Congress’ two desires. We held that a fiduciary is entitled to

a presumption that he has been a prudent investor “when plan

terms require or encourage the fiduciary to invest primarily

in employer stock.” Quan, 623 F.3d at 881 (emphasis added).

We applied the Moench presumption of prudence to ERISA

stock ownership plans, whether they are “eligible individual

account plans” (“EIAPs”) or “employee stock ownership

plans” (“ESOPs”). Id.; see also 29 U.S.C. § 1107(d)(3)(A),

(d)(6). We held that the terms of the plan at issue in Quan

satisfied the “required or encouraged” criterion of Moench

because the plaintiffs had not shown “that the Committee had

discretion to halt purchases of [the employer’s] common

stock or to invest Plan assets that were required to be invested

in the [employer’s] stock fund in other assets instead.”

623 F.3d at 884.

The Amgen and AML Plans are EIAPs. The parties agree

that the question before us is whether the Plans “required or

encouraged” the fiduciaries to invest in Amgen stock. To

answer that question, we look to the written terms of the

Plans. Because the terms of the Plans differ in only

immaterial respects, we quote only from the Amgen Plan.

Article 6.1 of the Amgen Plan provides:

22 HARRIS V . AMGEN

All contributions to the Plan made pursuant to

Articles 4 and 5 shall be paid to the Trust fund

established under the Plan. All such

contributions shall be invested as provided

under the terms of the Trust Agreement,

which may include provision for the

separation of assets into separate Investment

Funds, including a Company Stock Fund.

(emphasis added). The Summary Plan Description specifies

twenty-five separate “Investment Funds” in which

participants can invest their money. The twenty-fourth fund

on the list is a “Company Stock Fund,” referred to in the Plan

Description as the “Amgen Common Stock Fund.” The

Amgen Common Stock Fund holds only Amgen common

stock. Article 6.2 of the Plan provides that plan participants

may invest no more than fifty percent of their funds in the

Company Stock Fund. If a plan participant fails to designate

a fund, the default is an investment in “the Fidelity Freedom

Fund that is appropriate based on the Participant’s date of

birth.”

There is no language in the Plans requiring that a

Company Stock Fund be established as an available

investment for plan participants. Cf. Restatement (Second) of

Trusts, § 227 cmt. t (“If [a trustee] is merely authorized to

make certain investments, he has a privilege but not a duty to

make such investments.”). Nor is there language in the Plans

requiring that a Company Stock Fund, once established, be

continued as an available investment. Defendants therefore

do not contend that the Plans require them to provide a

Company Stock Fund as an investment alternative. They

contend only that the Plans encourage them to do so. If

defendants are right that the terms of the Plans encourage

HARRIS V . AMGEN 23

them to invest in a Company Stock Fund, they are entitled

under Quan to a presumption of prudence.

Defendants make four arguments. None is persuasive.

First, defendants point out that the Plans specifically refer to

a Company Stock Fund as a permissible investment, but

specifically refer to no other company’s stock. Defendants

are correct in their description of the Plans. But an explicit

statement that plan fiduciaries may offer a Company Stock

Fund as an investment to participants does not tell us that

they were encouraged to do so within the meaning of the

presumption of prudence. Under the common law of trusts,

“[a]n authorization by the terms of the trust to invest in a

particular type of security does not mean that any investment

in securities of that type is proper. The trustee must use care

and skill and caution in making the selection.” Restatement

(Second) of Trusts, § 227 cmt. v. We agree with the Second

Circuit, which recently concluded that almost identical plan

language does not give rise to the presumption of prudence.

In Taveras v. UBS AG, 708 F.3d 436 (2d Cir. 2013), the court

wrote:

[I]t is likely that many EIAPs will, when

possible, provide their fiduciaries a

discretionary means by which to offer plan

participants the ability to invest in the

employer’s stock. If the presumption of

prudence was triggered in every instance

where the EIAP plan document, as here,

simply (1) named and defined the employer’s

stock in the plan document’s terms, and (2)

allowed for the employer’s stock to be offered

by the plan’s fiduciaries on a discretionary

basis to plan participants, then we are hard

24 HARRIS V . AMGEN

pressed to imagine that there exists any EIAP

that merely offered the option to participants

to invest in their employer’s stock whose

fiduciaries would not be entitled to the

presumption of prudence.

