More than a year ago, in May 2013, NELA and AARP jointly submitted an amicus curiae brief in support of Richard G. Tatum, plaintiff-appellant, in Tatum v. RJR Pension Investment Committee, No. 13-1360, pending in the U.S. Court of Appeals for the Fourth Circuit. This was Mr. Tatum’s second trip to the Fourth Circuit in this case. The issue on appeal now was whether defendants breached their fiduciary duty to the R.J. Reynolds 401(k) retirement savings plan by forcing the liquidation of two investment funds on an arbitrary timeline without adequate investigation or analysis causing a substantial loss in violation of the Employee Retirement Income Security Act (ERISA).
After Mr. Tatum obtained reversal of a motion to dismiss from the Fourth Circuit, the Middle District of North Carolina certified a class of participants in its entirety, declining to exclude those who signed severance agreements purportedly releasing claims. Following a four-week bench trial, the court held that the fiduciaries of the 401(k) plan breached their duty of procedural prudence by engaging in only a cursory examination of the timing of the sale thus failing to investigate or analyze their divestiture decision appropriately. At the time of the forced liquidation, the stock of formerly affiliated companies in the funds had declined precipitously in value, but was widely expected to rise and investment analysts were increasingly recommending that it be held or purchased. The court next held that defendants avoided liability because a reasonable and prudent fiduciary could have made the same decision after performing a proper investigation.
NELA and AARP argued in the amicus brief that the district court’s decision had substantial policy implications. Citing Department of Labor statistics, we pointed out that the district court’s holding could result in a significant percentage of the $3.4 trillion held in 401(k) accounts receiving less protection and potentially impacting almost 60 million participants. The majority of courts—including the Fourth Circuit—have adopted a higher causation standard that ensures that fiduciaries who fail to conduct thorough investigations are held accountable. The district court’s lower causation standard would significantly decrease the likelihood that breaching fiduciaries would face meaningful sanctions for failing to thoroughly investigate investment options.
The Fourth Circuit (in a 2-to-1 decision) vacated the lower court’s judgment in favor of RJR, affirmed that defendants breached their duty of prudence and had the burden of proof regarding loss causation, and held that the district court failed to apply the correct legal standard to determine loss causation. Specifically, the district court erred by holding that defendants met their burden simply by showing that a prudent fiduciary could have chosen the same course of action, rather than it would have done so. The case was remanded to the district court with instructions to evaluate the evidence in light of this higher causation standard. Judge J. Harvie Wilkinson III in dissent stated that the burden of proof of loss causation belongs with the participants, not the fiduciaries, in his opinion.
NELA and AARP’s excellent amicus brief was drafted by NELA member Ronald Dean, Pacific Palisades, CA, and Mary Ellen Signorille of AARP Foundation Litigation. NELA member Catha Worthman of Lewis Feinberg Lee Renaker & Jackson, P.C. argued on behalf of Mr. Tatum at the appellate hearing earlier this year. Original amicus brief: http://exchange.nela.org/viewdocument/?DocumentKey=9273e326-784c-4bf7-8d9f-e54e602f110d