Full opinion text
MEMORANDUM OPINION NORWOOD CARLTON TILLEY JR., Senior District Judge. This case involves the unwinding of what has been described as “one of the biggest mergers and most fought-over leveraged buyouts of the 1980’s, a battle that became a symbol of the decade’s excesses” — the 1986 merger of R.J. Reynolds Tobacco and Nabisco. Ironically, the merger was “intended to enhance the tobacco company’s increasingly negative image.” Fourteen years later, R.J. Reynolds and Nabisco separated because of the negative impact of tobacco litigation on Nabisco’s stock prices. The subject of this litigation is the retirement plan created for R.J. Reynolds Tobacco as a result of the spin-off of R.J. Reynolds from Nabisco. Plaintiff Richard Tatum was an employee of R.J. Reynolds Tobacco (“RJR Tobacco”), before and after the spin-off. A bench trial was held in this case from January 13, 2010 to February 9, 2010 on Mr. Tatum’s claim that Defendants R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco Holdings, Inc. (collectively, “RJR”) breached their fiduciary duties in managing the RJR Tobacco Capital Investment Plan (“the Plan”) in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001 et seq. Mr. Tatum brought this case on behalf of himself and a class of over 3,500 employees and retirees of RJR who had invested in the Plan and whose investments were moved out of Nabisco stocks shortly after the RJR Nabisco food and tobacco companies separated in June 1999. This Memorandum Opinion states the Court’s findings of fact and conclusions of law after receiving the evidence at trial and considering the arguments of counsel. For the reasons outlined below, it is determined that fiduciary duties of procedural prudence were breached when those in charge of the investment decision decided to remove and sell Nabisco stock from the Plan without undertaking a proper investigation into the prudence of doing so; however, it is further determined that the decision to remove the stock, under the circumstances of this case, is one which a reasonable and prudent fiduciary could have made after performing such an investigation. I. FINDINGS OF FACT A. The Parties and the Class Mr. Tatum brought this certified class action in May 2002, on behalf of all participants in the R.J. Reynolds Tobacco Company Capital Investment Plan (“Tobacco Plan”) whose individual accounts held Nabisco stocks (shares of Nabisco Group Holdings (“NGH”) common stock and/or Nabisco (“NA”) common stock) at any time from June 14, 1999 through January 31, 2000. Dock. # 209, at 5. The Class is represented by Mr. Tatum, who was employed at R.J. Reynolds Tobacco Company from July 1977 until he retired on August 1, 2007. Immediately prior to his retirement, Mr. Tatum served in the position of Lead Systems Analyst. 1/13/10 Tr. at 7:22-24, 8:9-23 (Tatum) (Dock. # 372). At all times pertinent to this action, Mr. Tatum has been a participant in the Plan. During the class period, portions of the Plan accounts of Mr. Tatum and the other class members were allocated to the Nabisco stock funds (“Nabisco Funds”). The defendants in this case are R.J. Reynolds Tobacco Company (“RJRT” or “RJR Tobacco”) and R.J. Reynolds Tobacco Holdings, Inc. (“RJRTH”). As further explained infra, RJRTH (now Reynolds American) is the successor in interest to pre-spinoff RJR Nabisco, Inc. R.J. Reynolds Tobacco Company (RJRT) is a wholly owned subsidiary of Reynolds American, Inc. (formerly RJRTH at the time of the spin-off). DX-173 at RJR11642. B. The Spin-off In early March 1999, RJR Nabisco, Inc. decided to separate the company’s food business, Nabisco (NA), and tobacco business, R.J. Reynolds Tobacco Company (RJRT), through a spin-off of the tobacco business to shareholders of the holding company, RJR Nabisco Holdings. At the time, RJR Nabisco Holdings owned 100 percent of RJR Nabisco, Inc. (“RJR Nabisco”). RJR Nabisco had two operating subsidiaries. RJR Nabisco owned 100 percent of R.J. Reynolds Tobacco Company (RJRT), the second-largest tobacco company in the United States. RJRT’s stock was not publicly traded. RJR Nabisco also owned 80.5 percent of Nabisco (NA), one of the nation’s top snack food and bakery products companies. The remaining 19.5% of NA was owned by public stockholders and traded on the New York Stock exchange. To accomplish the spin-off, the RJR Nabisco Holdings Board of Directors did the following: (1) the shares of Nabisco (NA) held by RJR Nabisco were conveyed up to the holding company, RJR Nabisco Holdings, which would be renamed Nabisco Group Holdings (NGH); and (2) RJR Nabisco, now holding shares only of RJR Tobacco, would be renamed RJR Tobacco Holdings (RJRTH), and its shares would be distributed by dividend to the shareholders of the entity formerly known as RJR Nabisco Holdings and to be known as NGH. 1/14/10 Tr. at 80:21-81:10 (Gordon) (Dock. # 377); DX-208. The RJR Nabisco Holdings shareholders would receive one share of RJRTH for every three shares of RJR Nabisco Holdings. DX-24, DX-13 at RJR001598. As a result of the spin-off, where an RJR Nabisco Holdings shareholder previously owned one share of RJR Nabisco Holdings — which included both the food and tobacco businesses — the shareholder, following the spin-off, would own two stocks — stock of a food business (NGH) and a second stock of the tobacco business (RJRTH). DX-9 at RJR000257; DX-13 at RJR001599. Ownership of NA stock was not affected. 