RICHARD G. TATUM, individually and on behalf of a class of all other persons similarly situated, Plaintiff - Appellant,
RJR PENSION INVESTMENT COMMITTEE; RJR EMPLOYEE BENEFITS COMMITTEE; R. J. REYNOLDS TOBACCO HOLDINGS, INC.; R. J. REYNOLDS TOBACCO COMPANY, Defendants-Appellees. CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA; AMERICAN BENEFITS COUNCIL, Amici Supporting Appellees.
Argued: January 25, 2017
from the United States District Court for the Middle District
of North Carolina, at Greensboro. N. Carlton Tilley, Jr.,
Senior District Judge. (1:02-cv-00373-NCT-LPA)
Jeffrey Greg Lewis for Appellant.
Howard Charnes for Appellees.
Jeffrey Michael Hahn for Amicus Secretary of Labor.
Matthew M. Gerend Robert M. Elliot, Helen L. Parsonage, Kelly
M. Dermody, Daniel M. Hutchinson for Appellant.
R. Taylor, Jr., Thurston H. Webb for Appellees.
Patricia Smith, G. William Scott, Elizabeth Hopkins, Counsel
for Appellate and Special Litigation, UNITED STATES
DEPARTMENT OF LABOR, Washington, D.C., for Amicus Secretary
Comerford Todd; Janet M. Jacobson; William M. Jay, Jaime A.
Santos, for Amici Chamber of Commerce of the United States of
America and American Benefits Council.
WILKINSON, MOTZ, and DIAZ, Circuit Judges.
GRIBBON MOTZ, Circuit Judge
Employee Retirement Income Security Act ("ERISA")
case returns to us for a third time. The beneficiaries of an
ERISA retirement plan appeal the judgment, issued after a
full bench trial, that the fiduciary's breach of its duty
of procedural prudence did not cause the substantial losses
in the retirement plan resulting from the sale of
non-employer stock funds. We had previously remanded the case
to the district court so that it could apply the correct
legal standard for determining loss causation, but we
expressed no opinion as to the proper outcome of the case. On
remand, applying the correct standard, the court found that
the fiduciary's breach did not cause the losses because a
prudent fiduciary would have made the same divestment
decision at the same time and in the same manner. For the
reasons that follow, we affirm.
begin with a brief review of the events leading up to this
lawsuit. Our previous opinions and those of the district
court set forth the facts of this case in far greater detail.
See generally Tatum v. RJR Pension Inv. Comm.
(Tatum IV), 761 F.3d 346, 351-55 (4th Cir. 2014);
Tatum v. R.J. Reynolds Tobacco Co. (Tatum
II), 392 F.3d 636, 637-39 (4th Cir. 2004); Tatum v.
R.J. Reynolds Tobacco Co. (Tatum V), No.
1:02-cv-00373, 2016 WL 660902, at *2-*12 (M.D. N.C. Feb. 18,
2016); Tatum v. R.J. Reynolds Tobacco Co. (Tatum
III), 926 F.Supp.2d 648, 651-69 (M.D. N.C. 2013).
1999, RJR Nabisco, Inc. decided to spin off the company's
food business, Nabisco, from its tobacco business. Tatum
V, 2016 WL 660902, at *2. The company provided several
rationales for this decision. But the critical motivating
force seems to have been that tobacco litigation against RJR
adversely affected the value of Nabisco stock. Id.
to the spin-off, participants in RJR Nabisco's
ERISA-covered retirement plan ("the Plan") could
hold stock in their retirement accounts in two funds related
to the company: the RJR Nabisco Common Stock Fund and the
Nabisco Common Stock Fund. Id. at *1. "After
the spin-off, the RJR Nabisco Common Stock Fund was divided
into two separate funds: the Nabisco Group Holdings Common
Stock Fund . . ., which held the stock from the food
business, and the RJR Common Stock Fund, which held the stock
from the tobacco business." Tatum IV, 761 F.3d
at 379. "Thus, as a result of the spin-off, there were
two funds holding exclusively Nabisco stock: the Nabisco
Common Stock Fund, which existed prior to the spin-off, and
the Nabisco Group Holdings Common Stock Fund, which was
created as a result of the spin-off" (collectively the
"Nabisco Funds"). Id. at 379 n.1. RJR, as
the Plan administrator, concluded that, given the spin-off,
"it would be inappropriate to hold stock in what was to
become a non-related company." Tatum V, 2016 WL
660902, at *4. Accordingly, RJR informed Plan participants
that the Nabisco Funds would be frozen on the date of the
spin-off and divested within six months. Id. at *5.
spin-off occurred on June 14, 1999. Id. At that
time, RJR amended the Plan documents to freeze the Nabisco
Funds. This meant that Plan participants could make no
additional investments in the Funds, but participants could
sell their shares in the Funds. Id. at *1, *5. In
the months immediately following the spin-off, Nabisco stock
sharply declined in value. Tatum IV, 761 F.3d at
353. In October 1999, RJR held a series of meetings to
discuss the possibility of reversing its decision to divest
the Funds, but ultimately decided to continue as planned.
