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U.S. solicitor general’s recommendation doesn’t spell end to RJR suit

When the U.S. solicitor general requests that the U.S. Supreme Court decline to hear a case, it isn't automatically the kiss of death for that case.

That's the verdict of several ERISA attorneys commenting on the recent brief filed by Solicitor General Donald B. Verrilli Jr., saying the court shouldn't hear RJR Investment Committee et al. vs. Richard Tatum et al, a reverse stock-drop case.

“This case would be in any event a poor vehicle for consideration of the questions presented,” Mr. Verrilli wrote in a May 26 brief filed with the court, which had asked in March for the solicitor general's opinion. The justices have scheduled a conference for June 25 to decide if they will grant certiorari, meaning whether they will agree to hear the case. Four justices must vote to hear the case.

Asking for the solicitor general's view “says a lot more about the Supreme Court's interest and the likelihood of certiorari being granted than what the solicitor general has to say about a case,” said Jeremy Blumenfeld, a Philadelphia-based partner at Morgan Lewis & Bockius LLP. (Like others interviewed for this article, neither Mr. Blumenfeld nor his law firm is involved in the case.)

“The Supreme Court will look at this like any other piece of information,” he said. “The justices won't defer to the solicitor general. The court wouldn't be asking (for the solicitor general's opinion) if it wasn't interested.”

The RJR investment committee petitioned the Supreme Court in December. It wants the court to reverse a decision by the 4th U.S. Circuit Court of Appeals, Richmond, Va., supporting participants of the R.J. Reynolds Tobacco Co. 401(k) plan.

The participants said plan managers breached their fiduciary duties in managing and later selling certain stocks in the plan. They said the managers failed to undertake a thorough examination before taking action. (The R.J. Reynolds Tobacco Co. is now an indirect subsidiary of Reynolds American Inc., Winston-Salem, N.C.)

The appeals court had reversed a decision by a U.S. District Court in Greensboro, N.C., supporting the 401(k) plan and its executives.

Mr. Verrilli, the solicitor general, wrote that the appeals court was correct in favoring the participants' arguments.

The Supreme Court periodically asks the solicitor general to comment on pending cases, which attorneys say is a good indicator, but not a guarantee, of the court's interest in hearing a case. They noted justices don't always agree with the solicitor general, who represents the Department of Labor.

Mr. Blumenfeld cited several examples of cases involving the Employee Retirement Income Security Act in which the Supreme Court asked for the solicitor general's views.

In Fifth Third Bancorp et al. vs. Dudenhoeffer et al., a stock-drop case, and in Tibble et al. vs. Edison International et al., an excessive-fee and investment-monitoring case, the solicitor general recommended the court hear the cases. In both instances, the court held oral arguments, issuing an opinion for the former last year and for the latter last month.

But in Cigna Corp. et al. vs. Amara et al., the solicitor general recommended the court decline to hear the case, which involved a company's effort to switch to a cash balance plan from a traditional defined benefit plan. The justices accepted the case, held oral arguments and issued an opinion in 2011.

“There's so much tea-leaf reading at this point,” said Thomas Clark Jr., of counsel to the Wagner Law Group. He agreed it's hard to forecast what the court might do. For the RJR case, “this isn't the type of decision where it's obvious why they (the justices) asked for an opinion by the solicitor general.”

Mr. Clark, who is based in St. Louis, said he thinks the solicitor general's comments “increase the chances that the Supreme Court will deny certiorari.”

The case evolved from the 1999 decision by the former RJR Nabisco Holdings to split into a tobacco company (R.J. Reynolds Tobacco) and a food company (Nabisco). When R.J. Reynolds was spun off, its new 401(k) plan's investment lineup included its publicly traded company stock. This lineup also contained shares of Nabisco, as well as shares of the former parent company, whose primary asset was its stake in Nabisco after the spinoff.

The tobacco company 401(k) plan froze the latter two separate stock investments for participants' accounts. According to court documents, the 401(k) plan executives sold these stocks Jan. 31, 2000 — with the Nabisco stock losing 40% and parent company stock off 60% from when the spinoff took effect.

However, Nabisco became the object of a bidding war and was acquired by Philip Morris Cos., in December 2000. According to court documents, the parent-company stock climbed 247% and Nabisco rose 82% from the day the RJR 401(k) plan sold them.

Participants sued the plan and plan executives in May 2002, alleging they breached their fiduciary duty in researching and executing the sale of the Nabisco shares and former parent company shares.

A key issue is the dispute between the district court and the federal appeals court over the proper standard for measuring fiduciary duty. The district court applied a more flexible standard: Could a hypothetical fiduciary have acted in a similar manner to the RJR plan executives? The appeals court advocated a stricter approach: Would the hypothetical fiduciary have acted in a similar fashion?

“Until other courts of appeals have considered whether there is a difference between a 'would have' standard and a 'could have' standard, it would be premature to assume that the former standard is as strict as petitioners claim,” Mr. Verrilli wrote in his comments to the Supreme Court.

Attorney Andrew L. Oringer said the solicitor general's remarks in his 22-page brief “erect an obstacle from a practical perspective” for the court taking the case, “but it wouldn't be impossible if the court grants certiorari.”

Mr. Oringer, a New York-based partner at Dechert LLP, said the case contains many complexities, so he isn't sure if the court would reject or pursue it. The justices “might be persuaded that there is nothing that the circuit court (of appeals) ultimately held that needs to be corrected,” he said. “Or they might say this is a bad case to address all of the subtleties that are overhanging this case.”