Tatum v. R.J. Reynolds Tobacco Co. , 392 F.3d 636 ( 2004 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RICHARD G. TATUM, individually and 
on behalf of a class of all other
persons similarly situated,
Plaintiff-Appellant,
v.
R.J. REYNOLDS TOBACCO COMPANY;
R.J. REYNOLDS TOBACCO HOLDINGS,
INCORPORATED; RJR EMPLOYEE
BENEFITS COMMITTEE OF THE R.J.
REYNOLDS TOBACCO COMPANY
CAPITAL INVESTMENT PLAN; RJR
PENSION INVESTMENT
COMMITTEE OF THE R.J. REYNOLDS
 No. 04-1082
TOBACCO COMPANY CAPITAL
INVESTMENT PLAN,
Defendants-Appellees.
SECRETARY OF LABOR,
Amicus Supporting Appellant,
CHAMBER OF COMMERCE OF THE
UNITED STATES OF AMERICA;
AMERICAN BENEFITS COUNCIL,
Amici Supporting Appellees.

Appeal from the United States District Court
for the Middle District of North Carolina, at Durham.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-02-373-1)
Argued: September 28, 2004
Decided: December 14, 2004
2 TATUM v. R.J. REYNOLDS TOBACCO CO.
Before MICHAEL and MOTZ, Circuit Judges, and
Henry E. HUDSON, United States District Judge
for the Eastern District of Virginia,
sitting by designation.
Reversed and remanded by published opinion. Judge Michael wrote
the opinion, in which Judge Motz and Judge Hudson joined.
COUNSEL
ARGUED: Jeffrey G. Lewis, LEWIS, FEINBERG, RENAKER &
JACKSON, P.C., Oakland, California, for Appellant. Daniel Russell
Taylor, Jr., KILPATRICK STOCKTON, L.L.P., Winston-Salem,
North Carolina, for Appellees. George William Scott, III, UNITED
STATES DEPARTMENT OF LABOR, Washington, D.C., for
Amicus Supporting Appellant. ON BRIEF: Robert M. Elliot, J. Grif-
fin Morgan, ELLIOT, PISHKO, MORGAN, P.A., Winston-Salem,
North Carolina; Bill L. Lee, James M. Finberg, LEIFF, CABRASER,
HEIMANN & BERNSTEIN, San Francisco, California; Lisa T.
Belenky, LEWIS, FEINBERG, RENAKER & JACKSON, P.C., Oak-
land, California, for Appellant. Adam H. Charnes, Kristin M. Major,
KILPATRICK STOCKTON, L.L.P., Winston-Salem, North Carolina,
for Appellees. Howard M. Radzely, Solicitor of Labor, Timothy D.
Hauser, Associate Solicitor, Plan Benefits Security Division, Eliza-
beth Hopkins, Counsel for Appellate and Special Litigation, G. Wil-
liam Scott, Senior Trial Attorney, Office of the Solicitor, UNITED
STATES DEPARTMENT OF LABOR, Washington, D.C., for
Amicus Supporting Appellant. Hollis T. Hurd, THE BENEFITS
DEPARTMENT, Pittsburgh, Pennsylvania; Susan Relland, Lynn
Dudley, AMERICAN BENEFITS COUNCIL, Washington, D.C., for
American Benefits Council; Stephen A. Bokat, Ellen Dunham Bryant,
NATIONAL CHAMBER LITIGATION CENTER, Washington,
D.C., for the Chamber of Commerce of the United States, Amici Sup-
porting Appellees.
TATUM v. R.J. REYNOLDS TOBACCO CO. 3
OPINION
MICHAEL, Circuit Judge:
This is an appeal from an order, entered under Fed. R. Civ. P.
12(b)(6), dismissing a complaint alleging that fiduciaries under a
401(k) plan breached their duty of prudence under the Employee
Retirement Security Act (ERISA), 29 U.S.C. § 1001 et seq., when
they liquidated two of the plan’s investment funds at a loss. The dis-
trict court concluded that no fiduciary duties were implicated because
the plan sponsor had amended the plan to require elimination of the
funds. We disagree. Because the plain language of the amendments
did not strip the fiduciaries of discretion to maintain the funds in the
plan, the amendments do not bar the plaintiff from stating a claim that
the decision to liquidate the funds violated ERISA’s duty of prudence.