Id. at 445 (emphasis in original).

Second, defendants point out that the Plans contain

provisions regulating the purchase, transfer, and distribution

of Amgen stock, as well as providing voting rights to plan

participants holding such stock. Here, too, defendants are

correct in their description of the Plans, but incorrect in the

conclusion they draw. Some of the provisions to which

defendants point discourage rather than encourage investment

in Amgen stock. For example, a participant’s holding in the

Amgen Common Stock Fund may not exceed fifty percent of

a participant’s total holdings. Holdings in other funds are not

subject to any maximum percentage. Plans also restrict the

frequency and timing of the sale of Amgen stock in order to

comply with Section 16(b) of the Securities Exchange Act of

1934. The remaining provisions on which Amgen relies are

simply irrelevant to the issue before us.

Third, defendants state in their brief that the record

“clearly indicates that it was the company’s ‘longstanding

practice and intent that the inclusion of Amgen Inc. common

stock is part of the Plan design.’” The language quoted by

defendants comes from a summary description of an

amendment to the AML Plan that took effect in 2008, after

this lawsuit was filed. Defendants do not quote in their brief

the actual language of the amendment which they contend

“clearly indicates” the “longstanding practice and intent” of

the Plans. The language of the 2008 amendment is:

HARRIS V . AMGEN 25

The Company Stock Fund will be an

Investment Fund under the Plan. The

Fiduciary Committee shall designate other

Investment Funds from time to time for

investment of Participant’s Accounts,

provided that the Fiduciary Committee may

not eliminate the Company’s Stock Fund as

an Investment Fund.

(emphasis added). As we noted above, the earlier language

(in effect during the class period) provides only that a

Company Stock Fund “may” be included as an available

investment. The language in the 2008 amendment provides

that a Company Stock Fund “will be” an available

investment, and further specifies that this Fund “may not [be]

eliminate[d].” This new language hardly reflects a

“longstanding practice and intent.”

Fourth, defendants contend that the Plans would have to

have been amended in order to make Amgen stock

unavailable to plan participants. We see nothing in the Plans

to support defendants’ contention.

We conclude that defendants were neither required nor

encouraged by the terms of the Plans to invest in Amgen

stock, and that they are not entitled to a presumption of

prudence. The normal prudent man standard therefore

applies to defendants’ investment decisions as fiduciaries

under the Plans.

b. Prudent Man Standard of Care

ERISA requires that a fiduciary perform duties under a

plan “with the care, skill, prudence, and diligence under the

26 HARRIS V . AMGEN

circumstances then prevailing that a prudent man acting in a

like capacity and familiar with such matters would use in the

conduct of an enterprise of a like character and with like

aims.” 29 U.S.C. § 1104(a)(1)(B). This standard governs a

fiduciary’s decision to allow investment of plan assets in

employer stock. Quan, 623 F.3d at 878–79. “This is true,

even though the duty of prudence may be in tension with

Congress’s expressed preference for plan investment in the

employer’s stock.” Id. at 879 (internal quotation marks

omitted). A “myriad of circumstances” surrounding

investments in company stock could support a violation of the

prudence requirement. In re Syncor, 516 F.3d at 1102. “‘A

court’s task in evaluating a fiduciary’s compliance with this

standard is to inquire whether the individual trustees, at the

time they engaged in the challenged transactions, employed

the appropriate methods to investigate the merits of the

investment and to structure the investment.’” Quan, 623 F.3d

at 879 (quoting Wright, 360 F.3d at 1097) (alterations and

quotation marks omitted).

In Syncor, we held that “[a] violation [of the prudent man

standard] may occur where a company’s stock . . . was

artificially inflated during that time by an illegal scheme in

which the fiduciaries knew or should have known, and then

suddenly declined when the scheme was exposed.” In re

Syncor, 516 F.3d at 1102. In Syncor, the company was a

fiduciary that knowingly made cash bribes to doctors in

Taiwan in violation of the Foreign Corrupt Practices Act.

