Richard Tatum v. RJR Pension Investment Committee

PUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 13-1360

RICHARD G. TATUM, individually and on behalf of a class of
all other persons similarly situated,

Plaintiff - Appellant,

v.

RJR PENSION INVESTMENT COMMITTEE; RJR EMPLOYEE BENEFITS
COMMITTEE; R.J. REYNOLDS TOBACCO HOLDINGS, INC.; R.J.
REYNOLDS TOBACCO COMPANY,

Defendants - Appellees.

---------------------------------------------------

AARP; NATIONAL EMPLOYMENT LAWYERS ASSOCIATION; THOMAS E.
PEREZ, Secretary of the United States Department of Labor,

Amici 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 Greensboro. N. Carlton Tilley,
Jr., Senior District Judge. (1:02-cv-00373-NCT-LPA)

Argued: March 18, 2014 Decided: August 4, 2014

Before WILKINSON, MOTZ, and DIAZ, Circuit Judges.
Affirmed in part, vacated in part, reversed in part, and
remanded by published opinion. Judge Motz wrote the majority
opinion, in which Judge Diaz joined. Judge Wilkinson wrote a
dissenting opinion.

ARGUED: Catha Worthman, LEWIS, FEINBERG, LEE, RENAKER & JACKSON,
P.C., Oakland, California, for Appellant. Adam Howard Charnes,
KILPATRICK TOWNSEND & STOCKTON LLP, Winston-Salem, North
Carolina, for Appellees. Michael R. Hartman, UNITED STATES
DEPARTMENT OF LABOR, Washington, D.C., for Amicus Thomas E.
Perez, Secretary of the United States Department of Labor. ON
BRIEF: Jeffrey G. Lewis, LEWIS, FEINBERG, LEE, RENAKER &
JACKSON, P.C., Oakland, California; Robert M. Elliot, Helen L.
Parsonage, ELLIOT MORGAN PARSONAGE, Winston-Salem, North
Carolina; Kelly M. Dermody, Daniel M. Hutchinson, LIEFF CABRASER
HEIMANN & BERNSTEIN, LLP, San Francisco, California, for
Appellant. Daniel R. Taylor, Jr., Richard D. Dietz, Chad D.
Hansen, Thurston H. Webb, KILPATRICK TOWNSEND & STOCKTON LLP,
Winston-Salem, North Carolina, for Appellees. Ronald Dean,
RONALD DEAN ALC, Pacific Palisades, California; Rebecca Hamburg
Cappy, NATIONAL EMPLOYMENT LAWYERS ASSOCIATION, San Francisco,
California; Mary Ellen Signorille, AARP FOUNDATION LITIGATION,
Washington, D.C.; Melvin Radowitz, AARP, Washington, D.C., for
Amici AARP and National Employment Lawyers Association. Hollis
T. Hurd, THE BENEFITS DEPARTMENT, Bridgeville, Pennsylvania;
Kathryn Comerford Todd, Steven P. Lehotsky, Jane E. Holman,
NATIONAL CHAMBER LITIGATION CENTER, Washington, D.C.; Janet M.
Jacobson, AMERICAN BENEFITS COUNCIL, Washington, D.C., for Amici
Chamber of Commerce of the United States of America and American
Benefits Council. M. Patricia Smith, Solicitor of Labor,
Timothy D. Hauser, Associate Solicitor for Plan Benefits
Security, Elizabeth Hopkins, Counsel for Appellate and Special
Litigation, Stephanie Lewis, UNITED STATES DEPARTMENT OF LABOR,
Washington, D.C., for Amicus Thomas E. Perez, Secretary of the
United States Department of Labor.

2
DIANA GRIBBON MOTZ, Circuit Judge:

This is an appeal from a judgment in favor of R.J. Reynolds

Tobacco Company and R.J. Reynolds Tobacco Holdings, Inc.

(collectively “RJR”). Richard Tatum brought this suit on behalf

of himself and other participants in RJR’s 401(k) retirement

savings plan (collectively “the participants”). He alleges that

RJR breached its fiduciary duties under the Employee Retirement

Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq., when it

liquidated two funds held by the plan on an arbitrary timeline

without conducting a thorough investigation, thereby causing a

substantial loss to the plan.

After a bench trial, the district court found that RJR did

indeed breach its fiduciary duty of procedural prudence and so

bore the burden of proving that this breach did not cause loss

to the plan participants. But the court concluded that RJR met

this burden by establishing that “a reasonable and prudent

fiduciary could have made [the same decision] after performing

[a proper] investigation.” Tatum v. R.J. Reynolds Tobacco Co.,

926 F. Supp. 2d 648, 651 (M.D.N.C. 2013) (emphasis added). We

affirm the court’s holdings that RJR breached its duty of

procedural prudence and therefore bore the burden of proof as to

causation. But, because the court then failed to apply the

correct legal standard in assessing RJR’s liability, we must

3
reverse its judgment and remand the case for further proceedings

consistent with this opinion.

I.

A.

In March 1999, fourteen years after the merger of Nabisco

and R.J. Reynolds Tobacco into RJR Nabisco, Inc., the merged

company decided to separate its food business, Nabisco, from its

tobacco business, R.J. Reynolds. The company determined to do

this through a spin-off of the tobacco business. The impetus

behind the spin-off was the negative impact of tobacco

litigation on Nabisco’s stock price, a phenomenon known as the

“tobacco taint.” As the district court found, “[t]he purpose of

the spin-off was to ‘enhance shareholder value,’ which included

increasing the value of Nabisco by minimizing its exposure to

and association with tobacco litigation.” Id. at 658-59.

Prior to the spin-off, RJR Nabisco sponsored a 401(k) plan,

which offered its participants the option to invest their

contributions in any combination of eight investment funds. The

plan offered six fully diversified funds -- some containing

investment contracts, fixed-income securities, and bonds; some

containing a broad range of domestic or international stocks;

and some containing a mix of stocks and bonds. The plan also

offered two company stock funds -- the Nabisco Common Stock

4
Fund, which held common stock of Nabisco Holdings Corporation,

and the RJR Nabisco Common Stock Fund, which held stock in both

the food and tobacco businesses. After the spin-off, the RJR

Nabisco Common Stock Fund was divided into two separate funds:

the Nabisco Group Holdings Common Stock Fund (“Nabisco

Holdings”), which held the stock from the food business, and the

RJR Common Stock Fund, which held the stock from the tobacco

business. 1

The 401(k) plan at issue in this case (“the Plan”) was

created on June 14, 1999, the date of the spin-off, by amendment

to the existing RJR Nabisco plan. The Plan expressly provided

for the retention of the Nabisco Funds as “frozen” funds in the

Plan. Freezing the Nabisco Funds permitted participants to

maintain their existing investments in the Nabisco Funds, but

prevented participants from purchasing through the Plan

additional shares of those funds. As the district court found,

“[t]here was no language in the [Plan] eliminating the Nabisco

Funds or limiting the duration in which the Plan would hold the

funds.” Id. at 657-58. The Plan also retained as investment

1
Thus, as a result of the spin-off, there were two funds
holding exclusively Nabisco stock: the Nabisco Common Stock
Fund, which existed prior to the spin-off, and the Nabisco Group
Holdings Common Stock Fund, which was created as a result of the
spin-off. We refer to these two funds collectively as the
“Nabisco Funds.”

5
options the six diversified funds offered in the pre-spin-off

plan, as well as the RJR Common Stock Fund.

The Plan named as Plan fiduciaries two committees composed

of RJR officers and employees: the Employee Benefits Committee

(“Benefits Committee”), responsible for general Plan

administration, and the Pension Investment Committee

(“Investment Committee”), responsible for Plan investments. The

Plan vested the Benefits Committee with authority to make

further amendments to the Plan by a majority vote of its members

at any meeting or by an instrument in writing signed by a

majority of its members.

Notwithstanding the requirement in the governing Plan

document that the Nabisco Funds remain as frozen funds in the

Plan, RJR determined to eliminate them from the Plan. RJR

further determined to sell the Nabisco Funds approximately six

months after the spin-off. These decisions were made at a March

1999 meeting by a “working group,” which consisted of various

corporate employees. Id. at 656-57. But, as the district court

found, the working group “had no authority or responsibility

under the then-existing Plan documents to implement any decision

regarding the pre-spin[-off] RJR Nabisco Holdings Plan, nor [was

it] later given authority to make or enforce decisions in the

[RJR] Plan documents.” Id. at 655.

6
 According to testimony from members of the working group,

the group spent only thirty to sixty minutes considering what to

do with the Nabisco Funds in RJR’s 401(k) plan. The working

group “discussed reasons to remove the funds [from the plan] and

assumed that [RJR] did not want Nabisco stocks in its 401(k)

plan due to the high risk of having a single, non-employer stock

fund in the Plan.” Id. at 656. The members of the working

group also discussed “their [incorrect] belief that such funds

were only held in other [companies’] plans as frozen funds in

times of transition.” Id. Several members of the working group

“believed that a single stock fund in the plan would be an

‘added administrative complexity’ and incur additional costs.”

Id. But the group “did not discuss specifically what the

complexities were or the amount of costs of keeping the fund in

the Plan, as balanced against any benefit to participants.” Id.

The working group agreed that the Nabisco Funds should be frozen

at the time of the spin-off and eventually eliminated from the

Plan. In terms of the timing of the divestment, a member of the

working group testified that “[t]here was a general discussion,

and different ideas were thrown out, would three months be

appropriate, would a year be appropriate, and everybody got very

comfortable with six months.” Id. There was no testimony as to

why six months was determined to be an appropriate timeframe.

7
 The working group’s recommendation was reported back to

Robert Gordon, RJR’s Executive Vice President for Human

Resources and a member of both the Benefits Committee and the

Investment Committee. Gordon testified at trial that the

members of the Benefits Committee agreed with the working

group’s recommendation. But the district court found that aside

from this testimony, there was no evidence that the Benefits

Committee “met, discussed, or voted on the issue of eliminating

the Nabisco Funds or otherwise signed a required consent in lieu

of a meeting authorizing an amendment that would do so.” Id. at

657. 2

In the months immediately following the June 1999 spin-off,

the Nabisco Funds declined precipitously in value. Markets

reacted sharply to numerous class action tobacco lawsuits

pending against RJR, which continued to impact the value of

Nabisco stock as a result of the “tobacco taint.” Id. at 659-

60. Despite this decline in value, however, analyst reports

throughout 1999 and 2000 rated Nabisco stock positively,

“overwhelmingly recommending [to] ‘hold’ or ‘buy,’ particularly

after the spin-off.” Id. at 662.

2
In November 1999, Gordon drafted a purported amendment to
the Plan calling for the removal of Nabisco Funds from the Plan
as of February 1, 2000. Because a majority of the Benefits
Committee members neither voted on nor signed this amendment,
the district court found it invalid. Id. at 674 n.19. No party
challenges this ruling on appeal.

8
 In early October 1999, various RJR human resources

managers, corporate executives, and in-house legal staff met to

discuss possible reconsideration of the decision made by the

working group in March to sell the Nabisco Funds. Id. at 661.

They decided against changing course, however, largely because

they feared doing so would expose RJR to liability from

employees who had already sold their shares of the Nabisco Funds

in reliance on RJR’s prior communications. Id. at 661-62. 3 The

working group considered that this perceived liability risk

could have been mitigated by temporarily unfreezing the Nabisco

Funds and allowing Plan participants to reinvest if desired.

But RJR was concerned that participants might view such action

as a recommendation to hold or reinvest in Nabisco Funds and

then blame RJR if the funds further declined. Id. at 661.

Moreover, RJR was concerned that keeping Nabisco Funds in

the Plan would require the fiduciaries “to monitor and

investigate them on a continuing basis and at significant

expense paid from the Plan’s trust.” Id. at 662. Nevertheless,

RJR decided against hiring “a financial consultant, outside

3
Apparently, no meeting attendee knew how many employees
had already sold their shares of the Nabisco Funds. Following
the meeting, RJR ascertained that the number of participants in
each of the Nabisco Funds had decreased by approximately 15-16%
as of September 30, 1999. Id. at 662. Thus, at the time the
attendees considered whether to change course, the vast majority
of employees still retained their shares in the Nabisco Funds.

9
counsel, and/or independent fiduciary to assist” it in resolving

these questions and “deciding whether and when to eliminate the

Nabisco Funds.” Id. Assertedly, this was so because RJR

believed that the Plan would have to pay the cost of such

assistance. Id. But, as the district court found, “[t]he issue

of monitoring the funds and how independent consultants were

paid was not discussed at length or investigated.” Id.

Later in October 1999, RJR sent a letter to Plan

participants informing them that it would eliminate the Nabisco

Funds from the Plan as of January 31, 2000. Id. at 663-64. The

letter erroneously informed participants that the law did not

permit the Plan to maintain the Nabisco Funds. Specifically,

the letter stated: “Because regulations do not allow the Plan

to offer ongoing investment in individual stocks other than

Company stock, the ‘frozen’ [Nabisco] stock funds will be

eliminated.” Id. at 664 (alteration in original).

The human resources manager who drafted the letter

testified at trial that she did so at the direction of Gordon,

and that, at the time she prepared this letter, she knew the

statement was incorrect. Id. No lawyer reviewed the letter

before it was sent to participants. And, as the district court

found, the statement “was never corrected, even after

responsible RJR officials were informed that it was wrong.” Id.

Rather, a second letter, sent in January 2000, repeated the

10
incorrect statement. “By that time,” the district court found,

“RJR’s managers, including its lawyers, had become aware that

the statement was false, but nevertheless permitted the

communication to be sent to participants.” Id.

