Retirement Plans Comm. of IBM v. Jander (18-1165)

argument 18-1165

Retirement Plans Comm. of IBM v. Jander

Supreme Court of the United States 1h 1m 5 speakers 8 chapters transcribed 6 days ago official recording ↗

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What is the central legal issue in IBM’s ESOP case?

Don Verrilli 0:00

We'll hear argument next in Case 18-1165, the Retirement Plans Committee of IBM v. Jander. Mr. Clement. Mr. Chief Justice, and may it please the Court. In Dudenhofer, this Court articulated a pleading standard that recognized that disclosure of negative inside information by insider fiduciaries could harm the planned and planned participants by immediately reducing the value of the fund. This Court thus required the plaintiffs to identify a specific alternative course of conduct that could not do more harm than good to the fund as a whole. Here, respondents allege that insider fiduciaries should have taken inside corporate information, disclosed it through the regular corporate disclosure channels because disclosure was inevitable and the harms from concealment only grow over time.

Don Verrilli 0:51

There are two basic problems with that submission. First, the Respondents' allegations face an insurmountable pegram problem. ESOP fiduciaries do not have a fiduciary obligation to use information gained in a corporate capacity or to use the regular corporate channels of disclosure for the benefit of planned participants. It's particularly true with respect to the use of regular corporate disclosure channels. The use of those channels is something that is inherently done wearing a corporate hat and And indeed, the insiders only have access to the regular corporate disclosure channels because of their corporate roles. It requires no extension of pilgrim whatsoever to say that the use of those corporate disclosure channels is a corporate act, and that corporate act is already pervasively regulated by the securities law.

Don Verrilli 1:44

But second, even if there were a fiduciary obligation to use insider information gained in a corporate capacity or to use corporate disclosure channels, the allegations here would still be insufficient. The allegations that no fraud lasts forever, disclosure is inevitable, and the harms of concealment only grow over time so it is prudent to disclose early could be made in every case. Those generic allegations, by definition, could not separate goats from sheep. They could be made every single time. The premise of Respondent's allegation is also fundamentally inconsistent with the premise of the third consideration in Dudenhofer. The third consideration, Dudenhofer, is premised on the objective reality that if you disclose negative inside information to the market, it's going to have a negative impact on the value of the stock, which is all an ESOP holds.

Don Verrilli 2:38

And so this Court said, we need something very specific, very different from the normal course that would allow the fiduciary to say, no, disclosing this and committing this immediate harm is nonetheless prudent.

Brett M. Kavanaugh 2:50

So in your second argument – Is it your point that there are always going to be different classes of beneficiaries, some of whom would be harmed, some of whom would be helped by earlier disclosure, and therefore the duty of prudence cannot be violated in those circumstances? I think that's absolutely part of it. I mean, I think there are multiple problems. What more? Because that seems to come out of the second argument. As close to a bright line, you have the exception for the new plan. but it seems close to a bright line. I'm wondering if there is any wiggle room there, or is that pretty much a bright line?

Don Verrilli 3:27

I think it ends up being pretty close to a bright line, which is, I mean, the reason you can have an exception for the situation where it's a newly created ESOP is because in that situation you don't have to trade off the interests of net buyers and net sellers, short-term holders, long-term holders.

Brett M. Kavanaugh 3:43

Can you imagine a circumstance where you have different classes of beneficiaries where there would still be a claim that could be made that earlier disclosure should have been made in a stock price drop

Don Verrilli 3:53

case? I have trouble coming up with one of those. Now, I don't think that means you can't have duty of prudence claims in this context. I mean, the classic duty of prudence claim, which has the virtue of not trading off different beneficiaries' interests, would be a duty of prudence claim that says that when the company set up this ESOP, they didn't set it up in the right way, or when they're buying or selling, they're paying above-market commissions.