Upon disclosure of these illegal payments, Syncor’s stock

price lost nearly half its value. “Despite these illegal

practices, the [fiduciaries] allowed the Plan to hold and

acquire Syncor stock when they knew or had reason to know

of Syncor’s foreign bribery scheme.” Id. at 1098. We held

on appeal from summary judgment that “there is a genuine

HARRIS V . AMGEN 27

issue whether the fiduciaries breached the prudent man

standard by knowing of, and/or participating in, the illegal

scheme while continuing to hold and purchase artificially

inflated Syncor stock for the ERISA Plan.” Id. at 1103.

Count II alleges that defendants knew or should have

known about material omissions and misrepresentations, as

well as illegal off-label sales, that artificially inflated the

price of the stock while, at the same time, they continued to

offer the Amgen Common Stock Fund as an investment

alternative to plan participants. The district court held that,

even without the assistance of the presumption of prudence,

defendants were entitled to dismissal of Count II under Rule

12(b)(6).

Defendants make five arguments in favor of dismissal.

Again, none is persuasive. First, defendants contend that

investments in Amgen stock during the class period were not

imprudent “because Amgen was not even remotely

experiencing severe financial difficulties during that time,

and remains a strong, viable, and profitable company today.”

This argument is beside the point. Amgen was not

“experiencing severe financial difficulties” during the

relevant time period in part because of the very actions about

which plaintiffs are now complaining, that were producing

large but unsustainable profits. Further, Amgen may now be

a “strong, viable, and profitable company,” but that does not

mean that the price of Amgen stock was not artificially

inflated during the class period.

Second, defendants contend that the decline in price in

Amgen stock was insufficient to show an imprudent

investment by the fiduciaries. They write, “[A]s the District

Court correctly held, this ‘relatively modest and gradual

28 HARRIS V . AMGEN

decline in the stock price’ does not render the investment

imprudent.” As an initial matter, we note that the proper

question is not whether the investment results were

unfavorable, but whether the fiduciary used “‘appropriate

methods’” to investigate the merits of the transaction. Quan,

623 F.3d at 879 (quoting Wright, 360 F.3d at 1097); see also

Kirschbaum, 526 F.3d at 254 (explaining that the “test of

prudence is one of conduct, not results”); Bunch v. W.R.

Grace & Co., 555 F.3d 1, 7 (1st Cir. 2009) (same). But

defendants’ argument fails even on its own terms. Their

argument is foreclosed by the district court’s decision in the

federal securities class action against Amgen based on the

same alleged sequence of events. See Conn. Ret. Plans &

Trust Funds v. Amgen, Inc., 660 F.3d 1170 (9th Cir. 2011),

aff’d Amgen Inc. v. Conn. Ret. Plans & Trust Funds,

__ U.S.__, 133 S. Ct. 1184 (2013). If the alleged

misrepresentations and omissions, scienter, and resulting

decline in share price in Connecticut Retirement Plans were

sufficient to state a claim that defendants violated their duties

under Section 10(b), the alleged misrepresentations and

omissions, scienter, and resulting decline in share price in this

case are sufficient to state a claim that defendants violated

their more stringent duty of care under ERISA.

Third, quoting Kirschbaum, 526 F.3d at 253, 256,

defendants contend that

[w]hen, like here, retirement plans are at

issue, courts must be mindful of “the long-

term horizon of retirement investing, as well

as the favored status Congress has granted to

employee stock investments in their own

companies.” . . . [H]olding fiduciaries liable

for continuing to offer the option to invest in

HARRIS V . AMGEN 29

declining stock would place them in an

“untenable position of having to predict the

future of the company stock’s performance.

In such a case, [a fiduciary] could be sued for

not selling if he adhered to the plan, but also

sued for deviating from the plan if the stock

rebounded.”

Defendants’ reliance on Kirschbaum is misplaced. The court

wrote in that case, “The Plan documents, considered as a

whole, compel that the Common Stock Fund be available as

an investment option for employee-participants.”