On January 27, 2000, days before the scheduled sale,

plaintiff Richard Tatum sent an e-mail to both Gordon and Ann

Johnston, Vice President for Human Resources and a member of the

Benefits Committee and the Investment Committee. In this e-

mail, Tatum asked that RJR not go through with the forced sale

of the Plan’s Nabisco shares because it would result in a 60%

loss to his 401(k) account. Tatum indicated that he wanted to

wait to sell his Nabisco stock until its price rebounded, and he

noted that company communications had been “optimistic” that

Nabisco stock would increase in value after the spin-off. He

also related his understanding that former RJR employees of

Winston-Salem Health Care and Winston-Salem Dental Care still

retained frozen Nabisco and RJR funds in their 401(k) plans,

even though those companies had been acquired by a different

company, Novant, in 1996. (This claim was later substantiated

through evidence at trial. See id. at 667 n.15.) In response

to Tatum’s concerns, Johnson replied that nothing could be done

to stop the divestment. Id. at 667.

On January 31, 2000, RJR went through with the divestment

and sold the Nabisco shares held by employees in their 401(k)

11
accounts. Between June 15, 1999 (the day after the spin-off)

and January 31, 2000, the market price for Nabisco Holdings

stock had dropped by 60% to $8.62 per share, and the price for

Nabisco Common Stock had dropped by 28% to $30.18 per share.

Id. at 665.

RJR invested the proceeds from the sale of the Nabisco

stock in the Plan’s “Interest Income Fund,” which consisted of

short-term investments, such as guaranteed investment contracts

and government bonds. Id. The proceeds remained in the

Interest Income Fund until a participant took action to reinvest

them in one of the other six funds offered in the Plan. Id. At

the same time as RJR eliminated Nabisco stocks from the

employees’ 401(k) Plan, several RJR corporate officers opted to

retain their personal Nabisco stock or stock options. Id. at

665-66.

A few months after the divestment, in the early spring of

2000, Nabisco stock began to rise in value. On March 30, Carl

Icahn made his fourth attempt at a takeover of Nabisco in the

form of an unsolicited tender offer to purchase Nabisco Holdings

for $13 per share. Id. at 666. The district court noted that

“[b]efore his unsolicited offer, Icahn had made three previous

attempts to take over Nabisco, between November 1996 and the

spring of 1999, and was well known to have an interest in the

company.” Id. This tender offer provoked a bidding war, and,

12
on December 11, 2000, Philip Morris acquired Nabisco Common

Stock at $55 per share and infused Nabisco Holdings with $11

billion in cash. RJR then purchased Nabisco Holdings for

approximately $30 per share. As compared to the January 31,

2000 divestment prices, these share prices represented an

increase of 247% for Nabisco Holdings stock and 82% for Nabisco

Common Stock. Id.

B.

In May 2002, Tatum filed this class action against RJR as

well as the Benefits Committee and the Investment Committee,

asserting that they acted as Plan fiduciaries. Tatum alleged

that these Plan fiduciaries breached their fiduciary duties

under ERISA by eliminating Nabisco stock from the Plan on an

arbitrary timeline without conducting a thorough investigation.

He further claimed that their fiduciary breach caused

substantial loss to the Plan because it forced the sale of the

Plan’s Nabisco Funds at their all-time low, despite the strong

likelihood that Nabisco’s stock prices would rebound.

In 2003, the district court granted RJR’s motion to

dismiss, concluding that Tatum’s allegations involved “settlor”

rather than “fiduciary” actions, meaning that the decision to

eliminate the Nabisco Funds from the Plan was non-discretionary.

We reversed, holding that the Plan documents did not mandate

divestment of the Nabisco Funds, and thus did not preclude Tatum

13
from stating a claim against the defendants for breach of

fiduciary duty. Tatum v. R.J. Reynolds Tobacco Co., 392 F.3d

636, 637 (4th Cir. 2004).

On remand, the district court granted RJR’s motion to

dismiss the Benefits Committee and the Investment Committee as

defendants. After the limitations period had expired, Tatum

filed a motion seeking leave to amend his complaint to add the

individual committee members as defendants, which the court

denied. 4 The court then held a bench trial from January 13 to

February 9, 2010 to determine whether RJR breached its fiduciary

duties in eliminating the Nabisco Funds from the Plan.

On February 25, 2013, the court issued its final judgment,

containing detailed and extensive factual findings. The court

recognized (as we had held) that RJR’s decision to remove the

Nabisco Funds from the Plan was a fiduciary act subject to the

duty of prudence imposed by ERISA. Tatum, 926 F. Supp. 2d at

673. The court then held that (1) RJR breached its fiduciary

duties when it “decided to remove and sell Nabisco stock from

the Plan without undertaking a proper investigation into the

prudence of doing so,” id. at 651, and (2) as a breaching

4
Shortly thereafter, the district court certified a class
of Plan participants and beneficiaries whose investments in the
Nabisco Funds were sold by RJR in connection with the spin-off.
See Tatum v. R.J. Reynolds Tobacco Co., 254 F.R.D. 59, 62
(M.D.N.C. 2008). On appeal, RJR raises no challenge to this
certification.

14
fiduciary, RJR bore the burden of proving that its breach did

not cause the alleged losses to the Plan. But the court further

held that (3) RJR 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.” Id. (emphasis added).

Tatum noted a timely appeal.

II.

Congress enacted ERISA to protect “the interests of

participants in employee benefit plans and their

beneficiaries . . . by establishing standards of conduct,

responsibility, and obligation for fiduciaries of employee

benefit plans, and by providing for appropriate remedies,

sanctions, and ready access to the Federal courts.” 29 U.S.C.

§ 1001(b). Consistent with this purpose, ERISA imposes high

standards of fiduciary duty on those responsible for the

administration of employee benefit plans and the investment and

disposal of plan assets. As the Second Circuit has explained,

“[t]he fiduciary obligations of the trustees to the participants

and beneficiaries of [an ERISA] plan are . . . the highest known

to the law.” Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d

Cir. 1982).

15
 Pursuant to the duty of loyalty, an ERISA fiduciary must

“discharge his duties . . . solely in the interest of the

participants and beneficiaries.” 29 U.S.C. § 1104(a)(1). The

duty of prudence requires ERISA fiduciaries to act “with the

care, skill, prudence, and diligence under the circumstances

then prevailing that a prudent man acting in a like capacity and

familiar with such matters would use in the conduct of an

enterprise of a like character and with like aims.”

Id. § 1104(a)(1)(B). The statute also requires fiduciaries to

act “in accordance with the documents and instruments governing

the plan insofar as such documents and instruments are

consistent with [ERISA].” Id. § 1104(a)(1)(D). And fiduciaries

have a duty to “diversify[] investments of the plan so as to

minimize the risk of large losses, unless under the

circumstances it is clearly prudent not to do so.” Id.

§ 1104(a)(1)(C). However, legislative history and federal

regulations clarify that the diversification and prudence duties

do not prohibit a plan trustee from holding single-stock

investments as an option in a plan that includes a portfolio of

diversified funds. 5 Moreover, the diversification duty does not

5
See H.R. Rep. No. 93-1280 (1974) (Conf. Rep.), reprinted
at 1974 U.S.C.C.A.N. 5038, 5085-86 (clarifying that, in plans in
which the participant exercises individual control over the
assets in his individual account -- like the plan at issue here
-- “if the participant instructs the plan trustee to invest the
(Continued)
16
apply to investments that fall within the exemption for employer

stocks provided for in § 1104(a)(2).

A fiduciary who breaches the duties imposed by ERISA is

“personally liable” for “any losses to the plan resulting from

[the] breach.” Id. § 1109(a). Section 1109(a), ERISA’s

fiduciary liability provision, provides in full:

Any person who is a fiduciary with respect to a plan
who breaches any of the responsibilities, obligations,
or duties imposed upon fiduciaries by this subchapter
shall be personally liable to make good to such plan
any losses to the plan resulting from each such
breach, and to restore to such plan any profits of
such fiduciary which have been made through use of
assets of the plan by the fiduciary, and shall be
subject to such other equitable or remedial relief as
the court may deem appropriate, including removal of
such fiduciary.

Id. ERISA thus provides for both monetary and equitable relief,

and does not (as the dissent claims) limit a fiduciary’s

liability for breach of the duty of prudence to equitable

relief.

In determining whether fiduciaries have breached their duty

of prudence, we ask “whether the individual trustees, at the

time they engaged in the challenged transactions, employed the

appropriate methods to investigate the merits of the investment

full balance of his account in, e.g., a single stock, the
trustee is not to be liable for any loss because of a failure to
diversify or because the investment does not meet the prudent
man standards” so long as the investment does not “contradict
the terms of the plan”); see also 29 C.F.R. § 2550.404c–1(f)(5).

17
and to structure the investment.” DiFelice v. U.S. Airways,

Inc., 497 F.3d 410, 420 (4th Cir. 2007). Our focus is on

“whether the fiduciary engaged in a reasoned decision[-]making

process, consistent with that of a ‘prudent man acting in [a]

like capacity.’” Id. (quoting 29 U.S.C. § 1104(a)(1)(B)).

When the fiduciary’s conduct fails to meet this standard,

and the plaintiff has made a prima facie case of loss, we next

inquire whether the fiduciary’s imprudent conduct caused the

loss. For “[e]ven if a trustee failed to conduct an

investigation before making a decision,” and a loss occurred,

the trustee “is insulated from liability . . . if a hypothetical

prudent fiduciary would have made the same decision anyway.”

Plasterers’ Local Union No. 96 Pension Plan v. Pepper, 663 F.3d

210, 218 (4th Cir. 2011) (quoting Roth v. Sawyer-Cleator Lumber

Co., 16 F.3d 915, 919 (8th Cir. 1994)).

ERISA’s fiduciary duties “draw much of their content from

the common law of trusts, the law that governed most benefit

plans before ERISA’s enactment.” DiFelice, 497 F.3d at 417

(quoting Varity Corp. v. Howe, 516 U.S. 489, 496 (1996)). Thus,

in interpreting ERISA, the common law of trusts informs a

court’s analysis. Id. “[T]rust law does not tell the entire

story,” however, because “ERISA’s standards and procedural

protections partly reflect a congressional determination that

the common law of trusts did not offer completely satisfactory

18
protection.” Varity Corp., 516 U.S. at 497. Therefore, courts

must be mindful that, in “develop[ing] a federal common law of

rights and obligations under ERISA,” Congress “expect[s] that”

courts “will interpret th[e] prudent man rule (and the other

fiduciary duties) bearing in mind the special nature and purpose

of employee benefit plans.” Id. (internal citations and

quotation marks omitted).

On appeal, Tatum argues that, although the district court

correctly determined that RJR breached its duty of procedural

prudence and so bore the burden of proving that its breach did

not cause the Plan’s loss, the court applied the wrong standard

for determining loss causation. He contends that the court

incorrectly considered whether a reasonable fiduciary, after

conducting a proper investigation, could have sold the Nabisco

Funds at the same time and in the same manner, as opposed to

whether a reasonable fiduciary would have done so.

In response, RJR contends that the district court applied

the appropriate causation standard. In the alternative, RJR

urges us to reverse the district court’s holdings that it

breached its duty of procedural prudence and that, as a

breaching fiduciary, it bore the burden of proving that its

breach did not cause the Plan’s loss.

“We review a judgment resulting from a bench trial under a

mixed standard of review -- factual findings may be reversed

19
only if clearly erroneous, while conclusions of law are examined

de novo.” Plasterers’, 663 F.3d at 215 (internal quotation

marks omitted).

III.

We first consider the district court’s finding that RJR

breached its duty of procedural prudence. 6

A.

ERISA requires fiduciaries to employ “appropriate methods

to investigate the merits of the investment and to structure the

investment” as well as to “engage[] in a reasoned decision[-

]making process, consistent with that of a ‘prudent man acting

in [a] like capacity.’” DiFelice, 497 F.3d at 420. The duty of

6
We can quickly dispose of RJR’s claim that it was not a
fiduciary subject to ERISA’s duty of prudence. RJR argues that
the Plan fiduciaries, the Benefits Committee and the Investment
Committee, exercised “exclusive fiduciary authority” over the
management and administration of the Plan and that RJR qua
employer is thus not liable as a Plan fiduciary. Appellee’s Br.
49. ERISA, however, does not limit fiduciary status to the
fiduciaries named in a plan document. Instead, ERISA provides
that a person or entity is a “functional fiduciary” to the
extent that he, she, or it “exercises any discretionary
authority or discretionary control respecting management . . .
or disposition of [the plan’s] assets.” 29 U.S.C. § 1002(21)(A)
(emphasis added). Recognizing this standard, the district court
held that RJR “made and implemented the elimination decision
before any official committee action was ever attempted and
failed to use the committees designated in the Plan . . . for
any of the discretionary decisions.” Tatum, 926 F. Supp. 2d at
672 n.18. Thus, we think it clear that RJR exercised actual
control over the management and disposition of Plan assets, and
so acted as a functional fiduciary.

20
prudence also requires fiduciaries to monitor the prudence of

their investment decisions to ensure that they remain in the

best interest of plan participants. Id. at 423.

“The evaluation is not a general one, but rather must

‘depend on the character and aim of the particular plan and

decision at issue and the circumstances prevailing at the

time.’” Id. at 420 (alteration omitted) (quoting Bussian v. RJR

Nabisco, Inc., 223 F.3d 286, 299 (5th Cir. 2000)). Of course, a

prudent fiduciary need not follow a uniform checklist. Courts

have found that a variety of actions can support a finding that

a fiduciary acted with procedural prudence, including, for

example, appointing an independent fiduciary, seeking outside

legal and financial expertise, holding meetings to ensure

fiduciary oversight of the investment decision, and continuing

to monitor and receive regular updates on the investment’s

performance. See, e.g., id. at 420-21; Bunch v. W.R. Grace &

Co., 555 F.3d 1, 8-9 (1st Cir. 2009); Laborers Nat’l Pension

Fund v. N. Trust Quantitative Advisors, Inc., 173 F.3d 313, 322

(5th Cir. 1999). 7 In other words, although the duty of

procedural prudence requires more than “a pure heart and an

7
By contrast, courts have found that a fiduciary’s failure
to act in accordance with plan documents serves as evidence of
imprudent conduct -- in addition to independently violating
Subsection (D) of § 1104(a)(1) –- so long as the plan documents
are consistent with ERISA’s requirements. See, e.g., Dardaganis
v. Grace Capital, Inc., 889 F.2d 1237, 1241 (2d Cir. 1989).