Id. Also in October, RJR experienced a significant
adverse verdict in the tobacco litigation, which caused both
RJR and Nabisco stock to fall. Tatum V, 2016 WL
660902, at *7. In November, RJR attempted to amend the Plan
documents to indicate that the Plan would no longer offer the
Nabisco Funds.Id. at
*9-*10. During this time, Nabisco stock continued to decrease
in value. Id. From the date of the spin-off until
January 31, 2000, when the divestment occurred, the price of
the Nabisco Group Holdings common stock fell 60%, and the
price of the Nabisco common stock fell by almost 30%.
Id. at *11.
months after the divestment, on March 30, 2000, investor Carl
Icahn made an unsolicited bid to take over Nabisco, which
allowed Nabisco to pursue corporate restructuring without tax
consequences. Id. Nabisco Group Holdings rejected
the Icahn offer in April, "but announced that it would
explore all alternatives to maximize shareholder value,
effectively putting [Nabisco Group Holdings] on the auction
block." Id. By December 2000, Philip Morris had
acquired Nabisco for $55 per share and RJR had bought Nabisco
Group Holdings for $30 a share. Id. By the time the
sales were completed, the price of both companies' stock
had increased dramatically; Nabisco Group Holdings common
stock increased 247% and Nabisco common stock increased 82%.
2002, Richard Tatum, an RJR employee, brought this action
against RJR and various RJR committees on behalf of himself
and others similarly situated. He alleged that the
defendants, as fiduciaries of the Plan, "breached their
. . . duties under ERISA by eliminating Nabisco stock from
the Plan on an arbitrary timeline without conducting a
thorough investigation." Tatum IV, 761 F.3d at
355. Tatum further charged "that their fiduciary breach
caused substantial loss to the Plan because it forced the
sale of the Plan's Nabisco Funds at their all-time low,
despite the strong likelihood that Nabisco's stock prices
would rebound." Id.
district court initially concluded that the Plan documents
required divestment of the Nabisco Funds and granted
RJR's motion to dismiss. On appeal, we held "that
the Plan documents did not mandate divestment of the Nabisco
Funds, and thus did not preclude Tatum from stating a claim
against the defendants for breach of fiduciary duty."
Id. (citing Tatum II, 392 F.3d at 637).
Accordingly, we reversed the judgment of the district court
and remanded the case to it.
district court then conducted a four-week bench trial, which
involved the testimony of numerous fact and expert witnesses
and a mountain of documents. Upon consideration of this
evidence, the court issued a detailed opinion containing
extensive factual findings. The court held that RJR (1)
breached its fiduciary duty of procedural prudence when it
decided to remove the Nabisco Funds from the Plan
"without undertaking a proper investigation into the
prudence of doing so, " (2) "bore the burden of
proving that [this] breach did not cause the alleged losses
to the Plan, " and (3) had, despite its breach, met its
burden by showing that a hypothetical prudent fiduciary
could have made the same decision. Id.
(quoting Tatum III, 926 F.Supp.2d at 651).
appeal, we agreed with the district court that RJR had
breached its duty of prudence as an ERISA fiduciary, and, as
such, bore the burden of proving the losses were not
attributable to the breach. Id. at 351. However, we
vacated the district court's judgment because we
concluded that our precedent requires a breaching fiduciary
to prove by a preponderance of the evidence that a
hypothetical prudent fiduciary would have made the
same decision. Id. at 351, 365, 368 (citing
Plasterers' Local Union No. 96 Pension Plan v.
Pepper, 663 F.3d 210, 218 (4th Cir. 2011)). We
instructed the court "to review the evidence to
determine whether RJR has met its burden of proving by a
preponderance of the evidence that a prudent fiduciary would
have made the same decision." Id. at 368. That
review, we noted, might or might not lead the court to the
same ultimate conclusion. This determination was for the
district court on remand; we expressed no view as to the
proper resolution of the case.
remand, the court issued another thorough opinion. In it, the
court explained why in its view RJR had met its burden of
showing by a preponderance of the evidence that a
hypothetical prudent fiduciary would have divested
the Nabisco Funds in the manner and at the time RJR did.
