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Pension suit could be nearing end
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Pension suit could be nearing end

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The U.S. Supreme Court declined Tuesday to hear a petition filed by a unit of R.J. Reynolds Tobacco Co., meaning there could be a resolution this year to a 13-year-old lawsuit led by Richard Tatum of Winston-Salem against the RJR Pension Investment committee.

Tatum’s lawsuit involves Reynolds’ former affiliation with Nabisco and potentially affects 3,549 current and former employees.

Tatum attorney Robert Elliot, of Elliot Morgan Parsonage in Winston-Salem, said “the plaintiffs have proven damages in excess of $50 million, which would be increased due to the passage of time since trial.”

Reynolds had asked for a writ of certiorari, which is a kind of judicial review. Typically, a conference is held by the justices to decide whether to grant the petition. At least four justices have to agree to hear the case for it to move forward.

The decision comes about a month after the U.S. Solicitor General’s Office recommended the Supreme Court not address the petition. Reynolds filed its writ of certiorari in December, with a Supreme Court briefing completed in March.

The Fourth Circuit Court of Appeals ruled in favor of the plaintiffs in August. The case now returns to the U.S. District Court for the Middle District of N.C.

Reynolds could not be reached for immediate comment on the Supreme Court’s decision. Reynolds could appeal any final decisions by District Court Judge Carlton Tilley Jr. A summary of Reynolds’ stance on the lawsuit can be found in its April 20 regulatory filing for the first quarter of fiscal 2015.

At its essence, the lawsuit is about whether in late 1999, the fiduciaries of the Reynolds employee retirement plan “undertook the appropriate investigation into the prudence of removing the Nabisco funds from the tobacco plan” and whether “prudence would have compelled a fiduciary to maintain the Nabisco funds as frozen funds in the plan.”

The Nabisco stock funds initially dropped post spinoff, but surged later in 2000.

“RJR has been found by the U.S. District Court and the U.S. Court of Appeals to have breached its duties to the employees who participated in its 401(k) plan,” said Jeffrey Lewis, a Tatum attorney based in Oakland, Calif.

“We look forward to a decision from the District Court on the issue of whether RJR’s wrongdoing was the legal cause of the plan’s participants’ losses.”

Reynolds has claimed “the class as certified no longer satisfies” the rules governing class-action lawsuits, citing as examples that 1,305 of the 3,549 potential plaintiffs “have executed broad releases of all claims against RJR” and that nearly half of the potential plaintiffs voluntarily sold their Nabisco holdings before January 2000.

Elliot said Reynolds has raised some issues, “which would reduce the damages somewhat.”

In March 2013, Tilley dismissed the lawsuit with prejudice, ruling that R.J. Reynolds Tobacco Holdings Inc. reached an appropriate decision in eliminating the Nabisco funds from its 401(k) plan in January 2000.

Tilley determined the Reynolds committee breached its duty to properly investigate the investment decision to eliminate the Nabisco funds from the tobacco plan, including not discussing the option of allowing the Nabisco stock to remain frozen indefinitely.

That decision, according to the appellate judges, “caused a substantial loss to the plan,” in part because the plan documents did not mandate divestment of the Nabisco funds.

However, Tilley said plaintiffs also had to prove Reynolds’ trustee for the 401 (k) “knew more than they did” in making the decision that caused financial loss to the plaintiffs. Tilley ruled the committee had met its burden of proof because its decision to eliminate the Nabisco funds was “one which a reasonable and prudent fiduciary could have made after performing such an investigation.”

The Fourth Circuit appellate court vacated Tilley’s ruling by a 2-1 vote, remanding the case to District Court “for further proceedings consistent with this opinion.”

The appellate judges agreed with Tilley’s ruling that Reynolds “breached its duty of procedural prudence and so carries the burden of proof on causation.” They said Tilley “failed to apply the correct legal standard in assessing Reynolds’ liability.”

rcraver@wsjournal.com

(336) 727-7376

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