21
empty head,” DiFelice, 497 F.3d at 418 (internal quotation marks

and citation omitted), courts have readily determined that

fiduciaries who act reasonably –- i.e., who appropriately

investigate the merits of an investment decision prior to acting

-- easily clear this bar.

B.

The district court carefully examined the relevant facts

and made extensive factual findings to support its conclusion

that RJR failed to engage in a prudent decision-making process.

The court found that “the working group’s decision in March

1999 was made with virtually no discussion or analysis and was

almost entirely based upon the assumptions of those present and

not on research or investigation.” Tatum, 926 F. Supp. 2d at

678. Indeed, the court found that the group’s discussion of the

Nabisco stocks lasted no longer than an hour and focused

exclusively on removing the funds from the Plan.

The court further found “no evidence that the [working

group] ever considered an alternative [to divestment within six

months], such as maintaining the stock in a frozen fund

indefinitely, making the timeline for divestment longer, or any

other strategy to minimize a potential immediate loss to

participants or any potential opportunity for gain.” Id. at

680. Instead, the “driving consideration” was the “general risk

of a single stock fund,” as well as “the emphasis on the

22
unconfirmed assumption that RJR would no longer be exempt from

the ERISA diversification requirement because the funds would no

longer be employer stocks.” Id. at 678. Yet the evidence

adduced at trial showed that “no one researched the accuracy of

that assumption, and it was later determined that nothing in the

law or regulations required that the Nabisco Funds be removed

from the Plan.” Id. at 680.

The district court found that “the six month timeline for

the divestment was chosen arbitrarily and with no research.”

Id. at 679. The working group failed to consider “[t]he idea

that, perhaps, it would take a while for the tobacco taint to

dissipate” or “the fact that determining for employees exactly

when the stocks would be removed could result in large and

unnecessary losses to the Plan through the individual accounts

of employees.” Id. Similarly, there was no consideration of

“the purpose of the Plan, which was for long term retirement

savings,” or “the purpose of the spin-off, which was, in large

part, to allow the Nabisco stock a chance to recover from the

tobacco taint and hopefully rise in value.” Id. at 678. The

court found the failure to consider these issues particularly

notable “[g]iven that the strategy behind the spin-off was

largely to rid Nabisco stock prices of the ‘tobacco taint.’”

Id. at 680.

23
 The court also found that the only time following the spin-

off that RJR “actually discussed the merits of the [March]

decision was at the October 8, 1999 meeting.” Id. at 681. In

that meeting, Gordon raised the concern from RJR’s CEO that

“participants were questioning the timing of the elimination

given the Nabisco stocks’ continued decline in value.” Id.

Although RJR engaged in this additional discussion, it undertook

no investigation into the assumptions underlying its March

decision to sell the Plan’s Nabisco stock. Id. at 682.

Rather, those involved in the October discussion expressed

“their view that the employees who cashed out their Nabisco

stock at a loss were a problem,” and there was “fear that

[these] early sellers might sue RJR.” Id. at 681 (internal

quotation marks and alterations omitted). The court found that

the discussion “focused around the liability of RJR, rather than

what might be in the best interest of the participants.” Id. at

682 (emphasis in original). As a result, RJR failed to explore

the option of amending the Plan to temporarily unfreeze the

Nabisco Funds and give “the early sellers the opportunity to

repurchase the stock.” Id. Nor did RJR consider any “other

alternatives for remedying the problem.” Id. The court noted

that, despite fearing liability, RJR “still did not engage an

independent analyst or outside counsel to analyze the problem.”

Id. at 681-82.

24
 The court found no evidence of any other discussions in

which RJR ever “contemplated any formal action other than what

had already been decided at the March meeting.” Id. at 680.

Instead, the evidence showed that RJR’s focus after the spin-off

“was on setting a specific date for divestment and on providing

notice to participants regarding the planned removal of the

funds.” Id. at 680-81. “Indicative of the pervading mindset

against reexamining the original decision were the

communications known to be false when sent to participants” by

RJR with the October 1999 and January 2000 401(k) statements.

Id. at 681.

In sum, the district court found that “there [wa]s no

evidence -- in the form of documentation or testimony -- of any

process by which fiduciaries investigated, analyzed, or

considered the circumstances regarding the Nabisco stocks and

whether it was appropriate to divest.” Id. at 679. The court

explained that, in light of the fiduciary duty to act “solely in

the interest of participants and beneficiaries,” it was clearly

improper for the fiduciaries “to consider their own potential

liability as part of the reason for not changing course on their

decision to divest the Plan of Nabisco stocks.” Id. at 681

(emphasis in original). The district court concluded that

“[t]he lack of effort on the part of those considering the

removal of the Nabisco Funds –- from March 1999 until the stock

25
was removed from the plan on January 31, 2000 –- compel[led] a

finding that the RJR decision-makers in this case failed to

exercise prudence in coming to their decision to eliminate the

Nabisco Funds from the Plan.” Id. at 682.

C.

Despite these extensive factual findings, RJR contends that

it did not breach its duty of procedural prudence and that the

district court too rigorously scrutinized its procedural process

in so holding. We cannot agree.

As a threshold matter, RJR provides no basis for this court

to question the district court’s well-supported factual finding

that RJR failed to present evidence of “any process by which

fiduciaries investigated, analyzed, or considered the

circumstances regarding the Nabisco stocks and whether it was

appropriate to divest.” Id. at 679 (emphasis added). By

conducting no investigation, analysis, or review of the

circumstances surrounding the divestment, RJR acted with

procedural imprudence no matter what level of scrutiny is

applied to its actions.

Instead of grappling with its failure to conduct any

investigation, RJR urges us to hold that it did not breach its

duty of procedural prudence because certain types of investment

decisions assertedly trigger a lesser standard of procedural

prudence. Thus, RJR contends that “[n]on-employer, single stock

26
funds are imprudent per se” due to their inherent risk.

Appellee’s Br. 35. 8 But this per se approach is directly at odds

with our case law and federal regulations interpreting ERISA’s

duty of prudence. See DiFelice, 497 F.3d at 420 (explaining

that, in all cases, evaluating the prudence of an investment

decision requires a totality-of-the-circumstances inquiry that

takes into account “the character and aim of the particular plan

and decision at issue and the circumstances prevailing at the

time” (internal quotation marks omitted)); 29 C.F.R.

§ 2550.404a-1(b)(1) (stressing the importance of a totality-of-

the-circumstances inquiry). Indeed, in promulgating its

regulations, the Department of Labor expressly rejected the

suggestion that a particular investment can be deemed per se

prudent or per se imprudent based on its level of risk. See

Investment of Plan Assets under the “Prudence” Rule, 44 Fed.

Reg. 37,221, 37,225 (June 26, 1979); see also id. at 37,224-25

(declining to create “any list of investments, classes of

investment, or investment techniques” deemed permissible or

impermissible under the prudence rule).

Nor is there any merit to RJR’s contention that its

decision to sell the employees’ Nabisco shares merits less

8
We note that at the time plan participants purchased
shares of the Nabisco Funds through the Plan, they were indeed
employer funds.

27
scrutiny because that decision was assertedly made “in the face

of financial trouble” to “protect[] participants and advance[] a

fiduciary’s duty to ‘minimize the risk of large losses.’”

Appellee’s Br. 34 (citation omitted). To adopt this argument,

we would have to ignore the findings of the district court as to

the actual context in which RJR acted.

The court found that, without undertaking any

investigation, RJR forced the sale, within an arbitrary

timeframe, of funds in which Plan participants had already

invested. The court found that RJR adhered to that decision in

the face of sharply declining share prices and despite

contemporaneous analyst reports projecting the future growth of

those share prices and “overwhelmingly” recommending that

investors “buy” or at least “hold” Nabisco stocks. The court

also found that RJR did so without consulting any experts,

without considering that the Plan’s purpose was to provide for

retirement savings, and without acknowledging that the spin-off

was undertaken in large part to enhance the future value of the

Nabisco stock by eliminating the tobacco taint.

The district court further found that RJR sold the Nabisco

funds when it did because of its fear of liability, not out of

concern for its employees’ best interests. RJR blinks at

reality in maintaining that its actions served to “protect[]

participants” or to “minimize the risk of large losses.” To the

28
contrary, RJR’s decision to force the sale of its employees’

shares of Nabisco stock, within an arbitrary timeframe and

irrespective of the prevailing circumstances, ensured immediate

and permanent losses to the Plan and its beneficiaries.

In sum, in support of its holding that RJR breached its

duty of procedural prudence, the district court made extensive

and careful factual findings, all of which were well supported

by the record evidence. RJR’s challenge to those findings

fails.

IV.

We next address the district court’s holding with respect

to which party bears the burden of proof as to loss causation.

A breach of fiduciary duty “does not automatically equate to

causation of loss and therefore liability.” Plasterers’, 663

F.3d at 217. ERISA provides that a fiduciary who breaches its

duties “shall be personally liable” for “any losses to the plan

resulting from each such breach.” Id. (quoting 29 U.S.C.

§ 1109(a)). Accordingly, in Plasterers’, we adopted the Seventh

Circuit’s reasoning that “[i]f trustees act imprudently, but not

dishonestly, they should not have to pay a monetary penalty for

their imprudent judgment so long as it does not result in a loss

to the Fund.” Id. (emphasis added) (quoting Brock v. Robbins,

830 F.2d 640, 647 (7th Cir. 1987)). We cautioned, however, that

29
“imprudent conduct will usually result in a loss to the fund, a

loss for which [the fiduciary] will be monetarily penalized.”

Id. at 218 (quoting Brock, 830 F.3d at 647). But in Plasterers’

we did not need to answer the question of which party bore the

burden of proof on loss causation.

In this case, the district court had to resolve that

question. The court held that the burden of both production and

persuasion rested on RJR at this stage of the proceedings. The

court explained that “once Tatum made a showing that there was a

breach of fiduciary duty and some sort of loss to the plan, RJR

assumed the burden (that is, the burden of production and

persuasion) to show that the decision to remove the Nabisco

stock from the plan was objectively prudent.” Tatum, 926 F.

Supp. 2d at 683. 9 RJR contends that in doing so, the court

erred. We disagree.

Generally, of course, when a statute is silent, the default

rule provides that the burden of proof rests with the plaintiff.

Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 56 (2005). But

“[t]he ordinary default rule . . . admits of exceptions,” id. at

57, and one such exception arises under the common law of

9
Thus, contrary to RJR’s passing comment on appeal, see
Appellee’s Br. 22 n.4, the district court did find that Tatum
made a prima facie showing of loss. Moreover, no party disputes
that, on January 31, 2000, when RJR sold all of the Plan’s
Nabisco stock, that stock’s value was at an all-time low.

30
trusts. “[I]n matters of causation, when a beneficiary has

succeeded in proving that the trustee has committed a breach of

trust and that a related loss has occurred, the burden shifts to

the trustee to prove that the loss would have occurred in the

absence of the breach.” Restatement (Third) of Trusts § 100,

cmt. f (2012) (internal citation omitted); see also Bogert &

Bogert, The Law of Trusts and Trustees § 871 (2d rev. ed. 1995 &

Supp. 2013) (“If the beneficiary makes a prima facie case, the

burden of contradicting it . . . will shift to the trustee.”).

The district court adopted this well-established approach.

It reasoned that requiring the defendant-fiduciary, here RJR, to

bear the burden of proof was the “most fair” approach

“considering that a causation analysis would only follow a

finding of [fiduciary] breach.” Tatum, 926 F. Supp. 2d at 684;

see also Roth, 16 F.3d at 917 (stating that once the ERISA

plaintiff meets this burden, “the burden of persuasion shifts to

the fiduciary to prove that the loss was not caused by . . . the

breach of duty.” (alteration in original) (internal quotation

marks omitted)); McDonald v. Provident Indem. Life Ins. Co., 60

F.3d 234, 237 (5th Cir. 1995); cf. Sec’y of U.S. Dep’t of Labor

v. Gilley, 290 F.3d 827, 830 (6th Cir. 2002) (placing the burden

of proof on the defendant-fiduciary to disprove damages); N.Y.

31
State Teamsters Council v. Estate of DePerno, 18 F.3d 179, 182-

83 (2d Cir. 1994) (same). 10

We have previously recognized the burden-shifting framework

in an analogous context. In Brink v. DaLesio, 667 F.2d 420 (4th

Cir. 1982), modified and superseded on denial of reh’g, (1982),

we considered the impact of a breach of fiduciary duty under the

10
None of the cases RJR and the dissent cite to support
their contrary view persuade us that the district court erred.
See Silverman v. Mut. Benefit Life Ins. Co., 138 F.3d 98, 105
(2d Cir. 1998); Kuper v. Iovenko, 66 F.3d 1447, 1459 (6th Cir.
1995), abrogated by Fifth Third Bancorp v. Dudenhoeffer, No. 12–
751, 573 U.S. -- (2014); Willett v. Blue Cross & Blue Shield of
Ala., 953 F.2d 1335, 1343 (11th Cir. 1992). Neither Kuper nor
Willett addressed a situation in which plaintiffs had already
established both fiduciary breach and a loss. Moreover, in
Silverman, the decision not to shift the burden of proof was
based in large part on the unique nature of a co-fiduciary’s
liability under § 1105(a)(3). See 138 F.3d at 106 (Jacobs, J.,
concurring). That reasoning does not apply to the present case,
in which plan participants sued under § 1104(a)(1) and alleged
losses directly linked to the defendant-fiduciary’s own
fiduciary breach. Nor does it appear that the Second Circuit
would apply the Silverman reasoning to a case brought under
§ 1104(a). See N.Y. State Teamsters Council, 18 F.3d at 182,
182-83 (acknowledging “the general rule that a plaintiff bears
the burden of proving the fact of damages” but concluding in an
ERISA case that “once the beneficiaries have established their
prima facie case by demonstrating the trustees’ breach of
fiduciary duty, the burden of explanation or justification
shifts to the fiduciaries” (internal quotation marks and
alterations omitted)). Furthermore, Willett, which the dissent
quotes at length, actually undercuts its position. There the
court held that the burden of proof remained with the plaintiff,
prior to establishing breach, but that “in order to prevail as a
matter of law,” it was the defendant-fiduciary who had to
“establish the absence of causation by proving that the
beneficiaries’ claimed losses could not have resulted from
[defendant-fiduciary’s] failure to cure [the co-fiduciary’s]
breach.” 953 F.2d at 1343 (emphasis added).