Tatum V, 2016 WL 660902, at *26. Tatum filed the
initially maintains that the district court disregarded our
mandate, a question we consider de novo. See S. Atl. Ltd.
P'ship of Tenn., LP v. Riese, 356 F.3d 576, 583 (4th
Cir. 2004). Tatum argues that, in holding that a prudent
fiduciary would have made the same decision as RJR made here,
the court focused too much on risk, ignored the plain
language of the Plan documents, failed to consider the
testimony of Professor Thomas Lys, and did not explain why a
prudent fiduciary would have divested the Nabisco Funds at
the time that RJR did. We disagree.
the district court's asserted singular focus on risk, we
explained in Tatum IV that "while the presence
of risk is a relevant consideration in determining whether to
divest a fund held by an ERISA plan, it is not
controlling." 761 F.3d at 367. We see no indication that
the district court impermissibly rested its analysis solely
on risk. Even a cursory review of its opinion reveals that
the court also considered value and expected returns, the
diversity of the Plan's investments, the requirements of
the Plan documents, and the timing of the divestment. The
court additionally took account of the nature of the Plan as
a long-term savings vehicle and the role of a fiduciary in
managing beneficiaries' assets. Tatum V, 2016 WL
660902, at *13, *25. Had the court considered only risk, it
would have erred. But it did not. Rather, the court acted
entirely within our mandate in addressing risk as a
"relevant consideration" along with other factors.
Tatum takes issue with how the district court treated the
Plan documents. Tatum contends that the court failed to give
adequate consideration to the fact that these documents,
absent the invalid November amendment, required that the
Nabisco Funds remain frozen. In Tatum IV, we
explained that, while the terms of the Plan documents cannot
"trump the duty of prudence, " the "plan
terms, and the fiduciary's lack of compliance with those
terms, inform a court's inquiry as to how a prudent
fiduciary would act under the circumstances." 761 F.3d
at 367 n.16. We directed the district court on remand
"to factor into its causation analysis RJR's lack of
compliance with the governing Plan document."
Id. at 368.
district court did precisely that. The court found that
"it is more likely true than not that had a prudent
fiduciary reviewed the information available to it at the
time, including Plan documents, public disclosures,
analysts' reports and associated research as to their
significance, and newspaper articles, it would have decided
to divest the Nabisco Funds at the time and in the manner as
did RJR." Tatum V, 2016 WL 660902, at *23
(emphasis added). Moreover, the court recognized that RJR had
not amended the Plan documents but noted that no evidence
suggested that RJR intentionally disregarded Plan language or
that Plan participants were unaware of the planned
divestment. See id. at *24. The court then concluded
that, given these facts, failure to effectuate the Plan
amendment did not "affect determination of the
substantive issues addressed by a prudent fiduciary."
Id. at *25.
assertion that the court refused to consider the testimony of
Professor Lys similarly lacks merit. We instructed the court
to consider Professor Lys's testimony "as to what
constituted a prudent investment decision." Tatum
IV, 761 F.3d at 368 n.17. The court did so -- dedicating
an entire paragraph to Professor Lys's testimony as to
how a prudent fiduciary would research an investment decision
and citing Professor Lys's testimony on additional issues
over a dozen times. See, e.g., Tatum V,
2016 WL 660902, at *12-*13, *18, *20-*21, *23. The district
court ultimately found Professor Lys's testimony less
persuasive than that of RJR's experts, id. at
*13, but the court certainly considered Professor Lys's
Tatum claims that the district court violated our mandate by
failing to weigh "the timing of the divestment as part
of the totality-of-the-circumstances
inquiry."But the district
court's straightforward opinion belies any argument that
it refused to consider the timing of the divestment. Relying
on expert testimony, the court determined that a prudent
fiduciary would have made the decision to divest the
non-employer funds (the Nabisco Funds) and would have
completed the divestment when RJR did. Id. at
the district court did not disregard our mandate. That
conclusion, of course, does not resolve this appeal, or even
whether the court correctly evaluated risk, Plan
language, Professor Lys's testimony, and the timing of
the divestment. Tatum also argues that the court erred in its
evaluation of these factors, and we now turn to those
principally contends that in evaluating the evidence the
district court applied two incorrect legal standards. The
bulk of this argument rests on the assertedly critical
distinction between investment decisions and divestment
decisions. Tatum maintains that because the court failed to
recognize this distinction, it ignored "factors relevant
to a divestment decision." Tatum also claims that the
district court, despite its explicit statements to the
contrary, applied the improper "could have"
standard that we rejected in Tatum IV. We review a