1. Rationale Behind the Spin-off The May 19, 1999 public information statement filed with the U.S. Securities and Exchange Commission (“SEC”) by RJR Tobacco Holdings, described the “primary purposes of the distribution”: • each of the food and tobacco businesses will be better able to respond to the opportunities and challenges in its industry and thereby achieve its full potential under separate ownership; • management of each business will be able to focus solely on that business; • RJR will be able to align management’s incentives more closely with stockholder’s interests; • the companies will achieve substantial costs savings; and • investors and financial markets will be better able to understand and evaluate the food business and the tobacco business. DX-13 at RJR001588; 1/21/10 Tr. at 190:16-191:19 (Angowitz) (Dock. # 381). The May 19, 1999 public information statement further explained that, in deciding to move forward with the spin-off, management considered that: -[T]he food and tobacco businesses are large, complex businesses with different challenges, strategies and means of doing business and that, under a separate ownership structure, each business will be better able to respond to the opportunities and challenges in its industry and thereby achieve its full potential. -[T]he separation will result in two distinct publicly traded equity securities that will enable financial markets to better understand and evaluate the food and tobacco businesses. DX-13 at RJR001599; 1/21/10 Tr. at 191:20-192:10 (Angowitz). While neither party has suggested that the public statements regarding the reason for the spin-off were not accurate, employees from RJR and Nabisco testified at trial that it was widely believed the shareholder value of Nabisco would be enhanced after the split because the value of Nabisco’s stocks was being unnecessarily depressed by investors’ fears regarding ongoing litigation against tobacco companies. See 1/20/10 Tr. at 173:1-174:6 (Schindier) (Dock. #380); 1/13 10 Tr. at 187:4-10 (Suozzi (Video)) (Dock. # 372); 1/22/10 Tr. at 27:10-15 (Angowitz) (Dock. # 382); 1/25/10 Tr. at 37:20-38:4 (Johnston) (Dock. #383). The discount on the Nabisco stocks as a result of the tobacco litigation was known as the “tobacco taint.” See, e.g., 1/14/10 Tr. at 22:19-23, 132:11-13 (Gordon) (Dock. # 372); 1/22/10 Tr. at 170: 18-21 (Angowitz) (Dock. # 382). 2. Tax Consequences of the Spin-off The spin-off transaction was structured to comply with a section of the tax code that allowed for a tax-free spin-off transaction (with no tax consequences to RJR Nabisco or RJR Nabisco Holdings/NGH shareholders resulting from the spin-off of the shares of the domestic tobacco company to the shareholders of RJR Nabisco) provided the spin-off was not part of a larger sales transaction. Tax code regulations allowed a presumption that there was no larger transaction if two years had passed from the time of the spin-off until a further event or sale occurred. 1/21/10 Tr. at 185:21-186:18 (Angowitz) (Dock. # 381); 26 U.S.C. § 355(e); 26 C.F.R. § 1.355-7 (2010). If NGH initiated any corporate restructuring or a sale within two years, the spin-off transaction could lose its tax-free status. Members of senior management at RJR Nabisco Holdings were aware of the tax consequences of the spinoff and had discussions about those consequences. 1/21/10 Tr. at 186:19-187:3 (Angowitz) (Dock. # 381). C. The Tobacco Plan As a result of the spin-off, the RJR Nabisco Plan was divided into two separate plans, one for NA and one for RJRT. RJRT retained the old pre-spin RJR Nabisco Plan, while a new plan was created for employees of NA. 1/19/10 Tr. at 132:6-14 (Cissna) (Dock. #379). The spin-off created two different stocks — NGH and RJRTH — from the former RJR Nabisco Holdings stock. As a result of the spinoff, Plan participants who had invested in the RJR Nabisco Holdings Fund (which was an investment option in the pre-spin RJR Nabisco Plan) after the spin-off held units of the new NGH and RJRTH Funds in their accounts. 1/19/10 Tr. at 151:10-17 (Cissna) (Dock. # 379). The Tobacco Plan came into existence on June 14, 1999, at the time of the spinoff. The Tobacco Plan was sponsored by RJRT and was a 401(k) retirement plan for employees of the post-split RJRT. The stated purpose of the Tobacco Plan was to provide for participants’ long-term retirement savings. See PX-2 at RJR879 (purpose of the plan is to “help [participants] meet [their] long-term savings goals”); id. at RJR909 (Nabisco company funds “seek to maximize long-term total return through capital appreciation and divided income”); PX-155 at RJR30 (purpose of plan is to “help [participants] meet [their] long-term savings goals”). 