32
Labor-Management Reporting and Disclosure Act, 29 U.S.C. § 501.

We explained that “[i]t is generally recognized that one who

acts in violation of his fiduciary duty bears the burden of

showing that he acted fairly and reasonably.” Id. at 426.

Thus, we held that the district court in that case had erred

when, after finding that the defendant breached his fiduciary

duty, it placed the burden on the plaintiffs to prove what, if

any, damages were attributable to that breach. Id. 11

Moreover, this burden-shifting framework comports with the

structure and purpose of ERISA. As stated in its preamble, the

statute’s primary objective is to protect “the interests of

participants in employee benefit plans and their beneficiaries.”

29 U.S.C. § 1001(b). To achieve this purpose, ERISA imposes

fiduciary obligations on those responsible for administering

11
RJR and the dissent suggest that our holding in U.S. Life
Insurance Co. v. Mechanics & Farmers Bank, 685 F.2d 887 (4th
Cir. 1982), supports their view that RJR did not bear the burden
of proof. They contend that in U.S. Life, we held that “placing
the burden of proof on a plaintiff [here Tatum] to prove
causation is supported by trust law.” Appellee’s Br. 21. But,
in fact, in U.S. Life, we dealt with the unique situation in
which a trustee breached the terms of an indenture agreement and
so assertedly violated state contract law. 685 F.2d at 889.
Because the parties’ relationship was principally contractual in
nature (a critical fact that both RJR and the dissent ignore),
we declined to apply a burden-shifting framework in what we held
was, in essence, a “typical breach of contract type of case.”
Id. at 896. Here, by contrast, ERISA –- not a contract –-
governs the parties’ relationship, and expressly imposes
fiduciary -- not contractual -- duties. Thus, U.S. Life offers
no support to RJR and the dissent.

33
employee benefit plans and plan assets, and provides for

enforcement through “appropriate remedies, sanctions, and ready

access to the Federal courts.” Id. As amicus Secretary of

Labor notes, “[i]mposing on plaintiffs who have established a

fiduciary breach and a prima facie case of loss the burden of

showing that the loss would not have occurred in the absence of

a breach would create significant barriers for those (including

the Secretary) who seek relief for fiduciary breaches.” Amicus

Br. of Sec’y of Labor 19-20. Such an approach would “provide an

unfair advantage to a defendant who has already been shown to

have engaged in wrongful conduct, minimizing the fiduciary

provisions’ deterrent effect.” Id. at 20.

In sum, the long-recognized trust law principle -- that

once a fiduciary is shown to have breached his fiduciary duty

and a loss is established, he bears the burden of proof on loss

causation -- applies here. Overwhelming evidence supported the

district court’s finding that RJR breached its fiduciary duty to

act prudently and that this breach resulted in a prima facie

showing of loss to the Plan. Thus, the court did not err in

requiring RJR to prove that its imprudent decision-making did

not cause the Plan’s loss. Accordingly, we turn to the question

of whether the district court correctly held that RJR carried

its burden of proof on causation.

34
 V.

To carry its burden, RJR had to prove that despite its

imprudent decision-making process, its ultimate investment

decision was “objectively prudent.” Because the term “objective

prudence” is not self-defining, in Plasterers’, we turned to the

standard set forth by our sister circuits. Thus, we explained

that a decision is “objectively prudent” if “a hypothetical

prudent fiduciary would have made the same decision anyway.”

663 F.3d at 218 (quoting Roth, 16 F.3d at 919) (emphasis added);

see also Peabody v. Davis, 636 F.3d 368, 375 (7th Cir. 2011);

Bussian, 223 F.3d at 300; In re Unisys Sav. Plan Litig., 173

F.3d 145, 153-54 (3d Cir. 1999). Under this standard, a

plaintiff who has proved the defendant-fiduciary’s procedural

imprudence and a prima facie loss prevails unless the defendant-

fiduciary can show, by a preponderance of the evidence, that a

prudent fiduciary would have made the same decision. Put

another way, a plan fiduciary carries its burden by

demonstrating that it would have reached the same decision had

it undertaken a proper investigation.

Somewhat surprisingly, the dissent accuses us of concocting

a new standard for loss causation, never adopted in Plasterers’.

We cannot agree. We are simply applying the standard set forth

by this court in Plasterers’, a case on which the dissent itself

heavily relies. The dissent’s claim that Plasterers’ decided

35
nothing more than that “causation of loss is not an axiomatic

conclusion that flows from a breach” is baseless. For in

Plasterers’, immediately after recognizing that the district

court had been “without the benefit of specific circuit guidance

on this issue,” 663 F.3d at 218 n.9, we stated what loss

causation means. Thus, we then explained: “Even if a trustee

failed to conduct an investigation before making a decision, he

is insulated from liability [under § 1109(a)] if a hypothetical

prudent fiduciary would have made the same decision anyway.”

Id. at 218 (quoting Roth, 16 F.3d at 919). This language would

serve no purpose in the opinion if not to instruct the district

court regarding the proper analysis on remand. 12

12
Moreover, the dissent is simply mistaken in contending
that the standard applicable for loss causation “was not
discussed, was not briefed, and was not before the court” in
Plasterers’. In urging the court to adopt the loss causation
requirement, the appellants’ brief in Plasterers’ cited the
language from then-Judge Scalia’s concurrence in Fink v. Nat’l
Sav. & Trust Co., 772 F.2d 951, 962 (D.C. Cir. 1985), see infra
at 40, and then recognized that:
The Eighth Circuit’s formulation of the rule [of loss
causation in Roth] is more common, if less colorful:
“Even if a trustee failed to conduct an investigation
before making a decision, he is insulated from
liability if a hypothetical prudent fiduciary would
have made the same decision anyway.” This rule
follows directly from § 409 of ERISA, which provides
that fiduciaries are liable only for “losses to the
plan resulting from . . . a breach.”
Br. of Appellants 21-22, Plasterers’, 663 F.3d 210 (emphasis
added) (citations omitted). Thus, both the loss causation
requirement and the standard used to define it were indeed
discussed, briefed, and before the court in Plasterers’.

36
 The district court properly acknowledged the “would have”

standard that we and our sister circuits have adopted. See

Tatum, 926 F. Supp. 2d at 683. But the court nonetheless

applied a different standard. Thus, it required RJR to prove

only that “a hypothetical prudent fiduciary could have decided

to eliminate the Nabisco Funds on January 31, 2000.” Id. at 690

(emphasis added). The manner in which the district court

evaluated the evidence unquestionably demonstrates that it

indeed meant “could have” rather than “would have.” See, e.g.,

id. at 689 n.29, 690. For instead of determining whether the

evidence established that a prudent fiduciary, more likely than

not, would have divested the Nabisco Funds at the time and in

the manner in which RJR did, the court concluded that the

evidence did not “compel a decision to maintain the Nabisco

Funds in the Plan,” and that a prudent investor “could [have]

infer[red]” that it was prudent to sell. Id. at 686 (emphasis

added). 13

13
For this analysis, the court relied on Kuper v. Quantum
Chemicals Corp., 852 F. Supp. 1389, 1395 (S.D. Ohio 1994), aff’d
sub nom. Kuper v. Iovenko, 66 F.3d at 1447. But Kuper is
inapposite because it applied a presumption of reasonableness to
a fiduciary’s decision to retain company stock, a presumption
that plaintiffs failed to rebut by establishing breach of
fiduciary duty. See 66 F.3d at 1459. We have never applied
this presumption, and the Supreme Court has recently clarified
that ERISA contains no such presumption. See Dudenhoeffer, No.
12–751, 573 U.S.--, at 1. Moreover, this case differs from
Kuper in two critical respects. First, Tatum challenges the
(Continued)
37
 RJR recognizes that the district court applied a “could

have” standard, but argues that this is the proper standard for

determining whether its divestment decision was objectively

prudent. Alternatively, RJR maintains that, even if the

district court erred in applying the “could have” rather than

“would have” standard, the error was harmless. We address these

arguments in turn.

A.

RJR acknowledges that the causation inquiry requires a

finding of objective prudence. But it contends that a court

measures a fiduciary’s objective prudence by determining whether

its “decision, when viewed objectively, is one a hypothetical

prudent fiduciary could have made.” Appellee’s Br. 16 (emphasis

added).

But we, like our sister circuits, have adopted the “would

have” standard to determine a fiduciary’s objective prudence.

As the Supreme Court has explained, the distinction between

“would” and “could” is both real and legally significant. See

divestment of stock, while Kuper involved a challenge to the
retention of stock. Second, Tatum has established that RJR
breached its fiduciary duty; Kuper never established this.
Notably, the Sixth Circuit, which decided Kuper, has since
expressly recognized, at least with respect to the amount of
damages, that when a fiduciary breach is established,
“uncertainty should be resolved against the breaching
fiduciary.” Gilley, 290 F.3d at 830 (emphasis added).

38
Knight v. Comm’r, 552 U.S. 181, 187-88, 192 (2008). In opining

that this distinction is simply “semantics at its worst,” the

dissent ignores Knight. There, the Court instructed that

“could” describes what is merely possible, while “would”

describes what is probable. Id. at 192. “[D]etermining what

would happen if a fact were changed . . . necessarily entails a

prediction; and predictions are based on what would customarily

or commonly occur.” Id. (emphasis added). Inquiring what could

have occurred, by contrast, spans a much broader range of

decisions, encompassing even the most remote of possibilities.

See id. at 188 (“The fact that an individual could . . . do

something is one reason he would . . ., but not the only

possible reason.”).

The “would have” standard is, of course, more difficult for

a defendant-fiduciary to satisfy. And that is the intended

result. “Courts do not take kindly to arguments by fiduciaries

who have breached their obligations that, if they had not done

this, everything would have been the same.” In re Beck Indus.,

Inc., 605 F.2d 624, 636 (2d Cir. 1979). ERISA’s statutory

scheme is premised on the recognition that “imprudent conduct

will usually result in a loss to the fund, a loss for which [the

fiduciary] will be monetarily penalized.” Plasterers’, 663 F.3d

at 218 (quoting Brock, 830 F.3d at 647). We would diminish

ERISA’s enforcement provision to an empty shell if we permitted

39
a breaching fiduciary to escape liability by showing nothing

more than the mere possibility that a prudent fiduciary “could

have” made the same decision. As the Secretary of Labor notes,

this approach would “create[] too low a bar, allowing breaching

fiduciaries to avoid financial liability based on even remote

possibilities.” Amicus Br. of Sec’y of Labor 23. 14

To support its contrary argument, RJR heavily relies on

then-Judge Scalia’s concurrence in Fink v. Nat’l Sav. & Trust

Co., 772 F.2d 951 (D.C. Cir. 1985), in which he states:

I know of no case in which a trustee who has happened
–- through prayer, astrology or just blind luck –- to
make (or hold) objectively prudent
investments . . . has been held liable for losses from
those investments because of his failure to
investigate or evaluate beforehand.

Id. at 962 (Scalia, J., concurring in part and dissenting in

part). But, despite the protestations of RJR and the dissent,

14
Moreover, notwithstanding the suggestion of RJR and the
dissent, the Supreme Court in Dudenhoeffer did not hold that the
“could have” standard applies in determining whether a trustee,
like RJR, who has utterly failed in its duty of procedural
prudence, has nonetheless acted in an objectively prudent manner
and so not caused loss to the plan. Rather, Dudenhoeffer
addressed an allegation that a fiduciary failed to act on
insider information. In this very different context, the Court
held that when “faced with such claims,” courts should “consider
whether the complaint has plausibly alleged that a prudent
fiduciary in the defendant’s position could not have concluded
that [acting on insider information] would do more harm than
good.” Dudenhoeffer, No. 12-751, 573 U.S. --, at 20 (emphasis
added). The Court’s use of “could not have” in this limited
context does not cast doubt on our instruction that a “would
have” standard applies to determine loss causation after a
fiduciary breach has been established.

40
this observation is entirely consistent with the “would have”

standard we adopted in Plasterers’. It is simply another way of

saying the same thing: that a fiduciary who fails to

“investigate and evaluate beforehand” will not be found to have

caused a loss if the fiduciary would have made the same decision

if he had “investigat[ed] and evaluat[ed] beforehand.” Id.

Stated yet another way, the inquiry is whether the loss would

have occurred regardless of the fiduciary’s imprudence.

Of course, intuition suggests, and a review of the case law

confirms, that while such “blind luck” is possible, it is rare.

When a plaintiff has established a fiduciary breach and a loss,

courts tend to conclude that the breaching fiduciary was liable.

See Peabody, 636 F.3d at 375; Allison v. Bank One-Denver, 289

F.3d 1223, 1239 (10th Cir. 2002); Meyer v. Berkshire Life Ins.

Co., 250 F. Supp. 2d 544, 571 (D. Md. 2003), aff’d, 372 F.3d

261, 267 (4th Cir. 2004); cf. Chao v. Hall Holding Co., 285 F.3d

415, 434, 437-39 (6th Cir. 2002); Donovan v. Cunningham, 716

F.2d 1455, 1476 (5th Cir. 1983). As explained above, that is

precisely the result anticipated by ERISA’s statutory scheme.