Kirschbaum, 526 F.3d at 249. The concerns expressed in

Kirschbaum have little bearing on the case before us. Here,

unlike in Kirschbaum, the fiduciaries of the Amgen and AML

Plans were under no such compulsion. They knew or should

have known that the Amgen Common Stock Fund was

purchasing stock at an artificially inflated price due to

material misrepresentations and omissions by company

officers, as well as by illegal off-label marketing, but they

nevertheless continued to allow plan participants to invest in

the Fund.

Fourth, quoting In re Computer Sciences Corp., ERISA

Litig., 635 F. Supp. 2d 1128, 1136 (C.D. Cal. 2009), aff’d

623 F.3d 870 (9th Cir. 2010), defendants contend that if the

Amgen Fund had been “remove[d] . . . as an investment

option,” this action “may have brought about ‘precisely the

result [P]laintiffs seek to avoid: a drop in the stock price.’”

It is unclear how much the price of Amgen stock would have

declined if the Amgen Common Stock Fund had been

removed as an investment option during the period when the

price was artificially inflated. Removing the Fund as an

investment option would not have meant liquidation of the

30 HARRIS V . AMGEN

Fund. It would have meant only that while the share price

was artificially inflated, plan participants would not have

been allowed to invest additional money, and that the Fund

would therefore not have purchased additional shares at the

inflated price. Given the relatively small number of Amgen

shares that would not have been purchased by the Fund in

comparison to the enormous number of actively traded

shares, it is extremely unlikely that this decrease in the

number of shares purchased, considered alone, would have

had an appreciable negative impact on the share price.

It is true that removing the Amgen Common Stock Fund

as an investment option would have sent a negative signal to

the wider investing public, and that such a signal may well

have caused a drop in the share price. But several factors

mitigate this effect. The efficient market hypothesis

ordinarily applied in stock fraud cases suggests that the

ultimate decline in price would have been no more than the

amount by which the price was artificially inflated. Further,

once the Fund was removed as an investment option,

employees would have been prevented from making

additional investments in the Fund while the price remained

artificially inflated. Finally, the fiduciaries’ obligation to

remove the Fund as an investment option was triggered as

soon as they knew or should have known that the share price

was artificially inflated. That is, defendants violated their

fiduciary duties under ERISA at more or less the same time

some of them violated their duties under the federal securities

laws. If the defendants had timely complied with their duties

under ERISA, there would have been little or no artificial

increase in the share price before the Fund was removed as an

investment option. In the actual event, however, defendants

continued to authorize the Fund as an investment option for

HARRIS V . AMGEN 31

a considerable time after they knew or should have known

that the share price was artificially inflated.

Fifth, defendants argue that “they could not have removed

the Amgen Stock Fund based on undisclosed alleged adverse

material information — a potentially illegal course of action.”

(emphasis in original). Defendants misunderstand the nature

of their duties under federal law. As we noted in Quan,

“[F]iduciaries are under no obligation to violate securities

laws in order to satisfy their ERISA fiduciary duties.” Quan,

623 F.3d at 882 n.8. The central problem in this case is that

Amgen officials, many of whom are defendants here, made

material misrepresentations and omissions in violation of the

federal securities laws. Compliance with ERISA would not

have required defendants to violate those laws; indeed,

compliance with ERISA would likely have resulted in

compliance with the securities laws. If defendants had

revealed material information in a timely fashion to the

general public (including plan participants), thereby allowing

informed plan participants to decide whether to invest in the

Amgen Common Stock Fund, they would have

simultaneously satisfied their duties under both the securities

laws and ERISA. See Cal. Ironworkers Field Pension Trust

v. Loomis Sayles & Co., 259 F.3d 1036, 1045 (9th Cir. 2001)

(“ERISA imposes upon fiduciaries a general duty to disclose

facts material to investment issues.”); Acosta v. Pac. Enter.,

950 F.2d 611, 619 (9th Cir. 1991) (holding that a fiduciary is

affirmatively required to “inform beneficiaries of

circumstances that threaten the funding of benefits”).

Alternatively, if defendants had made no disclosures but had

simply not allowed additional investments in the Fund while

the price of Amgen stock was artificially inflated, they would

not thereby have violated the prohibition against insider

32 HARRIS V . AMGEN

trading, for there is no violation absent purchase or sale of

stock.

