855 F.3d 553
4th Cir.2017Background
- RJR Nabisco spun off its food business (Nabisco) from its tobacco business in June 1999; the Plan froze two Nabisco-related single-stock funds and announced divestment within six months.
- From the spin-off to the January 31, 2000 divestment, Nabisco Group Holdings stock fell ~60% and Nabisco common stock fell ~30%; after the divestment, takeover activity (Icahn, Philip Morris, RJR purchases) drove large post-divestment stock gains.
- Richard Tatum sued as a plan participant under ERISA, alleging fiduciary breach: RJR procedurally imprudently removed the Nabisco Funds without adequate investigation and that the breach caused substantial losses by forcing sales at lows.
- The district court found RJR breached procedural prudence but concluded RJR proved loss causation because a hypothetical prudent fiduciary would have made the same divestment at the same time and in the same manner.
- This court previously remanded for application of the correct “would have” causation standard (Tatum TV); on remand the district court again found RJR met its burden; the Fourth Circuit affirms.
Issues
| Issue | Plaintiff's Argument (Tatum) | Defendant's Argument (RJR) | Held |
|---|---|---|---|
| Did the district court follow the Fourth Circuit's remand mandate to apply the “would have” loss-causation standard? | District court ignored mandate by focusing on what a fiduciary "could have" done and not adequately addressing timing and Plan-document noncompliance. | District court applied the correct "would have" standard and considered timing, Plan language, expert testimony, and overall circumstances. | Court: District court complied with the mandate and applied the "would have" standard; affirmed. |
| What is the proper legal standard for a breaching fiduciary to rebut causation? (“could have” vs “would have”) | N/A (plaintiff urges strict application of "would have"). | RJR sought to adopt a looser "could have" standard (but accepted "would have" was binding law). | Court reaffirms Fourth Circuit precedent requires a preponderance that a hypothetical prudent fiduciary "would have" acted the same. |
| How should Plan documents (including the invalid November amendment) factor into the causation analysis? | Plan terms required the Nabisco Funds remain frozen; district court failed to give this sufficient weight and improperly excused RJR’s noncompliance. | Plan language is relevant but does not trump the duty of prudence; failure to ratify the amendment does not by itself dictate the substantive prudence inquiry. | Court: District court properly considered Plan language among other factors and reasonably concluded noncompliance did not change the substantive prudence outcome. |
| Was the timing of divestment (six months) unreasonable so that a prudent fiduciary would have waited? | A prudent fiduciary would not have divested when RJR did; the record shows the timing was arbitrary and the court effectively applied a "could have" test. | Given risk, lack of diversification, market information and experts, a prudent fiduciary would have divested when RJR did and in that timeframe. | Court: District court reasonably weighed competing expert testimony and found by a preponderance a prudent fiduciary would have divested when RJR did. |
| Does efficient-market theory or Fifth Third v. Dudenhoeffer require a different result? | Efficient market principles and Fifth Third mean public information already priced risk, making extraordinary upside unlikely and supporting retention; Fifth Third cautions against divestment based on public info. | Efficient-market findings support relying on market price as best current value; the fiduciary still must weigh market price, risk, diversification, and plan aims — supporting divestment here. | Court: Fifth Third and efficient-market theory do not foreclose considering litigation risk; district court's application was consistent with Fifth Third and ERISA duties. |
Key Cases Cited
- Tatum v. RJR Pension Inv. Comm., 761 F.3d 346 (4th Cir. 2014) (remand requiring breaching fiduciary to prove by preponderance a prudent fiduciary "would have" acted the same)
- Tatum v. R.J. Reynolds Tobacco Co., 392 F.3d 636 (4th Cir. 2004) (earlier appellate decision on Plan documents and pleadability)
- Plasterers’ Local Union No. 96 Pension Plan v. Pepper, 663 F.3d 210 (4th Cir. 2011) (precedent on burden of proof for breaching fiduciaries)
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (U.S. 2014) (efficient-market analysis and limits on claims that fiduciaries should know public markets over/undervalue stock)
- Amgen Inc. v. Connecticut Ret. Plans & Tr. Funds, 133 S. Ct. 1184 (U.S. 2013) (discussion of limits on exploiting public information in efficient markets)
- Tibbie v. Edison Int'l, 135 S. Ct. 1823 (U.S. 2015) (fiduciary monitoring obligations)