B.

Alternatively, RJR maintains that, even if the district

court erred in applying the “could have” rather than “would

have” standard, the error was harmless. This is so, in RJR’s

view, because the facts found by the district court as to the

41
high-risk nature of the Nabisco Funds unquestionably establish

that a prudent fiduciary would have eliminated them from the

Plan. Appellee’s Br. 20. This argument also fails.

Although risk is a relevant consideration in evaluating a

divestment decision, risk cannot in and of itself establish that

a fiduciary’s decision was objectively prudent. Indeed, in

promulgating the regulations governing ERISA fiduciary duties,

the Department of Labor expressly rejected such an approach. In

its Preamble to Rules and Regulations for Fiduciary

Responsibility, the Department explained, as we noted above,

that “the risk level of an investment does not alone make the

investment per se prudent or per se imprudent.” Investment of

Plan Assets under the “Prudence” Rule, 44 Fed. Reg. 37,221,

37,225 (June 26, 1979). Moreover, the Department instructed

that:

an investment reasonably designed –- as part of a
portfolio –- to further the purposes of the plan, and
that is made upon appropriate consideration of the
surrounding facts and circumstances, should not be
deemed to be imprudent merely because the investment,
standing alone, would have, for example, a relatively
high degree of risk.

Id. at 37,224 (emphasis added); see also Dudenhoeffer, No. 12-

751, 573 U.S. --, at 15 (“Because the content of the duty of

prudence turns on ‘the circumstances . . . prevailing’ at the

time the fiduciary acts, § 1104(a)(1)(B), the appropriate

inquiry will necessarily be context specific.” (alteration in

42
original)); DiFelice, 497 F.3d at 420 (holding that, when

determining whether an ERISA fiduciary has acted prudently, a

court must consider the “character and aim of the particular

plan and decision at issue and the circumstances prevailing at

the time”). In sum, while the presence of risk is a relevant

consideration in determining whether to divest a fund held by an

ERISA plan, it is not controlling. We must therefore reject

RJR’s contention that it would necessarily be imprudent for a

fiduciary to maintain an existing single-stock investment in a

plan that, like the Plan at issue here, offers participants a

diversified portfolio of investment options.

Moreover, we cannot hold that the district court’s error in

adopting the “could have” standard was harmless when the

governing Plan document required the Nabisco Funds to remain as

frozen funds in the Plan. ERISA mandates that fiduciaries act

“in accordance with the documents and instruments governing the

plan insofar as such documents and instruments are consistent

with [ERISA].” 29 U.S.C. § 1104(a)(1)(D). 15 Accordingly, courts

15
On appeal, RJR suggests that following the Plan terms
would have been inconsistent with ERISA. Specifically, RJR
asserts that if it had maintained the Nabisco Funds as frozen
funds after the spin-off, it would have violated ERISA’s
requirement that fiduciaries “diversify[] investments of the
plan so as to minimize the risk of large losses.” Id.
§ 1104(a)(1)(C). Thus, RJR argues that it “was required to
divest the Nabisco Funds from the Plan.” Appellee’s Br. 27.
Before the district court, however, RJR properly “admit[ted]
(Continued)
43
have found a breaching fiduciary’s failure to follow plan

documents to be highly relevant in assessing loss causation.

See Allison, 289 F.3d at 1239; Dardaganis, 889 F.2d at 1241. 16

Tatum stipulated at trial that he would not assert that RJR’s

failure to adhere to the Plan’s terms rendered RJR automatically

liable under § 1109(a). But he expressly preserved his argument

that the Plan terms are “highly relevant” to the causation

analysis and that “a prudent fiduciary would have taken [them]

into account” in deciding whether to divest. Appellant’s Br. 28

n.13; see also Mem. re: Legal Effect of Invalid Plan Amendment

at 2, Tatum v. R.J. Reynolds Pension Inv. Comm. (2013)(No. 1:02-

cv-00373-NCT-LPA), ECF No. 365. Therefore, the district court

erred by failing to factor into its causation analysis RJR’s

lack of compliance with the governing Plan document.

For all of these reasons, after careful review of the

record, we cannot hold that the district court’s application of

that there are no regulations prohibiting single stock funds of
any kind in an ERISA plan.” Tatum, 926 F. Supp. 2d at 681. See
supra note 5; see also H.R. Rep. No. 93-1280, reprinted at 1974
U.S.C.C.A.N. 5038, 5084-85 (explaining that whether a
fiduciary’s investment of plan assets violates the
diversification duty depends on the “facts and circumstances of
each case”).
16
Of course, this does not mean, as the dissent suggests,
that plan terms trump the duty of prudence. It simply means
that plan terms, and the fiduciary’s lack of compliance with
those terms, inform a court’s inquiry as to how a prudent
fiduciary would act under the circumstances.

44
the incorrect “could have” standard was harmless. Particularly

given the extraordinary circumstances surrounding RJR’s decision

to divest the Nabisco Funds, including the timing of the

decision and the requirements of the governing Plan document, we

must conclude that application of the incorrect legal standard

may have influenced the court’s decision. Reversal is required

when a district court has applied an “incorrect [legal]

standard[]” that “may . . . have influenced its ultimate

conclusion.” See Harris v. Forklift Sys., Inc., 510 U.S. 17, 23

(1993).

The district court’s task on remand will be to review the

evidence to determine whether RJR has met its burden of proving

by a preponderance of the evidence that a prudent fiduciary

would have made the same decision. See Plasterers’, 663 F.3d at

218. 17 In doing so, the court must consider all relevant

17
In evaluating the evidence, the district court abused its
discretion to the extent it refused to consider the testimony of
one of Tatum’s experts, Professor Lys, regarding what a prudent
investor would have done under the circumstances. Even though
Professor Lys lacked expertise as to the specific requirements
of ERISA, his testimony was relevant as to what constituted a
prudent investment decision. See Plasterers’, 663 F.3d at 218;
see also Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir.
2009) (“A fiduciary must behave like a prudent investor under
similar circumstances . . . .”); Katsaros v. Cody, 744 F.2d 270,
279-80 (2d Cir. 1984) (noting that an investment expert’s lack
of experience with pension fund management did not affect his
qualifications to testify as to what constituted a prudent
investment decision in an ERISA case). On remand, the court
should consider this with all other relevant evidence.

45
evidence, including the timing of the divestment, as part of a

totality-of-the-circumstances inquiry. See Dudenhoeffer, No.

12-751, 573 U.S. --, at 15; DiFelice, 497 F.3d at 420. Perhaps,

after weighing all of the evidence, the district court will

conclude that a prudent fiduciary would have sold employees’

existing investments at the time and in the manner RJR did

because of the Funds’ high-risk nature, recent decline in value,

and RJR’s interest in diversification. Or perhaps the court

will instead conclude that a prudent fiduciary would not have

done so, because freezing the Funds had already mitigated the

risk and because divesting shares after they declined in value

would amount to “selling low” despite Nabisco’s strong

fundamentals and positive market outlook. In either case, the

district court must reach its conclusion after applying the

standard this court announced in Plasterers’ -- that is, whether

“a hypothetical prudent fiduciary would have made the same

decision anyway.” 663 F.3d at 218 (quotation marks omitted)

(emphasis added).

C.

Before concluding our discussion of loss causation, we must

briefly address the dissent’s apparent misunderstanding of our

holding, the facts found by the district court, and controlling

legal principles.

46
 The dissent repeatedly charges that we hold RJR “monetarily

liable for objectively prudent investment decisions.” It

further charges that we have “confuse[d] remedies” -- claiming

that fiduciaries who act with procedural imprudence should be

released from their fiduciary duties but not held monetarily

liable. These charges misstate our holding.

Our decision is a modest one. We affirm the district

court’s holdings that RJR breached its duty of procedural

prudence and that a substantial loss occurred. We simply remand

for the district court to determine whether, under the correct

legal standard, RJR’s imprudence caused that loss. If the court

determines that a fiduciary who conducted a proper investigation

would have reached the same decision, RJR will escape all

monetary liability, notwithstanding its procedural imprudence.

But if the court concludes to the contrary, then the law

requires that RJR be held monetarily liable for the Plan’s loss.

For, as noted above, Congress has expressly provided that a

fiduciary “who breaches any of the . . . duties imposed [by

ERISA] shall be personally liable to make good to [the] plan any

losses to the plan resulting from [the] breach.” 29 U.S.C.

§ 1109(a) (emphasis added).

Thus, contrary to the dissent’s rhetoric, nothing in our

holding requires a fiduciary to “make a decision that in the

light of hindsight proves best.” Instead, a fiduciary need only

47
adhere to its ERISA duties to avoid liability. So long as a

fiduciary undertakes a reasoned decision-making process, it need

never fear monetary liability for an investment decision it

determines to be in the beneficiaries’ best interest. This is

so even if that investment decision yields an outcome that in

hindsight proves, in the dissent’s language, less than

“optimal.” Indeed, our holding, like ERISA’s statutory scheme,

acknowledges the uncertainty of outcomes inherent in any

investment decision. Precisely for this reason, ERISA requires

fiduciaries to undertake a reasoned decision-making process

prior to making such decisions. Only because RJR failed to do

so here will it be monetarily liable under § 1109(a) for any

losses caused by its imprudence.

The dissent paints RJR as a faultless victim that, after

following a “prudent investment strategy” has fallen prey to

“opportunistic litigation.” In the dissent’s view, we are

“penalizing the RJR fiduciaries for doing nothing more than

properly diversifying the plan.” But the district court’s well-

supported factual findings establish that RJR did a good deal

more (or, more precisely, a good deal less). It made a

divestment decision that cost its employees millions of dollars

with “virtually no discussion or analysis,” without

consideration of any alternative strategy or consultation with

any experts, and without considering “the purpose of the Plan,

48
which was for long term retirement savings,” or “the purpose of

the spin-off, which was, in large part, to allow the Nabisco

stock a chance to recover from the tobacco taint and hopefully

rise in value.” Tatum, 926 F. Supp. 2d at 678-79. RJR carried

out this decision by adhering to a timeline that was “chosen

arbitrarily and with no research.” Id. at 679. And in doing

so, RJR failed to act “solely in the interests of participants

and beneficiaries” and instead “improperly considered its own

potential liability.” Id. at 681. Indeed, the extent of

procedural imprudence shown here appears to be unprecedented in

a reported ERISA case.

The dissent eschews the loss-causation standard that this

court articulated in Plasterers’, and would instead apply a new

standard that it dubs “objective prudence simpliciter.” Because

this standard is not self-defining (and the dissent does not

attempt to define it) it is unclear how this standard would

operate in practice. At times, the dissent’s analysis suggests

that its “objective prudence simpliciter” test is in fact a

“could have” standard. But, of course, the application of a

“could have” standard contravenes our instructions in

Plasterers’ and elides the critical distinction between “could

have” and “would have” that the Supreme Court drew in Knight.

Far from “fuss[ing]” over “semantics,” we are merely applying

the law.

49
 Moreover, the dissent fails to acknowledge the alarming

consequences of its “objective prudence simpliciter” standard.

Pursuant to this standard, ERISA’s protections would be

effectively unenforceable any time a fiduciary invokes the

talisman of “diversification.” Under the dissent’s reading of

the statute, any decision assertedly “made in the interest of

diversifying plan assets” would be automatically deemed

“objectively prudent.” This approach would put numerous

investment decisions beyond the reach of ERISA’s fiduciary

liability provision. As a result, in any case in which a

fiduciary could claim that it acted in pursuit of

diversification, ERISA would neither deter a fiduciary’s

imprudent decision-making, nor provide a make-whole remedy for

injured beneficiaries. Congress certainly did not intend this

result when it expressly provided that a fiduciary who breaches

“any” of its ERISA duties “shall be personally liable” for “any

losses to the Plan resulting from [the] breach.” 29 U.S.C.

§ 1109(a).

The Department of Labor, the body Congress specially

authorized to promulgate regulations interpreting ERISA, has

expressly rejected the dissent’s approach. Thus, the Department

explains that “the relative riskiness of a specific investment

or investment course of action does not render such investment

or investment course of action either per se prudent or per se

50
imprudent.” 44 Fed. Reg. 37,221, 37,222. Rather, “the prudence

of an investment decision should not be judged without regard to

the role that the proposed investment or investment course of

action plays within the overall plan portfolio.” Id. A court

cannot, as the dissent does, impose its own construction of a

statute instead of that of the agency that Congress has vested

with authority to interpret and administer it. See Chevron v.

Natural Res. Def. Council, 467 U.S. 837, 843 (1984).

By applying a new standard of its own making, by ignoring

the command in § 1109(a), and by refusing to follow precedent

or defer to appropriate regulations, it is the dissent who, in

its words, employs “linguistic contortions” to “obfuscate rather

than illuminate” the law and “overrid[e] the statute.” Unlike

the dissent, we refuse to make up and then apply an approach, at

odds with the law, that would render ERISA a nullity in the face

of any after-the-fact diversification defense.

VI.

Finally, we address the district court’s orders dismissing

the Benefits Committee and Investment Committee as defendants

and denying Tatum leave to amend his complaint to name the

individual committee members as defendants. We review the

former de novo, Smith v. Sydnor, 184 F.3d 356, 360-61 (4th Cir.

51
1999), and the latter for an abuse of discretion, Galustian v.

Peter, 591 F.3d 724, 729 (4th Cir. 2010).

A.

The court dismissed the Benefits Committee and Investment

Committee as defendants because it concluded that “committees”

are not “persons” capable of being sued under ERISA. That

statute defines “person” to include “an individual, partnership,

joint venture, corporation, mutual company, joint-stock company,

trust, estate, unincorporated organization, association, or

employee organization.” 29 U.S.C. § 1002(9). The district

court erred in reading this list as exhaustive. That the

provision does not expressly list “committees” does not mean

that committees cannot be “persons who are fiduciaries” under

ERISA.