We therefore conclude that plaintiffs have sufficiently

alleged that defendants have violated the duty of care they

owe as fiduciaries under ERISA.

2. Count III

Plaintiffs allege in Count III that defendants violated their

duty of loyalty and care under 11 U.S.C. §§ 1104(a)(1)(A)

and (B) by failing to provide material information to plan

participants about investment in the Amgen Common Stock

Fund. Defendants contend that they have limited obligations

under ERISA to disclose information to plan participants, and

that their disclosure obligations do not extend to information

that is material under the federal securities laws. Defendants

contend, further, that plaintiffs have not alleged detrimental

reliance by plan participants on defendants’ omissions and

misrepresentations. Finally, defendants contend that their

omissions and misrepresentations, if any, were not made in

their fiduciary capacity. For the reasons that follow, we

disagree.

To some extent, the analysis for Count II overlaps with

the analysis for Count III. We have already established that

we must analyze defendants’ duty of care without resort to

the presumption of prudence under Quan. We have also

established that there is no contradiction between defendants’

duty under the federal securities laws and ERISA. Indeed,

properly understood, these laws are complementary and

reinforcing.

HARRIS V . AMGEN 33

Defendants’ first contention is that they owe no duty

under ERISA to provide material information about Amgen

stock to plan participants who must decide whether to invest

in such stock. In other words, defendants contend that their

fiduciary duties of loyalty and care to plan participants under

ERISA, with respect to company stock, are less than the duty

they owe to the general public under the securities laws.

Defendants are wrong, as we made clear in Quan:

We have recognized [that] . . . “[a] fiduciary

has an obligation to convey complete and

accurate information material to the

beneficiary’s circumstance, even when a

beneficiary has not specifically asked for the

information.” Barker [v. Am. Mobil Power

Corp., 64 F.3d 1397, 1403 (9th Cir. 1995)].

“[T]he same duty applies to ‘alleged material

misrepresentations made by fiduciaries to

participants regarding the risks attendant to

fund investment.’” Edgar [v. Avaya Inc.,

503 F.3d 340, 350 (3d Cir. 2007)].

Quan, 623 F.3d at 886. We specifically endorsed the Third

Circuit’s definition of materiality in Quan. We wrote, “[A]

misrepresentation is ‘material’ if there was a substantial

likelihood that it would have misled a reasonable participant

in making an adequately informed decision about whether to

place or maintain monies in a particular fund.” Id. (quoting

Edgar, 503 F.3d at 350) (internal quotation marks omitted).

Defendants’ second contention is that plaintiffs have

failed to show that they relied on defendants’ material

omissions and misrepresentations. Defendants contend that

plaintiffs must show that they actually relied on the omissions

34 HARRIS V . AMGEN

and misrepresentations. It is well established under Section

10(b) that a defrauded investor need not show actual reliance

on the particular omissions or representations of the

defendant. Instead, as the Supreme Court explained in Erica

P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179

(2011), the investor can rely on a rebuttable presumption of

reliance based on the “fraud-on-the-market” theory:

According to that theory, “the market price of

shares traded on well-developed markets

reflects all publicly available information,

and, hence, any material misrepresentations.”

[Basic, Inc. v. Levinson, 485 U.S. 224, 246

(1988)]. Because the market “transmits

information to the investor in the processed

form of a market price,” we can assume, the

Court explained [in Basic], that an investor

relies on public misstatements whenever he

“buys or sells stock at the price set by the

market.” Id.[] at 244, 247.

Erica P. John Fund, 131 S. Ct. at 2185; see also Conn. Ret.

Plans & Trust, 133 S. Ct. 1184 (2013). We see no reason

why ERISA plan participants who invested in a Company

Stock Fund whose assets consisted solely of publicly traded

common stock should not be able to rely on the fraud-on-the-

market theory in the same manner as any other investor in

publicly traded stock.

