U.S. Recommends Denial of RJR Stock Case Review

U.S. Solicitor General Donald B. Verrilli Jr. submitted a brief to the U.S. Supreme Court recommending it deny a petition for a writ of certiorari filed by RJR Tobacco Co. in a “reverse stock drop” case.

The questions before the high court are:

• Whether, in an action for fiduciary breach, a fiduciary bears the burden of proving that a loss is not attributable to the fiduciary’s breach, once the plaintiff establishes the fiduciary breached his duties and a prima facie case of related plan losses; and
• Whether the standard for proving that a fiduciary’s failure to conduct an adequate investigation, causing losses to the plan, depends on whether a fiduciary who had conducted an adequate investigation would have or could have made the same decision.   

The brief says the 4th U.S. Circuit Court of Appeals correctly decided both issues, and, contrary to RJR’s contention, there is no clear circuit split on either question. “This case would in any event be a poor vehicle for consideration of the questions presented, because resolution of those questions may not affect the outcome on the causation question,” the solicitor general said.

The case involves a decision by RJR to divest its retirement plan of Nabisco stock after it spun off and sold the Nabisco division. Both the 4th Circuit and a district court found the process for making that decision was informal and involved parties not entitled to make decisions for the plan. The district court also found that, in determining whether RJR met its burden of proving its breach did not cause a loss to plan participants, it met this burden by establishing that “a reasonable and prudent fiduciary could have made [the same decision] after performing [a proper] investigation.” [Italics added.] The appellate court remanded the case back to the district court, finding that it should determine whether “a reasonable and prudent fiduciary would have made [the same decision] after performing [a proper] investigation.”

The solicitor general’s brief is here.