We therefore reverse.
I.
Because we are reviewing a Rule 12(b)(6) dismissal order, we take
the facts from the well-pleaded allegations of the amended complaint.
See Franks v. Ross, 313 F.3d 184, 192 (4th Cir. 2002). As of 1999
the plaintiff, Richard G. Tatum, was an employee of defendant R.J.
Reynolds Tobacco Company ("RJR Tobacco"), a corporation engaged
in the manufacture and sale of tobacco products. RJR Tobacco was
a wholly-owned subsidiary of RJR Nabisco Holdings Corp. ("RJR
Nabisco"); RJR Nabisco also owned 80.5 percent of the stock of its
food products subsidiary, Nabisco Holdings Corp. ("Nabisco Hold-
ings"). As of 1999 employees of RJR Nabisco and its tobacco and
food subsidiaries had the option to participate in the RJR Nabisco
Capital Investment Plan (the "Original Plan"), a 401(k) retirement
plan governed by ERISA. Tatum, as an employee of RJR Tobacco,
participated in the Original Plan. Participants in the Original Plan
could direct the investment of contributions into several funds, includ-
ing (1) a common stock fund holding only the shares of RJR Nabisco
and (2) a common stock fund holding only the shares of Nabisco
Holdings (together, the "Nabisco funds"). Tatum directed the Original
Plan to invest in the Nabisco funds for his individual account.
In May 1999 the board of directors of RJR Nabisco approved a
plan to dissociate its food and tobacco units by spinning off RJR
4 TATUM v. R.J. REYNOLDS TOBACCO CO.
Tobacco as a separate company. As a step in implementing the spin-
off, defendant R.J. Reynolds Tobacco Holdings, Inc. ("RJR Hold-
ings") was created as the new parent company for RJR Tobacco. The
actual spin-off occurred on June 15, 1999, when the shares of RJR
Holdings were distributed to the shareholders of RJR Nabisco, then
renamed Nabisco Group Holdings Corp. ("Nabisco Group Holdings").
The spin-off was accompanied by changes to the RJR Nabisco 401(k)
plan (the Original Plan). On June 14, 1999, the Original Plan was
divided into two separate plans, one of which was the R.J. Reynolds
Tobacco Company Capital Investment Plan (the "Tobacco Plan" or
the "Plan"). Participation in the Tobacco Plan was limited to the
employees of RJR Tobacco and its affiliates. Tatum thus became a
participant in the Tobacco Plan.
The Tobacco Plan included an amended section 4.03 that described
the investment options available to participants after June 14, 1999.
Among other things, amended section 4.03 froze the Nabisco funds
and prohibited further contributions into those funds. The section
read:
Separate Funds. The Trustee shall maintain the following
separate Investment Funds within the Trust Fund: the Inter-
est Income Fund, the Nabisco Common Stock Fund, the
Nabisco Group Holdings Common Stock Fund, the RJR
Common Stock Fund, the Total Stock Market Fund, the
Total International Fund, the Conservative Growth Fund,
the Moderate Growth Fund and the Growth Fund. All
Investment Funds under the Plan are active Funds; provided,
however, the Nabisco Common Stock Fund and the Nabisco
Group Holdings Common Stock Fund are frozen and, as of
the Effective Date, Participants are prohibited from invest-
ing contributions or reallocating amounts held under the
Plan to such Funds. In addition, the Trustee shall maintain
any other Investment Funds as are designated by the RJR
Pension Investment Committee.