Defendants’ final contention is that statements made by

defendants to the Securities and Exchange Commission were

not made in their fiduciary capacity, and therefore cannot be

considered in an ERISA suit for breach of fiduciary duty. We

do not think it matters whether defendants’ statements were

HARRIS V . AMGEN 35

made to the SEC in their corporate capacity, their fiduciary

capacity, or some other capacity. Irrespective of the capacity

in which the misleading statements were made, defendants

made them, and they were factored into the price of Amgen

stock. They may therefore be used to show that defendants

knew or should have known that the price of Amgen shares

was artificially inflated, and to show that plaintiffs

presumptively detrimentally relied on defendants’ statements

under the fraud-on-the-market theory.

3. Counts IV and V

The district court correctly concluded that Counts IV and

V are derivative of Counts II and III. Because we reverse the

district court’s dismissal of Counts II and III, we also reverse

its dismissal of Counts IV and V. See In re Gilead Sciences

Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

4. Count VI

Count VI alleges that defendants caused the Plans directly

or indirectly to sell or exchange property with a party-in-

interest, in violation of 29 U.S.C. § 1106(a). Specifically,

Count VI alleges that Amgen and AML are parties-in-interest

that concealed material information in order to inflate the

price of Amgen stock sold to the Plans. In relevant part,

29 U.S.C. § 1106(a)(1) provides,

A fiduciary with respect to a plan shall not

cause the plan to engage in a transaction, if he

knows or should know that such transaction

constitutes a direct or indirect –

36 HARRIS V . AMGEN

(A) sale or exchange, or leasing, of any

property between the plan and a party in

interest; . . .

(D) transfer to, or use by or for the

benefit of a party in interest, of any assets

of the plan[.]

A party in interest includes “any fiduciary” of a plan or “an

employer” of the plan beneficiaries. 29 U.S.C. § 1002(14).

Defendants did not argue in the district court that Count

VI fails to state a prohibited transaction claim under

§ 1106(a)(1). Nor do they raise this argument on appeal.

Instead, defendants argue that 29 U.S.C. § 1108(e) exempts

the sale of employer stock from the restrictions of

§ 1106(a)(1).

Section 1108(e) specifies that § 1106 does not prohibit the

purchase or sale of employer stock if, as relevant here, (1) the

sale price was the “price . . . prevailing on a national

securities exchange”; (2) no commission is charged for the

transaction, and (3) the plan is an EIAP. 29 U.S.C.

§§ 1107(d)(5), (e)(1), 1108(e).

In Howard v. Shay, 100 F.3d 1484, 1488 (9th Cir. 1996),

we held that because § 1108(e) is an affirmative defense, a

defendant has the burden to prove its applicability. We

explained, “A fiduciary who engages in a self-dealing

transaction pursuant to 29 U.S.C. § [1106(a)] has the burden

of proving that he fulfilled his duties of care and loyalty and

that the ESOP received adequate consideration [under

§ 1108(e)].” Id.; see also Marshall v. Snyder, 572 F.2d 894,

900 (2d Cir. 1978) (“The settled law is that in [prohibited

HARRIS V . AMGEN 37

self-dealing transactions] the burden of proof is always on the

party to the self-dealing transaction to justify its fairness

[under a statutory exception].”). Citing Howard, the Eighth

Circuit has held that a plaintiff need not plead in his

complaint that a transaction was not exempt under § 1108(e).

See Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 600–01

(8th Cir. 2009); see also Jones v. Bock, 549 U.S. 199, 211–12

(2007) (holding that a plaintiff need not plead the absence of

an affirmative defense, even a defense like exhaustion of

remedies, which is “mandatory”).

Because the existence of an exemption under § 1108(e) is

an affirmative defense, we can dismiss Count VI based on the

§ 1108(e) exemption only if the defense is “clearly indicated”

and “appear[s] on the face of the pleading.” 5B Charles Alan

Wright & Arthur R. Miller, Federal Practice & Procedure

§ 1357 (3d ed. 2004); see also Jones, 549 U.S. at 215 (citing

Wright & Miller for rule that affirmative defense must appear

on the face of the complaint). Here, we cannot say that the

face of the complaint clearly indicates the availability of a

§ 1108(e) defense.

