Represented R.J. Reynolds Tobacco Company (RJRT) successfully in Employee Retirement Security Act (“ERISA”) class action.
On February 18, 2016, the U.S. District Court for the Middle District of North Carolina again found long-time client R.J. Reynolds Tobacco Company (“RJRT”) not liable for breach of fiduciary duty in an ERISA class action. The lawsuit was brought in May 2002 by an employee of RJRT against RJRT, its holding company, and two of its internal benefits committees, alleging that the defendants violated their fiduciary duties under ERISA to the approximately 3,500 members of RJRT’s 401(k) plan. The suit stemmed from a decision made in 1999 by RJR Nabisco Holdings Corp., subsequently renamed Nabisco Group Holdings Corp. (NGH), to spin off RJRT, thereby separating NGH’s tobacco business and food business. As part of the spin-off, the 401(k) plan for the previously related entities had to be divided into two separate plans for the now-separate tobacco and food businesses. The plaintiff contended that the defendants breached their fiduciary duties to participants of the RJR 401(k) plan when the defendants removed the stock funds of the companies involved in the food business, NGH and Nabisco Holdings Corp. (NA), as investment options from the RJR 401(k) plan approximately six months after the spin-off. The district court initially found that the 1999 Amendments to the 401(k) plan mandated removal of the Nabisco Funds. In December 2004, the U.S. Court of Appeals for the Fourth Circuit reversed the dismissal of the complaint, holding that the 1999 Amendments did contain sufficient discretion for the defendants to have retained the NGH and Nabisco funds as of February 2000, and remanded the case for further proceedings.

After almost eight years of litigation, in a complex trial lasting six weeks and involving a mix of ERISA law, the informational value of stock analyst reports, the efficient market theory, and complex and varied damages theories and calculations, on February 25, 2013 USDJ N. Carlton Tilley, Jr. found that RJRT’s decision to eliminate the Nabisco Funds was “objectively prudent” (i.e., under the circumstances of the case, the decision was one which a reasonable and prudent fiduciary could have made after performing the appropriate investigation) and, therefore, RJR was not liable. The United States Court of Appeals for the Fourth Circuit subsequently determined that the district court applied an incorrect loss causation standard, the United States Supreme Court denied RJR’s petition for writ of certiorari and the case was remanded to the district court for further proceedings. On remand, the district court ordered extensive briefing on various remaining issues. In February 2016, RJRT prevailed for the third time. After applying the Fourth Circuit’s “would have” test, Judge Tilley found that RJRT proved “by a preponderance of the evidence that a prudent fiduciary would have decided to divest the Nabisco Funds and held to that determination that divestiture was a benefit to Plan participants and retained the same time line for divestment.” Tatum again appealed Judge Tilley’s ruling to the Fourth Circuit.

On April 28, 2017, the Fourth Circuit affirmed Judge Tilley’s judgment in favor of RJRT. In a published opinion, it held that Judge Tilley faithfully applied its prior opinion and correctly found that a prudent fiduciary “would have” made the same divestment decision at the same time and in the same manner as RJRT. Tatum subsequently declined to file a petition for writ of certiorari to the United States Supreme Court. Richard G. Tatum, individually and on behalf of a class of all other persons similarly situated v. R.J. Reynolds Tobacco Company et. al., 294 F. Supp. 2d 776 (M.D.N.C. 2003) (Tatum I).; Tatum v. R.J. Reynolds Tobacco Co., 392 F.3d 636, 637 (4th Cir. 2004) (Tatum II); Tatum v. R.J. Reynolds Tobacco Co., 926 F. Supp. 2d 648 (M.D.N.C. 2013) (Tatum III); Tatum v. RJR Pension Inv. Comm., 761 F.3d 346 (4th Cir. 2014) (Tatum IV), cert denied, 135 S. Ct. 2887 (2015); Tatum v. R.J. Reynolds Tobacco Co., No. 1:02CV00373, 2016 WL 660902 (M.D.N.C. 2016) (Tatum V); Tatum v. RJR Pension Inv. Comm., 855 F.3d 553 (4th Cir. 2017) (Tatum VI).

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