1. Designation of Funds and Trustee Section 4.03 and Section 4.04 of the Plan listed each investment fund offered to Tobacco Plan participants. At the time it was created, the Tobacco Plan’s investment options included the Nabisco Funds which remained in the Plan as frozen funds, meaning no new investing was allowed in those funds. In addition to the frozen Nabisco Funds, the Tobacco Plan included the Interest Income Fund, which was primarily invested in guaranteed investment contracts (GICs), synthetic GICs, and a fixed-income Government Bond Index Fund. The interest Income Fund was the most conservative fund in the Plan and was the fund into which assets resulting from the liquidation of the NA and NGH stocks were placed. The assets of the Plan were held by Wachovia Bank, as Trustee. Wachovia made distributions to participants and bought and sold shares in the various funds offered under the Plan based on instructions from the record-keeper. 1/20/10 Tr. at 103:19-104:3 (Beasley) (Dock. # 380). Those shares were then divided into units and allocated to participants’ individual accounts. 2. Named Fiduciaries and Plan Administrator The Plan designated the Employee Benefits Committee as responsible for the general administration of the Plan and for carrying out the provisions of the Plan. PX-1, § 10.01(a). The named fiduciaries of the Tobacco Plan were the Employee Benefits Committee (“EBC”) (consisting of “not less than three persons appointed from time to time by the Compensation Committee”), the Pension Investment Committee (“PIC”) (consisting of “members ... appointed by the Compensation Committee of the Board of Directors to serve at the pleasure of the Compensation Committee”), and “any Administrative Committee.” PX-1, §§ 10.05(a), 10.01(a), 10.03(a). in addition, “[a]ny fiduciary appointed as a named fiduciary by the Board of Directors by resolution or appointed by an appropriate instrument executed by an officer of the Company thereunto authorized by resolution of the Board of Directors, shall also constitute a named fiduciary in respect of the duties delegated to him or it in such resolution or instrument.” PX-1 § 10.05(b). In addition to the powers designated in the Plan documents, two resolutions were adopted by the Board of Directors on July 2, 1999, “redesignating” the powers of the Employee Benefits Committee and the Pension Investment Committee. PX-3. Among other powers, the Resolution designating the powers of the EBC authorized it to “act on behalf of the Company and its subsidiaries in administering the Company’s retirement plans, savings plans, and other defined benefit plan, defined contribution plan or welfare benefits plan maintained for employees of the Company,” as well as “act as the ‘plan administrator’ for all employee plans for purpose of compliance with all applicable laws and regulations; and ... approve the text of plan documents and employee communications including summary plan descriptions and savings plan prospectuses.” PX-3. The Resolution also appointed the members of the EBC for the Tobacco Plan, who were all employed by RJ Reynolds Tobacco Company: McDara Folan, Senior Vice President, Deputy General Counsel, and Secretary (from June 21, 1999 to 2000); Robert Gordon, Executive Vice President of Human Resources for RJRTH and RJR Tobacco; Ann Johnston, Vice President of Human Resources, and Kenneth Lapejko, Executive Vice President and Chief Financial Officer of RJRTH and RJR Tobacco. The Resolution designating the powers of the Pension Investment Committee in part authorized it to: [A]pprove all matters with respect to the funding of savings and retirement plans, including, but not limited to, actuarial assumptions, annual pension fund contributions, asset transfers, investment guidelines, and the appointment and removal of investment managers, provided that the Committee may delegate any of the foregoing powers of the Chief Financial Officer or the Treasurer; [and] ... report annually to the Compensation Committee and the Board of Directors as to the funding status of principal employee benefit plans, including a report on the investment performance of funded retirement plans. PX-4. The Resolution also appointed the members of the PIC: McDara Folan; Robert Gordon; Ann Johnston; Kenneth Lapejko; Charles Blixt, Executive Vice President and General Counsel, R.J. Reynolds Tobacco Holdings, Inc.; and Lynn Lane, Senior Vice President and Treasurer, R.J. Reynolds Tobacco Holdings, Inc and R.J. Reynolds Tobacco Company. D. The Decisions Regarding the Tobacco Plan 1. The March Working Group Immediately after the public announcement of the spin-off in March 1999, company employees — mostly from the human resources departments of RJR Nabisco Holdings, NA, and RJRT — began a series of meetings at the RJR Nabisco Holdings headquarters in New York to address the effect of the spin-off on a wide variety of issues, including the various benefit plans of RJR Nabisco Holdings and its subsidiaries. 