Richard Tatum v. RJR Pension Investment Committee
761 F.3d 346
4th Cir.2014Background
- Spin-off of Nabisco from RJR Nabisco in March 1999 created Nabisco Holdings and Nabisco Common Stock Fund within the Plan; Nabisco Funds were retained as frozen but later eliminated.
- The Nabisco Funds were removed from the Plan about six months post-spin-off at a March 1999 working group meeting that lacked authority under the Plan documents.
- Post-divestment Nabisco stock declined sharply; proceeds were moved to the Plan's Interest Income Fund and later reinvested by participants.
- In May 2002, Tatum filed a class action alleging ERISA fiduciaries breached the duty of prudence by eliminating Nabisco stock on an arbitrary timeline without proper investigation, causing substantial plan losses.
- The district court found a fiduciary breach and that RJR bore the burden to prove the loss was not caused by the breach, but erred by applying an incorrect causation standard; on appeal, liability was affirmed for breach and burden-shifting, but remanded to apply the correct standard; the district court’s dismissal of the Benefits Committee and Investment Committee was reversed, and remand was ordered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RJR breached the duty of procedural prudence | Tatum: RJR failed to investigate before divesting Nabisco Funds | RJR argued standard was misapplied and divestment was prudent | Yes, RJR breached the duty of procedural prudence |
| Who bears the burden of proving loss causation | Burden should shift to RJR after breach and prima facie loss | Burden should remain with plaintiff or be inferred differently | Burden-shifting appropriate; RJR must prove the loss was not caused by the breach (on remand) |
| What constitutes objective prudence in loss causation (would have vs could have) | A hypothetical prudent fiduciary would have reached the same decision (would have) | A hypothetical fiduciary could have reached the same decision (could have) | Would-have standard applies; remand to determine if a prudent fiduciary would have made the same decision |
| Whether the Benefits Committee and Investment Committee are proper ERISA defendants | Committees are fiduciaries under ERISA | Committees were improperly treated as defendants | Committees are proper defendants; district court’s dismissal reversed |
Key Cases Cited
- Plasterers' Local Union No. 96 Pension Plan v. Pepper, 663 F.3d 210 (4th Cir.2011) (loss causation after breach requires actual loss from imprudence)
- Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915 (8th Cir.1994) (imprudent failure to investigate insulated if prudent decision would have been made)
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (2014) (supreme court on inside information and prudence standard in ERISA)