J.A. 247.* At about the time section 4.03 was amended in mid-June
*In his amended complaint Tatum relies on the June 14, 1999, amend-
ment to section 4.03 of the Tobacco Plan and a later, November 18,
TATUM v. R.J. REYNOLDS TOBACCO CO. 5
1999, RJR Tobacco informed Tobacco Plan participants that the
Nabisco funds "would remain frozen and then would be eliminated
from the Plan approximately six months after the date of the spin-
off." J.A. 13-14. Later, in October 1999 RJR Tobacco informed Plan
participants that the Nabisco funds would be eliminated as investment
options on January 31, 2000. Finally, section 4.03 of the Tobacco
Plan was again amended on November 18, 1999, as follows:
Effective February 1, 2000, Section 4.03 of the Plan is
amended to read as follows:
4.03 Separate Funds. The Trustee shall maintain the follow-
ing separate Investment Funds within the Trust Fund: the
Interest Income Fund, the RJR Common Stock Fund, the
Total Stock Market Fund, the Total International Fund, the
Conservative Growth Fund, the Moderate Growth Fund and
the Growth Fund. All Investment Funds under the Plan are
active Funds. In addition, the Trustee shall maintain any
other Investment Funds as are designated by the RJR Pen-
sion Investment Committee.
J.A. 303-04. On or about January 31, 2000, the Tobacco Plan sold,
at a substantial loss, all shares of Nabisco Group Holdings and
Nabisco Holdings (together, the "Nabisco stocks") held for partici-
pants in the Nabisco funds. The Nabisco funds were thus eliminated
as investment options in the Tobacco Plan.
The market value of Nabisco stocks declined precipitously between
the June 15, 1999, spin-off and the January 31, 2000, sale of the
Nabisco stocks held in the Tobacco Plan. Nabisco Group Holdings
stock fell sixty percent to around $8.50 per share, and Nabisco Hold-
ings stock fell forty percent to around $30 per share. Nevertheless,
"market analysts were advising investors to buy or hold [Nabisco
1999, amendment to the same section. Although the texts of the amend-
ments are not included in the amended complaint, they are in the joint
appendix, and the parties agree to their authenticity. In these circum-
stances it is appropriate for us, in deciding whether dismissal of the com-
plaint is proper, to refer to the actual language of the amendments. See
Phillips v. LCI Int’l, Inc., 190 F.3d 609, 618 (4th Cir. 1999).
6 TATUM v. R.J. REYNOLDS TOBACCO CO.
stocks] despite [their] declining market value," J.A. 15, and were pre-
dicting the stocks would rebound in due course. Tatum maintained
that the amendments to section 4.03 of the Tobacco Plan did not
require the sale of the Nabisco stocks. Accordingly, prior to the liqui-
dation Tatum urged the Plan to allow participants to maintain invest-
ments in Nabisco stocks allocated to their accounts. The Plan refused,
and (as noted) sold the Nabisco stocks held in the Plan on January 31,
2000. The price of the Nabisco stocks rebounded sharply over the
next five months: by late June 2000 Nabisco Group Holdings stock
had more than tripled in price, selling for around $30 per share;
Nabisco Holdings stock had nearly doubled, selling for around $55
per share.
On May 13, 2002, Tatum filed an action on behalf of himself and
a class of similarly situated participants in the Tobacco Plan. The
defendants are RJR Tobacco, RJR Holdings, the employee benefits
committee of the Tobacco Plan, and the pension investment commit-
tee of the Tobacco Plan. Tatum alleges in his amended complaint that
the defendants breached their fiduciary duty of prudence under
ERISA by eliminating the Nabisco funds as an investment option
under the Tobacco Plan and by selling the Nabisco stocks held in the
Plan. See 29 U.S.C. § 1104(a)(1). The defendants moved to dismiss
the amended complaint under Fed. R. Civ. P. 12(b)(6) for failure to
state a claim. The district court granted the motion, concluding that
(1) the amendments to section 4.03 were plan design or settlor acts
that did not trigger fiduciary duties under ERISA, and (2) the Novem-
ber 1999 amendment "required the January 31 [2000] liquidation of
the frozen Nabisco funds." Tatum v. R.J. Reynolds Tobacco Co., 294
F. Supp. 2d 776, 783 (M.D.N.C. 2003). Tatum appeals the district
court’s dismissal order, and our review is de novo, see Flood v. New
Hanover County, 125 F.3d 249, 251 (4th Cir. 1997).