We need look no further than the statute itself to conclude

that a committee may be a proper defendant-fiduciary. ERISA

provides that a “named fiduciary” is a “fiduciary who is named

in the plan instrument.” Id. § 1102(a)(2). The statute

requires that a plan document “provide for one or more named

fiduciaries who jointly or severally shall have authority to

control and manage the operation and administration of the

plan.” Id. § 1102(a)(1). This requirement ensures that

“responsibility for managing and operating the [p]lan -- and

liability for mismanagement -- are focused with a degree of

52
certainty.” Birmingham v. SoGen-Swiss Int’l Corp. Ret. Plan,

718 F.2d 515, 522 (2d Cir. 1983)(emphasis added). Here, the

Committees are the only named fiduciaries in the governing Plan

document. As such, these entities are proper defendants in a

suit alleging breach of fiduciary duty with respect to the Plan.

Accord H.R. Rep. No. 93-1280 (1974) (Conf. Rep.), reprinted in

1974 U.S.C.C.A.N. 5038, 5075-78 (noting that a board of trustees

could be a plan fiduciary even though “board” is not expressly

listed as “person” under ERISA).

Furthermore, Department of Labor regulations interpreting

the statute clearly state that a committee may serve as the

named fiduciary in a plan document. See 29 C.F.R. § 2509.75-5,

at FR-1. And this and other courts have routinely found

committees to be proper defendant-fiduciaries in ERISA suits.

See, e.g., Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir.

2009); In re Schering-Plough Corp. ERISA Litig., 420 F.3d 231,

233, 242 (3d Cir. 2005); Dzinglski v. Weirton Steel Corp., 875

F.2d 1075, 1080 (4th Cir. 1989). The district court’s contrary

holding is at odds with the Department of Labor regulations and

these cases. 18 Accordingly, we must reverse the court’s

dismissal of the Benefits Committee and Investment Committee.

18
To the extent there is any ambiguity in the relevant
provisions, we conclude that in interpreting the word “person”
and its corresponding definition at 29 U.S.C. § 1002(9), we
(Continued)
53
 B.

After limitations had run, Tatum moved for leave to amend

his first amended complaint to name the individual committee

members. The court denied the motion on the ground that Tatum’s

claims against the individual committee members did not “relate

back” to those in his first amended complaint, and thus the

statute of limitations barred suit against them.

As the district court correctly recognized, an amendment to

add an additional party “relates back” when (1) the claim

asserted in the proposed amendment arises out of the same

conduct set forth in the original pleading, and (2) the party to

be added (a) received timely notice of the action such that he

would not be prejudiced in maintaining a defense on the merits,

and (b) knew or should have known that he would have been named

as defendant “but for a mistake concerning the proper party’s

identity.” Fed. R. Civ. P. 15(c)(1). The district court

concluded that the individual committee members were not on

notice that they would have been named as defendants but for a

mistake concerning their identity. The court did not abuse its

discretion in so holding.

should take into account “Congress’s broad remedial goals,” In
re Beacon Assocs. Litig., 818 F. Supp. 2d 697, 706 (S.D.N.Y.
2011), which is consistent with our holding that “committees”
are proper defendant-fiduciaries in ERISA suits.

54
 In both his original complaint and in his first amended

complaint, Tatum named as defendants only RJR and the

Committees. Tatum’s decision not to include as defendants the

individual committee members reflected “a deliberate choice to

sue one party instead of another while fully understanding the

factual and legal differences between the two parties.” Krupski

v. Costa Crociere S. p. A., 560 U.S. 538, 549 (2010). This, the

Supreme Court has explained, “is the antithesis of making a

mistake concerning the proper party’s identity.” Id.

Accordingly, the Court has held that Rule 15(c)’s requirements

are not satisfied when, as here, “the original complaint and the

plaintiff’s conduct compel the conclusion that the failure to

name the prospective defendant in the original complaint was the

result of a fully informed decision.” Id. at 552.

VII.

For the foregoing reasons, we affirm the district court’s

holding that RJR breached its duty of procedural prudence and so

carries the burden of proof on causation, but vacate the

judgment in favor of RJR. We reverse the order dismissing the

Benefits Committee and the Investment Committee as defendants,

but affirm the order denying Tatum’s motion for leave to amend

his complaint to add additional defendants. We remand the case

for further proceedings consistent with this opinion.

55
 AFFIRMED IN PART, VACATED IN
PART, REVERSED IN PART,
AND REMANDED

56
WILKINSON, Circuit Judge, dissenting:

After a four-week bench trial, the district court found

that the investment decisions of the R.J. Reynolds Tobacco Co.

(RJR) fiduciaries were objectively prudent. It thus properly

refused to hold the RJR fiduciaries personally liable for

alleged plan losses.

Yet this court, breaking new ground, reverses the district

court. With all respect for my two fine colleagues, I do not

believe ERISA allows plan fiduciaries to be held monetarily

liable for prudent investment decisions, and especially not for

those made in the interest of diversifying plan assets. Market

conditions can, of course, create fluctuations, but a prudent

investment decision does not by definition cause a plan loss,

the precondition under 29 U.S.C. § 1109(a) for imposing personal

monetary liability upon fiduciaries.

The statutory remedy for a breach of procedural prudence

that precedes a reasonable investment decision includes,

explicitly, the removal of plan fiduciaries. The majority goes

much further, forcing fiduciaries to face the prospect of

personal monetary liability instead. This confusion of remedies

is wrong three times over, and its consequences will be

especially unfortunate for those who rely on ERISA plans for the

prudent administration of their retirement savings. As for

57
those who might contemplate future service as plan fiduciaries,

all I can say is: Good luck.

First, and yet again, under the remedial scheme laid out by

ERISA, fiduciaries should not be held monetarily liable for

objectively prudent investment decisions. This is true for

whatever standard -- "would have,” “could have,” or anything

else -- one adopts for loss causation. As I shall show, the

majority has adopted the wrong standard, one that strays from

the statutory test of objective prudence under then existing

circumstances, and one that trends toward a view of prudence as

the single best or most “likely” decision rather than a range of

reasonable judgments in the uncertain business of investing.

Despite the majority’s protestations, its reversal of the

district court’s well-grounded finding of objective prudence and

its imposition of a far more stringent test signals fiduciaries

that henceforth they had better make a decision that in the

light of hindsight proves the best.

Second, monetary liability is even less appropriate where,

as here, the reasonable decision was taken in the interests of

asset diversification. And third, on this record, the notion

that the RJR fiduciaries’ decision to liquidate the Nabisco

stocks was anything but prudent borders on the absurd.

ERISA is, first and foremost, meant to protect plan

participants from large, unexpected losses, including those that

58
result from holding undiversified single-stock non-employer

funds. The fiduciaries knew this fact and acted upon it, only

to find that prudent decisions, like good deeds, do not go

unpunished when the breezes of legal caprice blow in the wrong

direction.

As judges, we tend to regard the parties before us as

antagonists. It is, after all, an adversary system. But, in a

larger sense, the interests of plan participants and plan

fiduciaries often align. It does neither any good to run up

plan overhead with litigation over investment decisions taken,

as this one was, to diversify plan assets and protect employees

down life’s road. All will be losers -- perhaps fiduciaries

most immediately but plan participants, sadly, in the end.

I.

A.

It is, to repeat, doubtful that ERISA-plan fiduciaries

should ever be held monetarily liable for objectively reasonable

investment decisions. This follows from § 1109 of ERISA, which

provides that fiduciaries that breach their duties of procedural

prudence “shall be personally liable to make good to such plan

any losses to the plan resulting from each such breach.” 29

U.S.C. § 1109(a) (emphasis added). In other words, monetary

liability under § 1109 lies for a fiduciary’s breach of the duty

of procedural prudence only where a plaintiff also establishes

59
loss causation. Because investment outcomes are always

uncertain, not every investment decision that leads to a

diminution in plan assets counts as a loss for § 1109 purposes.

Rather, loss causation only exists if the substantive decision

was, all things considered, an objectively unreasonable one.

If, by contrast, we might expect a hypothetical prudent investor

to consider the decision prudent, the loss cannot be attributed

to the actual fiduciaries.

This interpretation of § 1109’s text is well established.

Then-Judge Scalia’s opinion in Fink v. National Savings & Trust

Co., 772 F.2d 951 (D.C. Cir. 1985), is the locus classicus for

the need to prove substantive imprudence prior to the imposition

of personal monetary liability under § 1109. In Fink, he

observed that he knew of

no case in which a trustee who has happened -- through
prayer, astrology or just blind luck -- to make (or
hold) objectively prudent investments (e.g., an
investment in a highly regarded “blue chip” stock) has
been held liable for losses from those investments
because of his failure to investigate and evaluate
beforehand.

Id. at 962 (Scalia, J., concurring in part and dissenting in

part). The majority misreads the Fink concurrence to require

that a hypothetical prudent fiduciary make “the same decision.”

Maj. Op. at 41. In so doing, the majority imputes its own

erroneous interpretation of loss causation into Justice Scalia’s

invocation of “objectively prudent investments.” Indeed, the

60
example Justice Scalia gave -- an investment in a highly

regarded blue chip stock -- demonstrates the obvious: just as

there is more than one such blue chip stock, there is a

reasonable range of investments that qualify as objectively

prudent.

Although there is an evidentiary relationship between the

breach of a fiduciary’s duty of procedural prudence and loss

causation, these two elements of fiduciary liability under ERISA

are distinct: “It is the imprudent investment rather than the

failure to investigate and evaluate that is the basis of suit;

breach of the latter duty is merely evidence bearing upon breach

of the former, tending to show that the trustee should have

known more than he knew.” Fink, 772 F.2d at 962 (Scalia, J.,

concurring in part and dissenting in part).

The question posed by this case has in fact already been

decided. This circuit has embraced Justice Scalia’s approach.

In Plasterers’ Local Union No. 96 Pension Plan v. Pepper, 663

F.3d 210 (4th Cir. 2011), we considered a suit for breach of

fiduciary duty under ERISA against former plan fiduciaries. We

noted that “simply finding a failure to investigate or diversify

does not automatically equate to causation of loss and therefore

liability.” 663 F.3d at 217. Rather, in order to hold

fiduciaries “liable for damages based on their given breach of

[their] fiduciary dut[ies]” described in 29 U.S.C. § 1104, a

61
“court must first determine that the [fiduciaries’] investments

were imprudent.” Id.; see also id. at 218 (quoting Justice

Scalia’s opinion in Fink). The loss, in other words, must

“result[] from” the breach, 29 U.S.C. § 1109(a), which it cannot

if the investment itself was a prudent one. 1

Our sister circuits have also generally adopted Justice

Scalia’s reasoning as to loss causation in Fink. See, e.g.,

Renfro v. Unisys Corp., 671 F.3d 314, 322 (3d Cir. 2011)

(approving of the objective-prudence test for fiduciary

liability under ERISA); Kuper v. Iovenko, 66 F.3d 1447, 1459-60

(6th Cir. 1995), abrogated on other grounds by Fifth Third

Bancorp v. Dudenhoeffer, No. 12-751, 573 U.S. __, slip op. at 8

(June 25, 2014); Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915,

919 (8th Cir. 1994) (“Even if a trustee failed to conduct an

1
The majority claims that “in Plasterers’, we turned to the
standard set forth by our sister circuits. Thus, we explained
that a decision is ‘objectively prudent’ if ‘a hypothetical
prudent fiduciary would have made the same decision anyway.’”
Maj. Op. at 35 (quoting Plasterers’, 663 F.3d at 218). Nothing
could be more in error. Nothing -- no combination of phrases,
words, or syllables -- in Plasterers’ amounts to an adoption of
a “would have” standard. The quotation the majority treats as a
holding was used merely to demonstrate that “causation of loss
is not an axiomatic conclusion that flows from a breach” of a
procedural duty. 663 F.3d at 218. In actuality, the holding of
the court was that fiduciaries “can only be held liable for
losses to the Plan actually resulting from their failure to
investigate.” Id. The brief snippet the majority quotes from
appellants’ brief in Plasterers’, Maj. Op. at 36 n.12, only
fortifies the central point: “Would have” versus “could have”
was not discussed, was not briefed, and was not before the
court.

62
investigation before making a decision, he is insulated from

liability if a hypothetical prudent fiduciary would have made

the same decision anyway.”). To be sure, the insufficiently

studious fiduciary may be (and quite possibly should be)

relieved of his responsibilities. But for monetary liability to

attach, it matters not whether the fiduciary spent a relatively

longer or shorter time on a decision, so long as that investment

decision was prudent in the end.

B.

The requirement of loss causation has three important

corollaries. First, loss causation remains part of the

plaintiff’s burden in establishing monetary liability under

ERISA. This is because, as I have noted above, loss causation

is an element of a claim under § 1109, which requires that the

losses “result[] from” the breach of fiduciary duty. 29 U.S.C

§ 1109(a); see also Plasterers’, 663 F.3d at 217 (“[W]hile

certain conduct may be a breach of an ERISA fiduciary’s duties

under [29 U.S.C.] § 1104, that fiduciary can only be held liable

upon a finding that the breach actually caused a loss to the

plan.”).

Even if, as the district court found, the burden of

production shifts to the defendant once the plaintiff makes a

prima facie case for breach and loss, see Tatum v. R.J. Reynolds

Tobacco Co., 926 F. Supp. 2d 648, 683 (M.D.N.C. 2013), the

63
burden of proof (persuasion) must lie with the plaintiff, where,

as here, Congress has not provided for burden shifting to the

defendant. Leaving the burden of proof with the plaintiff is

consistent with the Supreme Court’s recognition of the “ordinary

default rule that plaintiffs bear the risk of failing to prove

their claims,” including each required element. Schaffer ex

rel. Schaffer v. Weast, 546 U.S. 49, 56 (2005). It also accords

with this court’s observation that, “[w]hen a statute is silent,

the burden of proof is normally allocated to the party

initiating the proceeding and seeking relief.” Weast v.