1/21/10 Tr. at 211:11-212:6 (Angowitz) (Dock. # 381). These “working groups” met at least three times between March and June 1999, and covered a range of topics. 1/19/10 Tr. at 105:16-22 (Cissna) (Dock. # 379); 1/21/10 Tr. at 212:7-17 (Angowitz) (Dock. # 381); 1/25/10 Tr. at 98:13-14 (Johnston) (Dock. # 383). The working groups had no authority or responsibility under the then-existing Plan documents to implement any decision regarding the pre-spin RJR Nabisco Holdings Plan, nor were they later given authority to make or enforce decisions in the Tobacco Plan documents. 1/19/10 Tr. at 131:23-132:4 (Cissna) (Dock. #379); 1/20/10 Tr. at 33:11-14 (Cissna) (Dock. #380); 1/21/10 Tr. at 213:23-214:9 (Angowitz) (Dock. # 381); 1/25/10 Tr. at 45:5-15, 100:22-25 (Johnston) (Dock. # 383); 1/14/10 Tr. at 9:23-97:4 (Gordon) (Dock. # 377); PX-92 at 14. The first working group meeting took place on March 24, 1999 and lasted two days. 1/25/10 Tr. at 98:13-16 (Johnston) (Dock. # 83). The focus at the meeting on March 24 was “the implications of the corporate spin-off on the RJR Nabisco Capital Investment Plan,” while the second day was focused on defined benefit plans and post-retirement health plans. 1/19/10 Tr. at 126:5-16, 131:18-22 (Cissna) (Dock. # 379); 1/25/10 Tr. at 39:12-17 (Johnston) (Dock. # 383); PX-99 at RJR14276-77. Approximately thirty to sixty minutes were spent discussing the specific issue of what to do with the Nabisco Funds that would carry over from the RJR Nabisco Plan into the new Tobacco Plan once they were no longer employer funds. The participants at the meeting discussed reasons to remove the funds and assumed that the new RJR Tobacco 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. 1/14/10 Tr. at 86:25-87:12, 170:9-171:3 (Gordon) (Dock. #377); 1/19/10 Tr. at 10:20-11:3 (Cissna) (Dock. # 379). In discussing what to do with the funds, they discussed their belief that such funds were only held in other plans as frozen funds in times of transition, 1/25/10 Tr. at 49:20-51:19 (Johnston) (Dock. # 383), as well as the belief that the Nabisco Funds would not fall within the exemption to ERISA’s diversification requirement carved out for employer, single stock funds. 29 U.S.C. § 1104(a)(2); 1/19/10 Tr. at 137:16-25, 138:22-139:12 (Cissna) (Dock. # 379); DX-82 at RJR014276. The group also believed that a single stock fund in the plan would be an “added administrative complexity,” and incur additional costs, but 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. 1/19/10 Tr. at 138:22-139:20 (Cissna) (Dock. # 379); DX-3 at RJR000924. Everyone was in agreement that the Nabisco Funds should be frozen at the time of the spin-off and eventually eliminated from the Plan, after giving participants notice and an opportunity to exit the fund at any time. How long the Nabisco Funds would be frozen was discussed. “There 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.” 1/19/10 Tr. at 140:19-141:4 (Cissna) (Dock. # 379). During this six month time frame, the Nabisco Funds would be frozen in the Tobacco Plan and not open to new investments. Id. at 141:5-10, 11-25. The group did not determine a specific date for liquidating the Nabisco stocks at that time. The Working Group’s decisions were taken back from the New York meeting by Ann Johnston, Vice President of HR for RJ Reynolds Tobacco Company, who reported them to Bob Gordon during the course of a two to three hour discussion the day she returned from the March 24-25 meeting. 1/25/10 Tr. at 103:6-15 (Johnston) (Dock. # 383). Ms. Johnston informed Mr. Gordon of the working group’s decision that the Nabisco Funds should be frozen in the Tobacco Plan and eliminated in approximately six months. 1/25/10 Tr. at 101:4-14 (Johnston) (Dock. # 383); 1/14/10 Tr. at 89:11-90:15 (Gordon) (Dock. # 377). Gordon agreed with the working group’s recommendation to freeze and eliminate the funds and testified that all four members of the RJR Nabisco Holdings EBC agreed with the working group’s recommendation. However, there is no other evidence that the EBC 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. 1/14/10 Tr. at 95:20-96:19 (Gordon) (Dock. #377); 1 /25/10 Tr. at 103:16-20 (Johnston) (Dock. # 383). Soon after the working group meeting, RJ Reynolds Company officials began taking immediate steps to implement the decision by disseminating communications to Plan participants and providing directions to the Plan record-keeper. 