II.
Tatum argues that his amended complaint states a claim that the
defendants breached their fiduciary duties under ERISA when they
failed to exercise their discretion to maintain the Nabisco funds as
investment options for Tobacco Plan participants. Nothing in the
amendments to section 4.03 of the Plan required the defendants to liq-
uidate the Nabisco funds, according to Tatum. ERISA requires a plan
TATUM v. R.J. REYNOLDS TOBACCO CO. 7
fiduciary to make discretionary investment decisions "with the care,
skill, prudence, and diligence under the circumstances then prevailing
that a prudent [person] acting in a like capacity and familiar with such
matters would use." 29 U.S.C. § 1104(a)(1)(B). The defendants were
subject to this "[p]rudent [person] standard of care," id. § 1104(a), if
they had the discretion to maintain the Nabisco funds in the Plan after
the amendments were adopted.
The defendants argue that Tatum fails to state a claim for breach
of fiduciary duty under ERISA because the liquidation of the Nabisco
funds (or stocks) in the Plan was a non-discretionary act required by
the amendments. According to the defendants, the liquidation was
non-discretionary because it simply carried out the mandate of the
amendments, which were adopted pursuant to RJR Tobacco’s author-
ity as Plan sponsor or settlor. Generally, when a plan sponsor amends
an ERISA plan, it acts as a settlor and is not subject to ERISA’s fidu-
ciary duties. Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 443
(1999); Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1465 (4th Cir.
1996). This rule raises the question whether a plan fiduciary is freed
from his fiduciary responsibilities if he simply implements the man-
dates of the plan document. In this case Tatum and the Secretary of
Labor (as amicus curiae) argue that even if the amendments to the
Tobacco Plan required the sale of the Nabisco stocks, the Plan fidu-
ciaries had the duty to ignore the Plan document if it was imprudent
to sell. We need not reach this question if the amendments did not
require the elimination or liquidation of the Nabisco funds. They did
not, as we next explain.
Section 4.03 of the Plan, as amended in June 1999, required the
trustee to maintain nine investment funds, including the two Nabisco
funds. Seven funds were designated as active, and the two Nabisco
funds were frozen. Further investments in the Nabisco funds were
prohibited. Section 4.03 was again amended in November 1999, with
the amendment to take effect on February 1, 2000. This amendment
required the trustee, as of February 1, 2000, to maintain seven invest-
ment funds, but the Nabisco funds were not among those listed. The
November amendment also deleted the clause that had designated the
Nabisco funds as frozen. In addition, the November amendment pro-
vided that all funds "under the Plan are active Funds," and "the
8 TATUM v. R.J. REYNOLDS TOBACCO CO.
Trustee shall maintain any other Investment Funds as are designated
by the RJR Pension Investment Committee." J.A. 304.
A plain reading of the amendments reveals several points that are
dispositive: (1) the trustee was required to maintain the Nabisco funds
as frozen funds from June 14, 1999, through January 31, 2000; (2) as
of February 1, 2000, the Nabisco funds were unfrozen, were not listed
as investment options, and were no longer required to be maintained
as investment funds under the Plan; and (3) other investment funds,
in addition to those listed, could be designated by the investment
committee on or after February 1, 2000. All of this means that the
amendments did not strip the Plan fiduciaries of discretion to redesig-
nate the Nabisco funds as investment options effective February 1,
2000. In other words, the amendments did not require the elimination
of the Nabisco funds from the Plan, nor did they require the sale of
the Nabisco stocks.
In sum, nothing in the language of the amendments prevents Tatum
from stating a claim that the liquidation of the Nabisco funds in the
Plan was a discretionary act subject to ERISA’s fiduciary duty of pru-
dence, see 29 U.S.C. § 1104(a)(1), and that the Plan fiduciaries vio-
lated the applicable standard of care in liquidating those funds. We
therefore reverse the district court’s order dismissing the amended
complaint for failure to state a claim. The case is remanded for further
proceedings.
REVERSED AND REMANDED