The Supreme Court on Monday declined to review a “reverse stock-drop” case brought by fiduciaries of the R.J. Reynolds Tobacco Co. 401(k) plan hoping to undo a lower court ruling that they breached their duties.
The RJR investment committee petitioned the Supreme Court in December, after the 4th U.S. Circuit Court of Appeals, Richmond, Va., sided with plan participants who argued that plan executives breached their fiduciary duties in managing and later selling certain stocks in the plan and gave insufficient attention to those decisions.
(R.J. Reynolds Tobacco Co. is now an indirect subsidiary of Reynolds American Inc., Winston-Salem, N.C.)
After RJR Nabisco Inc. spun off its tobacco business and retirement plan investments were reset, the fiduciaries were sued for selling the company stock in both companies in the 401(k) plan too soon. On Aug. 4, the circuit court ruled 2-1 that a defendant has the burden of proof if there is a breach of duty, and that a fiduciary can be held liable for damages even for a prudent decision.
Five other circuit courts have ruled that plaintiffs have the burden of proving loss causation. That variation among courts is unworkable, the U.S. Chamber of Commerce argued in an amicus brief urging the Supreme Court to take the case. Solicitor General Donald B. Verrilli Jr. argued against taking the case, saying in an amicus brief that RJR Investment Committee et al. vs. Richard Tatum et al. was “a poor vehicle for consideration of the questions presented.”
