Represented R.J. Reynolds Tobacco Company successfully in ERISA class action. On October 25, 2013, the U.S. District Court for the Middle District of North Carolina in a 77 page opinion found long-time client R.J. Reynolds Tobacco Company (“RJRT”) was found not liable for breach of fiduciary duty in a class action brought under the Employee Retirement Security Act (“ERISA”).
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 a 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 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.