1/25/10 Tr. at 39:3-41:10, 56:14-58:3 (Johnston) (Dock. #383); see also PX-10 at RJR257-259; PX-135; PX-99 at RJR14276-77; PX-49 at RJR246^17. Two letters were sent to participants before the spin-off and prior to the formation of the new Tobacco Plan. Participants were told as early as April 1999, in the letter accompanying their March 31, 1999 Plan account statement, that “Nabisco Group Holdings and the Nabisco Common Stock funds will be eventually eliminated from the R.J. Reynolds CIP plan.” See 1/25/10 Tr. at 56:14-58:3 (Johnston) (Dock. #383). On June 2, 1999, participants were notified that the Nabisco Funds would be eliminated within approximately six months after the spinoff. See id. at 58:9-60:9 (discussing PX-135 and saying language was “consistent with what the working group preference was”). Both letters were also written before the official amendment to the Plan by the EBC, which froze the Nabisco Funds but did not mention eliminating them from the Plan. See infra Section E. E. The June Amendment to the RJR Nabisco Holdings Plan The spin-off was implemented on June 14, 1999. On the same day, the RJR Nabisco Capital Investment Plan was amended and renamed the R.J. Reynolds Tobacco Company Capital Investment Plan. Section 4.03 of the Plan was amended to provide language stating the Nabisco Funds were frozen: The Trustee shall maintain the following separate investment Funds within the Trust Fund: the Interest Income Fund, the Nabisco Common Stock Fund, the Nabisco Group Holdings Common Stock Fund, the RJR Common Stock Fund, the Total Stock Market Fund, the Total International Fund, the Conservative Growth Fund, the Moderate Growth Fund and the Growth Fund. All Investment Funds under the Plan are active Funds; provided, however, the Nabisco Common Stock Fund and the Nabisco Group Holdings Common Stock Fund are frozen and, as of the Effective Date, participants are prohibited from investing contributions or reallocating amounts held under the Plan to such Funds. In addition, the Trustee shall maintain any other Investment Funds as are designated by the RJR Pension Investment Committee. See PX-1 at RJR757 (§ 4.03) (emphasis added). By its terms, the June amendment required that the Nabisco Common Stock Fund and the Nabisco Group Holdings Common Stock Fund held by the Plan be “frozen.” There was no language in the amendment eliminating the Nabisco Funds or limiting the duration in which the Plan would hold the funds. See PX-1 at RJR757 §§ 4.03). F. New Committees and Orientation Meetings The new EBC met on July 29, 1999 and adopted a consent resolution transferring sponsorship of the RJRT Plan from RJRT to RJRTH, effective as of June 14, 1999, DX-30 at RJR011878-79. The EBC also re-designated the members of the RJRT Benefits Administration Committee at that meeting and gave the BAC authority to “interpret plan provisions with respect to eligibility, service, vesting and determination of benefits” and to “review benefit claims made by participants or beneficiaries with regard to the defined benefit plans, the defined contribution plans, and ... salary and benefit continuation plans.” DX-30 at RJR011879-80. The Plan also provided in section 13.01 that the BAC made the “initial determination of a Participant’s Surviving Spouse’s or Beneficiary’s eligibility for, and the amount of, a benefit.” PX-1, RJR000791. The RJRT PIC also met on July 29, 1999. DX-29. At this meeting, PIC members reviewed a list of the functions of the PIC that had been prepared by the PIC’s outside investment consulting company, Summit Fiduciary Services, which included: 1. Implement a Funding/Contribution Policy for each Pension Plan. 6. Approve the Asset Class Investment Guidelines for each Investment Option within the Capital Investment Plan (CIP). 7. Approve the selection and elimination of each investment option within the CIP. 8. Monitor the performance of each Investment Option within CIP. Id. at RJR000110 (emphasis added). G. Tobacco Taint The 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. At the time of the spinoff, RJRT and RJRTH were defendants in numerous tobacco-related lawsuits and there had been a “noteworthy increase in the number of cases pending” leading up to the spin-off. DX-13 at RJR001593. Risks associated with these lawsuits were disclosed in RJRTH’s filings with the Securities Exchange Commission (SEC). RJRTH’s May 19, 1999 public information statement warned that “[ejxposure to tobacco related litigation could negatively affect RJR’s prospects” and reported that; There has been a noteworthy increase in the number of these cases pending. As of May lk, 1999, 653 active cases were pending against RJR, Reynolds Tobacco and/or its affiliates or indemnitees in the United States. Plaintiffs have specifically pleaded punitive damages, often in amounts ranging into the hundreds of millions, or even billions of dollars, in a number of cases, in addition to compensatory and other damages. DX-13 at RJR001593 (emphasis added). NGH was a defendant in a number of the cases in which RJRT also was a defendant. Indemnification agreements had been executed as part of the spin-off which made RJRT and RJRTH responsible for paying NGH’s legal expenses in those lawsuits in which NGH was a defendant. However, there was increasing concern among RJR executives that tobacco verdicts would be so large that RJR would not be able to satisfy their payment obligations, in which case plaintiffs in those lawsuits may have sought payment from NGH. 1/22/10 Tr. at 205:10-13 (Blixt) (Dock. #382); 1/21/10 Tr. at 196:12-17 (Angowitz) (Dock. # 