Schaffer ex rel. Schaffer, 377 F.3d 449, 452 (4th Cir. 2004),

aff’d, 546 U.S. 49.

The weight of circuit precedent supports keeping the burden

of proof on the party bringing suit. See, e.g., Silverman v.

Mut. Ben. Life Ins. Co., 138 F.3d 98, 105 (2d Cir. 1998)

(Jacobs, J., with Meskill, J., concurring) (“Causation of

damages is . . . an element of the [ERISA] claim, and the

plaintiff bears the burden of proving it.”); Kuper, 66 F.3d at

1459 (“[A] plaintiff must show a causal link between the failure

to investigate and the harm suffered by the plan.”); Willett v.

Blue Cross & Blue Shield of Ala., 953 F.2d 1335, 1343 (11th Cir.

1992) (noting that “the burden of proof on the issue of

causation will rest on the beneficiaries” who must “establish

64
that their claimed losses were proximately caused” by the

fiduciary breach).

The cases cited by Tatum and the majority to justify

shifting the burden of proof to RJR on loss causation are

distinguishable. 2 Several deal with self-dealing, a far more

serious breach of fiduciary duty than simple lack of prudence.

See, e.g., McDonald v. Provident Indem. Life Ins. Co., 60 F.3d

234, 237 (5th Cir. 1995); N.Y. State Teamsters Council v. Estate

of DePerno, 18 F.3d 179, 182 (2d Cir. 1994); Martin v. Feilen,

965 F.2d 660, 671–72 (8th Cir. 1992). The majority’s reliance

on our opinion in Brink v. DaLesio, 667 F.2d 420 (4th Cir.

1982), is also unavailing, since that case not only dealt with

self-dealing, but also concerned the burden of proof regarding

the extent of liability, not the existence of loss causation.

See 667 F.2d at 425-26. More relevant to this case is United

States Life Insurance Co. v. Mechanics & Farmers Bank, 685 F.2d

887 (4th Cir. 1982), in which we rejected

the novel proposition that, whenever a breach of the
obligation by a trustee has been proved, the burden
shifts to the trustee to establish that any loss
suffered by the beneficiaries of the trust was not
proximately due to the default of the trustee, and
that, unless the trustee meets this burden, recovery

2
For clarity, this opinion also refers to the various other
RJR-related entities, such as R.J. Reynolds Tobacco Holdings,
Inc., and the RJR Pension Investment and Employee Benefits
Committees, simply as RJR.

65
 against the trustee for the full loss follows in
course.

685 F.2d at 896. Our precedent and the first principles of

civil liability indicate that, while the burden of production

may shift as a case progresses, the burden of persuasion should

remain with the plaintiff in a § 1109 action.

The second notable consequence of § 1109’s requirement of

loss causation is a practical one: it is generally difficult to

establish loss causation when a fiduciary’s substantive decision

is objectively prudent. This is because objectively prudent

decisions tend not to lead to losses to the plan. But even

where they do, they are not the sort of losses contemplated by

the § 1109 remedial scheme, since it is unreasonable to fault a

prudent investment strategy for the statistical reality that

even the best-laid investment plans often go awry. Because

“[t]he entire statutory scheme of ERISA demonstrates that

Congress’[s] overriding concern in enacting the law was to

insure that the assets of benefit funds were protected for plan

beneficiaries,” it follows that fiduciaries who “act

imprudently, but not dishonestly, . . . should not have to pay a

monetary penalty for their imprudent judgment so long as it does

not result in a loss to the [f]und.” Plasterers’, 663 F.3d at

217 (internal quotation marks omitted) (quoting Brock v.

Robbins, 830 F.2d 640, 647 (7th Cir. 1987)).

66
 Thirdly, the loss-causation requirement shows how the

majority has misconceived ERISA’s remedial scheme. Section 1109

sets out the appropriate remedies in those situations where a

fiduciary’s breach of procedural prudence does not result in

losses: “other equitable or remedial relief . . . , including

removal of such fiduciary.” 29 U.S.C. § 1109(a); see also

Brock, 830 F.2d at 647 (“If [a plaintiff] can prove to a court

that certain trustees have acted imprudently, even if there is

no monetary loss as a result of the imprudence, then the

interests of ERISA are furthered by entering appropriate

injunctive relief such as removing the offending trustees from

their positions.”); Fink, 772 F.2d at 962 (“Breach of the

fiduciary duty to investigate and evaluate would sustain an

action to enjoin or remove the trustee . . . . But it does not

sustain an action for the damages arising from losing

investments.”) (citation omitted). This provision for such

relief as removal is in direct contrast to the monetary

liability that ERISA imposes only upon a finding of loss

causation. ERISA is a “comprehensive and reticulated statute,”

Mertens v. Hewitt Assocs., 508 U.S. 248, 251 (1993) (internal

quotation marks omitted), and Congress crafted its provisions

with care. Removing a fiduciary is one thing; holding that same

fiduciary personally liable for a prudent investment decision is

something else altogether. Where, as here, the statutory text

67
speaks clearly to the proper use of monetary versus other, more

traditionally equitable remedies, it should be followed, not

flouted.

The majority gets this all wrong. It states that § 1109(a)

“provides for both monetary and equitable relief, and does not

(as the dissent claims) limit a fiduciary’s liability for breach

of the duty of prudence to equitable relief.” Maj. Op. at 17

(emphasis in original). Of course it provides for both, but it

provides for monetary liability only to make good losses to the

plan resulting from the breach. And here the court found after

a month-long trial that such losses did not result, because the

investment decision was itself objectively prudent. It is

astounding that ERISA fiduciaries are henceforth going to be

held personally liable when losses did not “result from” any

breach on their part. The majority decision quite simply reads

the words “resulting from” right out of the statute.

C.

The majority, Tatum, and Tatum’s amici focus on supposed

distinctions between whether a hypothetical prudent fiduciary

“would have” or merely “could have” made the same decision that

the RJR fiduciaries did. They then fault the district court for

using the latter standard. Tatum argues that the “could have”

standard used by the district court will turn ERISA’s demanding

fiduciary obligations into a “corporate business judgment rule,”

68
since it “renders irrelevant the prudence or non-prudence of the

fiduciaries’ actions in making those decisions.” Br. of

Appellant at 36, 37. The Acting Secretary of Labor argues that

a “could have” standard “creates too low a bar, allowing

breaching fiduciaries to avoid financial liability based even on

remote possibilities.” Br. of Acting Sec’y of Labor at 23.

The majority’s claim that the district court’s approach

“encompass[es] even the most remote of possibilities,” Maj. Op.

at 39, is a serious mischaracterization. As the district court

observed, this is a “strained reading” of its view, which was

simply that objective prudence does not dictate one and only one

investment decision. Tatum, 926 F. Supp. 2d at 683. ERISA

requires that a fiduciary act “with the care, skill, prudence,

and diligence under the circumstances then prevailing that a

prudent man acting in a like capacity and familiar with such

matters would use in the conduct of an enterprise of a like

character and with like aims.” 29 U.S.C. § 1104(a)(1)(B); see

also 29 C.F.R. § 2550.404a-1(a). As a result, the district

court’s standard would not be satisfied merely by imagining any

single hypothetical fiduciary that might have come to the same

decision. Rather, it asks whether hypothetical prudent

fiduciaries consider the path chosen to have been a reasonable

one. The Supreme Court recently came to a similar conclusion.

The Court suggested that where a plaintiff alleges that ERISA

69
plan fiduciaries should have utilized inside information in

administering single-stock funds, courts “should also consider

whether the complaint has plausibly alleged that a prudent

fiduciary in the defendant’s position could not have concluded

that” acting on the inside knowledge “would do more harm than

good.” Fifth Third, slip op. at 20 (emphasis added).

That ERISA’s duty of prudence allows for the possibility

that there may be several prudent investment decisions for any

given scenario should not be a surprise. Investing is as much

art as science, in which there are many options with uncertain

outcomes, any number of which may be prudent. Tatum’s own

experts conceded at trial that prudent minds may disagree,

indeed diametrically, over the preferable course of action in a

particular situation. Tatum, 926 F. Supp. 2d at 683 n.27, 690.

Thus, a decision may be objectively prudent even if it is not

the one that plaintiff, armed with all the advantages of

hindsight, now thinks is optimal. Optimality is an impossible

standard. No investor invariably makes the optimal decision,

assuming we know what that decision even is.

Ultimately, the majority’s and Tatum’s minute parsings of

the differences between “would have” and “could have” obfuscate

rather than illuminate. It is semantics at its worst. The same

is true of their definition of a reasonable investment decision

as the one that hypothetical prudent fiduciaries would “more

70
likely than not” have come to. This provides no legal basis on

which to reverse the district court’s simple finding, after a

month-long bench trial, that defendants made an objectively

prudent investment decision here.

What might plaintiffs’ new semantics mean? Reading the

plaintiffs’ “would have” standard to permit fiduciaries to

escape monetary liability only if they make the decision that

the majority of hypothetical prudent fiduciaries would “more

likely than not” have made is all too treacherous. Not only

does the “more likely than not” language insistently urged by

the majority, plaintiff, and his various amici find no support

in statute or regulation. Not only is it a transparent gloss

upon the Act. It seeks to shift the standard of objective

prudence to one of relative prudence: whether prudent

fiduciaries would “more likely than not” have come to “the same

[investment] decision” that defendants did. Maj. Op. at 37; Br.

of Appellant at 7; see also Br. of Acting Sec’y of Labor at 23;

Br. of AARP & Nat’l Emp’t Lawyers Ass’n at 14. The majority

orders the district court on remand to divine whether “a

fiduciary who conducted a proper investigation would have

reached the same decision.” Maj. Op. at 47 (emphasis added).

The only possible effect of such language is to squeeze and

constrict and, once again, to ignore the fact that there is not

71
one and only one “same decision” that qualifies as objectively

prudent.

Thus plaintiff would substitute for the fiduciary’s duty to

make a prudent decision a duty to make the best possible

decision, something ERISA has never required. Take a scenario

in which 51% of hypothetical prudent fiduciaries would act one

way and 49% would act the other way. What sense, let alone

justice, is there in penalizing a fiduciary merely for acting in

accordance with a view that happens to be held by a bare

minority? And how, absent an unhealthy dose of hindsight, could

we ever know the precise breakdown of hypothetical fiduciaries

with regard to a particular investment decision? See Br. of

Chamber of Commerce of U.S. of Am. & Am. Benefits Council at 15-

16.

While the majority protests it has not adopted the most

prudent standard, its actions speak louder than words. It has

reversed a “merely” prudent, eminently sensible decision, and

demanded much more. Moreover, all its fuss over “would

have/could have” carries us far from the general standard of

objective prudence embodied in § 1104(a)(1)(B). That is, of

course, the straightforward test that Plasterers’ articulated

when it remanded back to the district court to “determine the

prudence of the [fiduciaries’] actual investments.” 663 F.3d at

219. The majority complains that the dissent fails “to define”

72
the objective prudence standard or to say precisely “how this

standard would operate in practice.” Maj. Op. at 49. But the

trial here showed exactly how that standard operates in

practice. Prudence depends inescapably upon the particular

circumstances confronting fiduciaries; it is a fool’s errand to

attempt to sketch every situation that might arise. Even

without the majority’s linguistic contortions, the law of

fiduciary obligations under ERISA is complex enough. The layer

of scholasticism the majority adds to what should be a

straightforward factual inquiry into objective prudence helps no

one. One can, of course, play the endless permutations of the

“would have”/”could have” game. But the test is one of objective

prudence simpliciter, taking the circumstances as they existed

at the time.

To make matters worse, the majority all but directs a

finding of personal liability on remand. In affirming the

district court’s finding that RJR was procedurally imprudent,

the majority falls over itself in its rush to defer to the

district court’s “extensive factual findings.” Id. at 22.

Fair enough: I have no quarrel with the trial court’s “extensive

factual findings” that the RJR fiduciaries acted in a

procedurally imprudent fashion. Yet when it comes to

substantive prudence, the majority slams the door on the

district court’s “extensive factual findings” when the majority

73
even so much as deigns to discuss them. Moreover, the majority

minimizes risk as a factor, stressing instead “the timing of the

decision and the requirements of the governing Plan document,”

id. at 45, despite ERISA’s express command that fiduciaries

“diversify[] the investments of the plan so as to minimize the

risk of large losses, unless under the circumstances it is

clearly prudent not to do so.” 29 U.S.C. § 1104(a)(1)(C)

(emphasis added). Further, the majority ignores the Supreme

Court’s statement that § 1104 “makes clear that the duty of

prudence trumps the instructions of a plan document.” Fifth

Third, slip op. at 11. According to the majority, “plan

documents [are] highly relevant” to the objective prudence

inquiry, Maj. Op. at 44, but risk is merely “relevant,” id. at

43. It is difficult to see how fiduciaries can survive this

loaded calculus, one in which procedural imprudence all but

ensures the obliteration of the loss causation requirement. 3

3
The majority contends that “[u]nder the dissent’s reading
of the statute, any decision assertedly ‘made in the interest of
diversifying plan assets’ would be automatically deemed
‘objectively prudent.’” Maj. Op. at 50. That statement is
patently incorrect, for if there were any per se rule of the
sort that the majority suggests, there would have been no need
for the district court to conduct an extended trial considering
all the circumstances, including the timing of the decision and
the governing plan document, that bore on the investment
judgment. In point of fact, it is the majority that minimizes
the importance of asset diversification as one of the factors
bearing upon the objective prudence inquiry despite ERISA’s
clear instruction to the contrary.