B. Amgen as Properly Pled Fiduciary

Amgen argues that it is not a fiduciary under the Plan

because it has delegated its discretionary authority. “To be

found liable under ERISA for breach of the duty of prudence

and for participation in a breach of fiduciary duty, an

individual or entity must be a ‘fiduciary.’” Wright v. Or.

Metallurgical Corp., 360 F.3d 1090, 1101 (9th Cir. 2004). In

defining a fiduciary, ERISA says,

a person is a fiduciary with respect to a plan to

the extent (i) he exercises any discretionary

38 HARRIS V . AMGEN

authority or discretionary control respecting

management of such plan or exercises any

authority or control respecting management or

disposition of its assets . . . or (iii) he has any

discretionary authority or discretionary

responsibility in the administration of such

plan.

29 U.S.C. § 1002(21)(A). “We construe ERISA fiduciary

status ‘liberally, consistent with ERISA’s policies and

objectives.’” Johnson v. Couturier, 572 F.3d 1067, 1076 (9th

Cir. 2009) (quoting Ariz. State Carpenters Pension Trust

Fund v. Citibank, 125 F.3d 715, 720 (9th Cir. 1997)).

Whether a defendant is a fiduciary is a question of law we

review de novo. See Varity Corp. v. Howe, 516 U.S. 489, 498

(1996).

Under ERISA, a “named fiduciary” is “a fiduciary who is

named in the plan instrument.” 29 U.S.C. § 1102(a)(2). The

Amgen Plan provides that Amgen is “the ‘named fiduciary,’

‘administrator[,]’ and ‘plan sponsor’ of the Plan (as such

terms are used in ERISA).” ERISA grants a named fiduciary

broad authority to “control and manage the operation and

administration of the plan.” 29 U.S.C. § 1102(a)(1).

“Generally, if an ERISA plan expressly provides for a

procedure allocating fiduciary responsibilities to persons

other than named fiduciaries under the plan, the named

fiduciary is not liable for an act or omission of such person in

carrying out such responsibility.” Ariz. State Carpenters,

125 F.3d at 719–20 (citing 29 U.S.C. § 1105(c)(2)).

Amgen argues that it delegated authority to trustees and

investment managers. Section 15.1 of the Plan provides, “To

the extent that the Plan requires an action under the Plan to be

HARRIS V . AMGEN 39

taken by the Company [Amgen], the party specified in this

Section 15.1 shall be authorized to act on behalf of the

Company.” Section 15.1 says nothing about delegation to

trustees and investment managers. Rather, it explains that the

Fiduciary Committee has the authority, on behalf of the

Company, to “review the performance of the Investment

Funds . . . and make recommendations” and to “otherwise

control and manage the Plan’s assets.” In the absence of a

Fiduciary Committee, the Global Benefits Committee will

perform these tasks. Section 14.2 of the Plan governs the

relationship between Amgen (“the Company”) and the

trustees and managers. It provides:

The Trustee shall have the exclusive

authority and discretion to control and manage

assets of the Plan it holds in trust, except to

the extent that . . . the Company directs how

such assets shall be invested [or] the

Company allocates the authority to manage

such assets to one or more Investment

Managers. Each Investment Manager shall

have the exclusive authority to manage,

including the authority to acquire and dispose

of, the assets of the Plan assigned to it by the

Company, except to the extent that the Plan

prescribes or the Company directs how such

assets shall be invested. Each Trustee and

Investment Manager shall be solely

responsible for diversifying, in accordance

with Section 404(a)(1)(C) of ERISA, the

investment of the assets of the Plan assigned

to it by the Committee, except to the extent

that the plan prescribes or the Committee

directs how such assets shall be invested.

40 HARRIS V . AMGEN

ERISA requires that a trustee hold plan assets in trust for

plan participants. 29 U.S.C. § 1103(a). A trustee has

“exclusive authority and discretion to manage and control the

assets of the plan” subject to two exceptions. Id. The first

exception is that a plan may “expressly provide[] that the

trustee or trustees are subject to the direction of a named

fiduciary who is not a trustee.” Id. § 1103(a)(1). Under this

exception, a named fiduciary with the power to direct trustees

is a fiduciary with authority to manage plan assets. The

second exception is that an “investment manager,” duly

licensed as an investment adviser under federal or state law,

may also be appointed to manage plan assets in lieu of the

trustee. Id. §§ 1002(38)(B), 1103(a)(2).