381). NGH’s June 3, 1999 8-K filing with the SEC reported this possibility: In addition to the cases pending against NGH, there are several hundred lawsuits relating to cigarettes in which Reynolds Tobacco, and sometimes RJR, are named defendants. If Reynolds Tobacco and RJR are unable to satisfy their payment obligations for any adverse judgments against them in. some or all of these cases, it is possible that plaintiffs in these cases would seek to recover the unsatisfied obligations from the assets of NGH by bringing lawsuits on various theories. Some of the claims against NGH seek recovery of hundreds of millions and possibly billions of dollars. This is also true of the litigation pending against Reynolds Tobacco and RJR. Litigation is subject to many uncertainties. Management is unable to predict the outcome of the litigation against NGH, or to derive a meaningful estimate of the amount or range of any possible loss in any quarterly or annual period or in the aggregate. DX-88 at RJR018151-52 (emphasis added). A specific concern in 1999 was the Engle case, an ongoing class action in Florida state court. In July 1999, a jury had found RJRT liable to a class of individual smokers, and it was determined that the class as a whole would be entitled to one lump sum of punitive damages. In the fall of 1999, the second phase of the case, which would establish damages, was scheduled to begin, and concern grew because of the cost of appealing a potentially large damages verdict. At that time, RJR senior management became concerned that a cash bond in the full amount of any punitive damages award might be required in order to appeal. RJRT’s portion of any bond would have been about one-third the total amount of the award. If RJRT could not satisfy the cash bond, there was fear that RJR would go bankrupt and/or plaintiffs would turn to NGH for payment. In its November 1999 10-Q, NGH made disclosures regarding the Engle situation: It is not possible to predict the amount of class-wide punitive damages the EAGLE [sic] jury might award, if any, but it could be in the billions of dollars. Although the tobacco company defendants are expected to appeal any award of punitive damages, it is uncertain when the right of such appeal would be available and what, if any, bonding requirements might be imposed on the defendants in connection with such an appeal. If a multibillion dollar punitive damages award were to be granted in the second phase of this case and a bond in the full amount of the award were required to stay execution on the judgment of such an award, it could be difficult or impossible for defendants to post such a bond. DX-33 at RJR018220-21. When RJR received the adverse ruling on classwide punitive damages on October 20, 1999, stock prices of both RJRT and NGH reacted sharply in a negative direction. 2/2/10 Tr. at 124:11-127:1 (Montgomery) (Dock. #388) (testifying that tobacco stocks and NGH declined due to “heightened concern over the risks for tobacco related companies of tobacco litigation and the sharp decline in late October was in reaction to the Florida Appeals Court decision in the Engle case on October 20”); DX-60, Ex. 16. By October 1, 1999, NGH shares had declined from $21.37 the day after the spin-off to $14.75. DX-157. H. October Meetings Several meetings of committees and executives also took place in October. On October 7, 1999, the PIC met for its quarterly meeting. DX-121. At that time, Dennis Kass, a vice chairman at JP Morgan Investment Company, gave a presentation on fiduciary responsibilities that had previously been scheduled for the PIC’s orientation meeting. DX-29 at RJR000108; DX-121 at RJR000080; DX-122 at RJR000085; 1/14/10 Tr. at 119:16-20 (Gordon) (Dock. #377). Mr. Kass instructed the PIC members on such topics as: • “Named fiduciary: of a pension plan has specified fiduciary responsibilities, ‘fiduciary’ is functionally defined”; • “Act for the exclusive benefit of plan participants and beneficiaries and for the purpose of providing plan benefits and paying plan expenses”; • “Act prudently” focusing on “procedural prudence” as a “critical” component; • “Diversify the plan’s investments”; and • “Act in accordance with the documents governing the plan, except to the extent inconsistent with ERISA.” DX-122 at RJR0000089. The training lasted approximately 30 to 40 minutes, and the majority of the time was spent on topics related to the above bullet points. 1/14/10 Tr. at 125:3-8 (Gordon) (Dock. # 377). PIC members were also told at that meeting that the NGH fund had declined 5.2% and the NA fund had declined 5.3%. DX-122 at RJR000087; 1/20/10 Tr. at 138:24-139:6 (Beasley) (Dock. # 380). The very next day, on October 8, 1999, HR managers, corporate executives and in-house legal staff met to discuss the logistics of eliminating the Nabisco Funds. RJR held a meeting of various employees in which the decision to eliminate the Nabisco Funds was reconsidered. 