74
 D.

There is one final point. The majority tries to justify

what it is doing with the thought that its approach is necessary

to deter fiduciaries from imprudent behavior. But that in no

way justifies overriding the statute –- in particular § 1109,

which establishes a requirement of loss causation, and § 1104,

which establishes a standard of prudence under all the

circumstances. This is a rewriting of the statute, and,

frankly, Congress’s wisdom is a lot more persuasive than the

majority’s.

Under the statute as written, the standard used by the

district court deters fiduciaries from procedural imprudence by

the threat of removal and from substantive imprudence by the

knowledge that resulting losses to the fund will in fact lead to

liability. As we said in Plasterers’, quoting the Seventh

Circuit:

The only possible statutory purpose for imposing a
monetary penalty for imprudent but harmless conduct
would be to deter other similar imprudent conduct.
However, honest but potentially imprudent trustees are
adequately deterred from engaging in imprudent conduct
by the knowledge that imprudent conduct will usually
result in a loss to the fund, a loss for which they
will be monetarily penalized. This monetary sanction
adequately deters honest but potentially imprudent
trustees. Any additional deterrent value created by
the imposition of a monetary penalty is marginal at
best. No ERISA provision justifies the imposition of
such a penalty.

75
663 F.3d at 217-18 (internal quotation marks omitted) (quoting

Brock, 830 F.2d at 640).

II.

Even if one thinks that monetary liability should somehow

attach to prudent investment decisions, it should almost never

lie where the decision was made, as this one was, in the

interest of diversifying plan assets. The importance of

diversification in retirement plans is reflected in ERISA’s

text, which explicitly requires plan fiduciaries to “diversify[]

the investment of the plan so as to minimize the risk of large

losses, unless under the circumstances it is clearly prudent not

to do so.” 29 U.S.C. § 1104(a)(1)(C) (emphasis added).

“Diversification is fundamental to the management of risk

and is therefore a pervasive consideration in prudent investment

management.” Restatement (Third) of Trusts § 227 cmt. f (1992).

Diversification’s ability to reduce risk while preserving

returns is a major focus of modern portfolio theory, which has

been adopted both by the investment community and by the

Department of Labor in its implementing regulations for ERISA.

See DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 423 (4th Cir.

2007) (citing 29 C.F.R. § 2550-404a-1). Diversification is even

more important in the context of retirement savings, where the

avoidance of downside risk is of paramount concern. “A trustee

is not an entrepreneur. . . . He is supposed to be careful

76
rather than bold.” Armstrong v. LaSalle Bank Nat’l Ass'n, 446

F.3d 728, 733 (7th Cir. 2006).

Although ERISA does not in so many words require every fund

in an investment plan to be fully diversified, each fund, when

considered individually, must be prudent. See DiFelice, 497

F.3d at 423. This is because 401(k) participants could easily

view the inclusion of a fund as an endorsement of it by the plan

fiduciaries and invest a sizeable portion or even the entirety

of their assets in a high-risk fund. The RJR fiduciaries were

concerned about this very possibility when they decided to

maintain a prohibition on making new investments into the

Nabisco funds. See Tatum v. R.J. Reynolds Tobacco Co., 926 F.

Supp. 2d 648, 661-62 (M.D.N.C. 2013).

In addition, once plan participants allocate their assets

among various funds, there is a substantial risk that inertia

will keep them from carefully monitoring and reallocating their

retirement savings to take into account changing risks. Indeed,

a witness for RJR testified at trial that over 40% of plan

participants who had invested in the Nabisco funds did not make

a single voluntary plan transfer over a five-and-a-half-year

period from 1997 to 2002. See J.A. 846-48. Because the RJR

plan already contained an employer-only single-stock fund,

maintaining the Nabisco funds would multiply the number of

77
risky, single-stock funds in which RJR plan participants could

invest. See Tatum, 926 F. Supp. 2d at 685.

The requirement that management of retirement plans be

prudent rather than aggressive strongly supports diversifying

each fund. As the district court recognized, a “single stock

fund carries significantly more risk than a diversified fund.”

Id. at 684; see also Summers v. State St. Bank & Trust Co., 453

F.3d 404, 409 (7th Cir. 2006). For this reason, single-stock

funds are generally disfavored as ERISA investment vehicles.

See, e.g., DiFelice, 497 F.3d at 424 (noting that “placing

retirement funds in any single-stock fund carries significant

risk, and so would seem generally imprudent for ERISA

purposes”). To be sure, Congress has provided a limited

exception from ERISA’s general diversification requirements for

certain types of employer-only single-stock funds. See 29

U.S.C. §§ 1104(a)(2), 1107(d)(3). Still, single-stock funds

inherently “are not prudently diversified.” Fifth Third Bancorp

v. Dudenhoeffer, No. 12-751, 573 U.S. __, slip op. at 5 (June

25, 2014) (emphasis in original). And absent this narrow

congressional carve-out for employer-only single-stock funds,

“[t]here is a sense in which, because of risk aversion, [a

single-stock fund] is imprudent per se.” Armstrong, 446 F.3d at

732.

78
 In this case, the Nabisco funds were even more dangerous

than an ordinary single-stock fund. Because of the “tobacco

taint” and the risk that a massive tobacco-litigation judgment

against RJR could also harm Nabisco, the performance of the

Nabisco funds was potentially correlated with that of RJR

itself. Thus, retirement plans containing the Nabisco funds

were doubly undiversified. First, they included the stocks of a

single company rather than a range of companies. Second, the

same external forces that could harm RJR –- and thus imperil the

employment of plan participants -– could simultaneously tank the

value of the Nabisco funds. See Tatum, 926 F. Supp. 2d at 685.

In other words, keeping the Nabisco funds in the RJR plan would

create the risks of an Enron-like situation, in which the health

of an employer and the retirement savings of its employees could

be adversely affected simultaneously. See Richard A. Oppel Jr.,

Employees’ Retirement Plan Is a Victim as Enron Tumbles, N.Y.

Times, Nov. 22, 2001, at A1. But unlike the employer single-

stock funds that might have legislative sanction, no such

congressional approval existed for the Nabisco funds.

By penalizing the RJR fiduciaries for doing nothing more

than properly diversifying the plan, the majority and Tatum

threaten to whipsaw investment managers of pension and

retirement funds. The majority’s approach falls into the trap

of seeing plan fiduciaries and participants as inveterate

79
adversaries. In fact, nothing could be further from the truth.

Fiduciaries often act to the inestimable benefit of plan

participants, and they do so most clearly when they follow

ERISA’s mandate to diversify plan holdings. But the majority’s

approach will wreak havoc upon this harmony, encouraging

opportunistic litigation to challenge even the most sensible

financial decisions. Here, the RJR fiduciaries knew they had a

ticking time bomb on their hands. Had the plan fiduciaries

failed to diversify and the Nabisco stocks had continued to

decline, the fiduciaries would have been sued for keeping the

stocks. As the Supreme Court noted:

[I]n many cases an ESOP fiduciary who fears that
continuing to invest in company stock may be imprudent
finds himself between a rock and a hard place: If he
keeps investing and the stock goes down he may be sued
for acting imprudently in violation of
§ 1104(a)(1)(B), but if he stops investing and the
stock goes up he may be sued for disobeying the plan
documents in violation of § 1104(a)(1)(D).

Fifth Third, slip op. at 14. Putting plan managers in a cursed-

if-you-do, cursed-if-you-don’t situation is unfair to them and

damaging to ERISA-plan administration generally.

III.

Even if prudent decisions made in the interest of asset

diversification could ever lead to monetary liability, it is

inconceivable that they could do so on these facts. As the

80
district court well understood, if monetary liability lies here,

then it will lie for a great many other prudent choices as well.

“[W]hether a fiduciary’s actions are prudent cannot be

measured in hindsight . . . .” DiFelice v. U.S. Airways, Inc.,

497 F.3d 410, 424 (4th Cir. 2007). This is because “the prudent

person standard is not concerned with results; rather it is a

test of how the fiduciary acted viewed from the perspective of

the time of the challenged decision rather than from the vantage

point of hindsight.” Roth v. Sawyer-Cleator Lumber Co., 16 F.3d

915, 918 (8th Cir. 1994) (alteration and internal quotation

marks omitted). “Because the content of the duty of prudence

turns on ‘the circumstances . . . prevailing’ at the time the

fiduciary acts, § 1104(a)(1)(B), the appropriate inquiry will

necessarily be context specific.” Fifth Third Bancorp v.

Dudenhoeffer, No. 12-751, 573 U.S. __, slip op. at 15 (June 25,

2014) (alteration in original).

In addition to the diversification imperatives described

above, there were at least three reasons for the RJR fiduciaries

to eliminate, at the time they had to make the decision, the

Nabisco stocks from the RJR 401(k) plan. First, as found by the

district court, there was a substantial threat to the Nabisco

stocks’ share prices from the “tobacco taint.” Tatum v. R.J.

Reynolds Tobacco Co., 926 F. Supp. 2d 648, 659-60 (M.D.N.C.

2013). Although Nabisco had theoretically insulated itself from

81
liability for RJR’s tobacco-related litigation by entering into

indemnification agreements with RJR, there was always a danger

that holders of judgments against RJR might sue Nabisco for any

amount that RJR could not pay. This danger became especially

acute after a Florida jury ruled in July 1999 against RJR in a

class-action lawsuit. Id. at 659. As the damages portion of

the trial began in the fall of 1999, RJR began to worry that it

would not be able to fully pay a multibillion dollar award and

that members of the class would sue Nabisco for the unpaid

remainder. Id. at 660. In a June 1999 report to the SEC,

Nabisco acknowledged these very risks. Id. at 659. And when

RJR lost an important punitive-damages ruling in the Florida

suit, the stock prices of RJR and Nabisco both dropped sharply.

Id. at 660. Indeed, the Florida jury ultimately awarded the

class over $140 billion in punitive damages. Id. at 660 n.9.

(Related litigation is ongoing. On July 18, 2014, a Florida

jury awarded $23.6 billion in punitive damages against RJR in an

individual case stemming from that class action.)

Second, Nabisco’s stock prices had been steadily falling

since the two companies split. Between June 15, 1999, when the

split was finalized, and January 31, 2000, when RJR sold the two

Nabisco stocks in its 401(k) plan, their prices had fallen

substantially in value, one by 60% and the other by 28%. Id. at

666. Cautious fiduciaries would naturally view optimistic

82
glosses on Nabisco’s continuing stock decline with skepticism.

Not only were analyst reports during the dot-com bubble colored

by “optimism bias,” but even the neutral and positive reports

noted the effect of the tobacco taint and that the current share

price might well be accurate. Id. at 662-63. And even had RJR

chosen to keep the Nabisco stocks, there was, as the district

court noted, no reason to think that the stocks would have

provided above-market returns, given the public nature of the

relevant financial information and the general efficiency of the

stock market. Id. at 686-88. As the Supreme Court has

recognized, “a fiduciary usually ‘is not imprudent to assume

that a major stock market . . . provides the best estimate of

the value of the stocks traded on it that is available to him.’”

Fifth Third, slip op. at 17 (quoting Summers v. State Street

Bank & Trust Co., 453 F.3d 404, 408 (7th Cir. 2006)) (alteration

in original).

Third, the ultimate cause of the dramatic appreciation in

Nabisco stock prices in 2000 -- the bidding war sparked by

investor Carl Icahn’s takeover bid -- was totally unexpected by

RJR, analysts, and the broader market. Notably, when Icahn

acquired a large block of Nabisco shares in November 1999,

Nabisco’s stock prices did not react and analyst reports did not

mention a possible takeover bid. Tatum, 926 F. Supp. 2d at 688.

In addition, the RJR-Nabisco split was structured such that the

83
spinoff would be tax-free as long as, broadly speaking, Nabisco

did not initiate a corporate restructuring within two years.

Id. at 653. Thus, a takeover by Icahn was only feasible if he

initiated it. This limitation made an Icahn offer, and the

consequent bidding war, even less likely. Id. at 688-89.

Ultimately, the RJR fiduciaries had little reason to think

that the Nabisco stocks in the 401(k) plan would appreciate in

value, and every reason to worry that they would continue to

decline. The fiduciaries’ decision to liquidate the Nabisco

funds was prudent, and certainly not “clearly imprudent.”

Plasterers’ Local Union No. 96 Pension Plan v. Pepper, 663 F.3d

210, 219 (4th Cir. 2011). Arguably, it was the most prudent of

the options available, for it protected plan participants from

the dangers of risky shares held in undiversified plan funds.

To hold otherwise requires viewing the RJR fiduciaries’ actions

through the lens of hindsight, a grossly unfair practice that

our precedent categorically forbids.

IV.

The majority has reversed the most substantiated of

district court findings under the most stringent of hindsight

tests. To impose personal monetary liability upon fiduciaries

for prudent investment decisions made in the interest of asset

diversification makes no sense. What this decision will lead

to, despite all the words from the majority and Tatum, is

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litigation at every stage behind reasonable investment decisions

by ERISA-plan fiduciaries. Who would want to serve as a

fiduciary given this kind of sniping?

ERISA was “intended to ‘promote the interests of employees

and their beneficiaries in employee benefit plans.’” DiFelice

v. U.S. Airways, Inc., 497 F.3d 410, 417 (4th Cir. 2007)

(quoting Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983)).

Yet far from safeguarding the assets of ERISA-plan participants,

the litigation spawned by the majority will simply drive up

plan-administration and insurance costs. It will discourage

plan fiduciaries from fully diversifying plan assets. It will

contribute to a climate of second-guessing prudent decisions at

the point of market shift. It will disserve those whom ERISA

was intended to serve when fiduciaries are hauled into court for

seeking, sensibly, to safeguard retirement savings.

I had always entertained the quaint thought that law

penalized people for doing the wrong thing. Now the majority

proposes to penalize those whom the district court found after a

month-long trial did indisputably the right thing -- in

professional parlance, the objectively prudent thing.

I would affirm.

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