There is no question that Amgen appointed a trustee.

However, nothing in the record indicates that Amgen

appointed an investment manager. Neither ERISA nor the

Plan requires that an investment manager be appointed. Even

if Amgen had appointed an investment manager, the Plan

makes clear that the trustee and any investment manager do

not have complete control over investment decisions. See

29 U.S.C. § 1002(21)(A)(i) (defining a person with “any

authority or control” over plan assets to be a fiduciary)

(emphasis added); cf. Gelardi v. Pertec Comp. Corp.,

761 F.2d 1323, 1325 (9th Cir. 1985) (finding delegation

where defendant “retained no discretionary control”)

(emphasis added), overruled on other grounds in Cyr v.

Reliance Standard Life Ins. Co., 642 F.3d 1202, 1207 (9th

Cir. 2011).

Section 15.1 of the Plan, which authorizes the Fiduciary

Committee to take action on behalf of Amgen, does not

preclude fiduciary status for Amgen. In Madden v. ITT Long

Term Disability Plan for Salaried Empl., 914 F.2d 1279, 1284

HARRIS V . AMGEN 41

(9th Cir. 1990), we held that the company had delegated

authority to an administration committee where the plan

provided that the Committee had “‘responsibility for carrying

out all phases of the administration of the Plan’” and had the

“‘exclusive right . . . to interpret the Plan and to decide any

and all matters arising hereunder.’” (emphasis omitted). This

language contains two features absent from the language in

the Amgen Plan. First, it delegates responsibility for all

phases of administering the plan, rather than responsibility

“to the extent that the Plan requires an action . . . to be taken

by the Company. Second, and more important, it provides

the Committee the exclusive right to make decisions under

the plan. The Amgen Plan merely authorizes the Fiduciary

Committee to act on behalf of Amgen. It neither provides

exclusive authority to the Committee, nor precludes Amgen

from acting on its own behalf.

Other courts have found a company’s grant of exclusive

authority to a delegate and an express disclaimer of authority

to be critical. In Maher v. Massachusetts General Hospital

Long Term Disability Plan, 665 F.3d 289 (1st Cir. 2011), the

First Circuit held that a hospital had delegated its fiduciary

duties when the plan stated, “‘The Hospital shall be fully

protected in acting upon the advice of any such agent . . . and

shall not be liable for any act or omission of any such agent,

the Hospital’s only duty being to use reasonable care in the

selection of any such agent.’” Id. at 292. In Costantino v.

Washington Post Multi-Option Benefits Plan, 404 F. Supp. 2d

31 (D.D.C. 2005), the district court for the District of

Columbia found delegation when the plan granted the plan

administrator “‘sole and absolute discretion’” to carry out

various Plan duties. Id. at 39 n.8. Given that ERISA allows

fiduciaries to have overlapping responsibilities under a plan,

a clear grant of exclusive authority is necessary for proper

42 HARRIS V . AMGEN

delegation by a fiduciary. See 29 U.S.C. § 1102(a)(1)

(“[O]ne or more named fiduciaries . . . jointly or severally . . .

have authority to control and manage the operation and

administration of the plan”); see also 1 ERISA Practice and

Litigation § 6:5 (“Those who wish to avoid liability exposure

through allocation of plan responsibilities to others must

therefore take pains to ensure that their documents fully

authorize the contemplated delegation.”).

Because the Plan contains no clear delegation of exclusive

authority, we reverse the district court’s dismissal of Amgen

from the case as a non-fiduciary.

Conclusion

We conclude that defendants are not entitled to a

presumption of prudence under Quan, that plaintiffs have

stated claims under ERISA in Counts II through VI, and that

Amgen is a properly named fiduciary under the Amgen Plan.

We therefore reverse the decision of the district court and

remand for further proceedings consistent with this opinion.

REVERSED and REMANDED.