1/19/10 Tr. at 36:2-9, 46:6-16, 51:2-6 (Cissna) (Dock. # 379); 1/20/10 Tr. at 70:12-74:5 (Beasley) (Dock. # 380). During the meeting, Mr. Gordon raised the issue of the elimination itself. CEO Andrew Schindler had reported that an RJR employee had questioned the plan to eliminate the Nabisco Funds based on their declining value. 1/20/10 at 177:23-178:13 (Schindler) (Dock. # 380); 1/19/10 Tr. at 37:11-20 (Cissna) (Dock. # 378); 1/20/10 Tr. at 72:10-15 (Beasley) (Dock. #380); 1/25/10 Tr. at 110:2-6 (Johnston) (Dock. # 383). The group ultimately decided not to change anything about the planned divestment of the funds. This decision was partially based on the concern that many participants had already transferred all of their holdings out of the Nabisco Funds in reliance on communications from the Plan. DX-37. The group believed that it would be unfair to the participants who had transferred out of the Nabisco Funds at a loss if the Plan acted in a manner inconsistent with the previous communications informing them of the divestment timeline. 1/19/10 Tr. at 167:13-169:6 (Cissna) (Dock. # 379); 1/20/10 Tr. at 143:16-146:15 (Beasley) (Dock. # 380); 1/25/10 Tr. at 70:5-24, 110:19-111:4 (Johnston) (Dock. #383); DX-36. There was also concern that unfreezing the funds, and allowing participants an opportunity to reinvest if they chose, would be seen by some participants as a recommendation that they reinvest in the Nabisco Funds. In the view of the group members, the appearance of a stamp of approval could lead many participants either to continue holding the Nabisco Funds or to increase their contributions in those funds. 1/20/10 Tr. at 143:16-144:25 (Beasley) (Dock. #380); 1/25/10 Tr. at 70:16-24, 110:25-111:4 (Johnston) (Dock. # 383). Then, if the stock prices continued their downward slide, the fear was that those participants who reinvested would blame RJR for any losses. 1/25/10 Tr. at 14:17-15:21 (Blixt) (Dock. #383). Because of these considerations, there was a belief the company would face a lawsuit if it reversed the spring decision and decided not to eliminate Nabisco stocks from the Plan. 1/14/10 Tr. at 49:24-50:13 (Gordon) (Dock. # 377); 1/22/10 Tr. at 180:23-183:8 (Blixt) (Dock. # 382). In addition, the NGH and NA stock prices had continued to fall, and the group was concerned that they would continue to fail and never rebound. 1/20/10 Tr. at 99:3-15, 142:13-17 (Beasley) (Dock. # 380); 1/25/10 Tr. At 110:10-18 (Johnston) (Dock. # 383). Finally, the group discussed that if the Nabisco Funds were retained in the Plan, the fiduciaries would be required to monitor and investigate them on a continuing basis and at significant expense paid from the Plan’s trust. If the fiduciaries had decided to hire a financial consultant, outside counsel, and/or independent fiduciary to assist them in deciding whether and when to eliminate the Nabisco Funds, it was believed that the costs for these professionals would have been paid by the trust fund, and thus, ultimately by the participants. 1/19/10 Tr. at 139:21-24 (Cissna) (Dock. # 379). The issue of monitoring the funds and how independent consultants were paid was not discussed at length or investigated. These discussions led the group to agree that there was no reason to change course in October, and that decision was reported back to Mr. Schindler. Following the October 8 meeting, Susan Newsome contacted Kwasha to confirm that a number of participants had already exited the Nabisco Funds. 1/19/10 Tr. at 41:18-24, 170:16-23 (Cissna) (Dock. # 379). Her research corroborated the group’s beliefs that participants had begun to sell their NGH and NA funds after the announcement of the planned divestment of the NGH and NA funds. DX-37 at RJR014243; 1/19/10 Tr. at 170:24-171:20 (Cissna) (Dock. # 379). From June of 1999 (following the spin-off) to September 30, 1999, the number of participants in the RJR Nabisco Holdings/NGH fund had dropped from 3,252 to 2,775 (approximately 15% decrease). In the same time period, the number of participants in the NA fund dropped from 659 to 552 (approximately 16% decrease). I. October 14 Meeting On October 14, 1999, Kathy Cissna, Ann Johnston, Susan Newsome, Carol Christian, and Jennie Beasley, all members of the RJRT employee benefits department, met with the Plan’s record-keeper to discuss administrative issues regarding the Plan. DX-125; 1/19/10 Tr. at 173:20-174:4, 175:24-176:3 (Cissna) (Dock. # 379). The closest month-end after the six-month freeze period announced on June 14, 1999, would have been December 31, 1999, but Kwasha representatives were concerned about potentially widespread computer problems (‘Y2K”) that could interfere with the liquidation of the single stock funds in the days following December 31, 1999. The group members determined that the potential Y2K problems merited extending the freeze period to January 31, 2000, and eliminating the Nabisco Funds on that date. 1/19/10 Tr. at 178:11-180:1 (Cissna) (Dock. #379); 1/20/10 Tr. at 78:20-79:22 (Beasley) (Dock. # 380). J. Analyst Reports By October, the stock prices for NGH and NA had continued to