DOL Revisits R.J. Reynolds’ Nabisco Stock Dump in New Brief

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By Jacklyn Wille

Sept. 13 — The Labor Department is once again urging a federal appeals court to consider holding R.J. Reynolds Tobacco Co. liable for losses suffered by its 401(k) plan when the company sold off the stock of its Nabisco subsidiaries ( Tatum v. R.J.R. Pension Inv. Comm. , 4th Cir., No. 16-1293, amicus brief docketed 9/12/16 ).

The Nabisco stock dump battle has been raging for 14 years, leading to a controversial decision by the U.S. Court of Appeals for the Fourth Circuit raising the legal standard of care for retirement plans that invest in employer stock. In a brief docketed with the Fourth Circuit on Sept. 12, the DOL argued that recent U.S. Supreme Court decisions didn’t allow R.J. Reynolds to escape liability for unwisely selling the Nabisco stock.

The DOL argued that two recent Supreme Court decisions, involving the employer stock plans of Fifth Third Bancorp. and Amgen Inc., didn’t squarely apply to the R.J. Reynolds dispute. That’s because those cases involved pleading standards—specifically, what plaintiffs must include in their complaints to keep a case alive—and not loss causation, the DOL argued.

The question of loss causation, which asks how plaintiffs show they’ve been damaged by a defendant’s conduct, is especially important in the R.J. Reynolds case, because it’s what has allowed the company to avoid liability for the Nabisco stock sale. Although multiple courts have concluded that R.J. Reynolds sold the Nabisco stock without sufficient deliberation, the company has thus far escaped liability because a district judge determined that a hypothetical prudent fiduciary both could have and would have made the same decision.

In its brief, the DOL argued that the Supreme Court’s Fifth Third and Amgen decisions—which have led to pro-defendant rulings favoring companies including Chevron Corp., International Business Machines Corp. and JPMorgan Chase & Co.—shouldn’t be extended to cases that turn on loss causation.

In August, the U.S. Chamber of Commerce and the American Benefits Council filed a joint brief arguing the other side of the issue. In their view, Amgen overruled the Fourth Circuit’s decision holding R.J. Reynolds to a higher standard of care.

This isn’t the first time the DOL has advised courts against extending the Fifth Third and Amgen decisions to other areas. In February, the department filed a brief arguing that the standards established in these cases should be limited to disputes involving publicly traded companies, and the U.S. Court of Appeals for the Seventh Circuit appeared to agree when it issued an August ruling against GreatBanc Trust Co.

Likewise, the DOL is no stranger to this particular dispute over the forced sale of Nabisco stock. In 2013, it filed a brief asking the Fourth Circuit to force R.J. Reynolds to defend its decision-making process. Two years later, the department signed onto a brief by the U.S. solicitor general discouraging the Supreme Court from hearing the case.

The DOL’s Sept. 12 brief was submitted by M. Patricia Smith, G. William Scott, Elizabeth Hopkins and Jeffrey Hahn.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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