steadily decline, but analyst reports available throughout 1999 were generally positive, overwhelmingly recommending “hold” or “buy”, particularly after the spin-off. During 1999 and 2000, however, “optimism bias” was affecting all analyst reports. During those years, only two percent of all stocks were rated “sell,” and it was “commonly accepted knowledge” during the 1999-2000 time period that “sell” ratings were extremely rare. 1/27/10 Tr. at 139:8-140:23 (McEnally) (Dock. #385); 1/15/10 Tr. at 126:25-127:13 (Biller) (Dock. # 378). Despite being generally positive, however, not all analyst statements regarding NGH and NA were positive, and some analysts believed any positive aspects of the company were already reflected in the stock price. For example, a July 22, 1999, Paine Webber report had maintained a “neutral” rating on the NA stock and stated that: While NA should continue its positive trends, we believe these initiatives [ramping up marketing spending ... to restore volume growth and generate market share gains] already have been priced into the stock, which had moved from trading at a discount to the food group to a slight premium. We believe the long-term fundamentals are solid and would be more interested in the stock below $40. DX-286 at MONTGOMERY015722 (emphasis added). A report on NA issued by Credit Suisse First Boston on July 23, 1999, stated that “[o]verall, given the challenges Nabisco faces in sustaining its momentum and transitioning to more cost-effective means of growth, we consider the company to be fully valued and maintain our Hold rating.” DX-287 at MONTGOMERY015726. An analyst report on NA by John Renwick of Morgan Stanley Dean Witter, issued on July 27, 1999, maintained a “neutral” rating on the stock “despite the company’s turnaround in volume growth and potential operating profit” because Morgan Stanley Dean Witter “believe[d] that the turnaround is already reflected in the stock’s valuation.” DX-288 at MONTGOMERY015730. The tobacco risk was acknowledged as well, even in positive reports. In August 1999, Solomon Smith Barney included a section in its report entitled “Primary Reasons for the Existence of the Discount” and stated “[t]he most substantial reason for the existence of the discount is an investor fear that if the RJR tobacco company is unable to service litigation awards against it, the assets of NGH may be threatened.” PX-226. The report goes on to downplay the risk, but acknowledges its impact on investor mentality and price. On October 6, 1999, another Solomon Smith Barney report commented on the continual decline of the Nabisco stocks, despite a general rise in the “biscuit” food category. The article blamed NGH’s connection to tobacco for NA’s problems, despite NA’s “strong fundamentals.” And although a “buy” rating is “reiterated” in the report, it comments on the depressed stock price: NGH: Investors Still Assume Where There’s Smoke, There’s Fire: Although we believe most investors if asked would tell you that they believe that the odds are most remote that NGH will need to be or could be found liable to support tobacco industry financial settlements, the NGH-NA gap continues to widen. More importantly it appears that NGH and NA are locked in some sort of downward arbitrage death spiral: as the price of NGH goes down, it appears to drag down NA and in turn, as NA goes down, traders knock down the price of NGH to close the gap, and so on. The NGH-NA valuation gap is currently near 40%. DX-276 at TAT000218. K. Further Communications with Plan Participants In October 1999, Ms. Cissna drafted a letter to Plan participants with their third quarter statements informing them that the frozen Nabisco Funds would be eliminated on January 31, 2000. Mr. Gordon directed that the letter indicate that the law did not allow the Plan to continue to offer the Nabisco Funds. Specifically, the letter told participants: “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.” PX-12 at RJR106; 1/14/10 Tr. at 53:1-54:6 (Gordon) (Dock. #377); 1/25/10 Tr. at 78:1-79:24 (Johnston) (Dock. # 383); see also PX-13 at RJR1320. Ms. Cissna drafted the letter at the direction of Mr. Gordon, and, at the time she prepared it, she knew the statement was incorrect. 1/19/10 Tr. at 64:1— 66:9 (Cissna) (Dock. #379). The letter was sent out to all participants with their third quarter statements sometime in October 1999. 1/14/10 Tr. at 53:1-18 (Gordon) (Dock. # 377). No lawyer reviewed the letter before it was sent to participants. 1/19/10 Tr. at 67:11-15; 69:5-7 (Cissna) (Dock. #379). The erroneous statement of law included in the letter was never corrected, even after responsible RJR officials were informed that it was wrong. 1/22/10 Tr. at 210:23-211:16 (Blixt) (Dock. # 382); 1/14/10 Tr. at 53:19-55:13 (Gordon) (Dock. # 377); 1/20/10 Tr. at 81:6-82:11 (Beasley) (Dock. # 380); 1/25/10 Tr. at 199:25-202:11 (Folan) (Dock. # 383). In January 2000, that same incorrect statement of law was included in a second letter to participants. PX-14 at RJR270; 1/14/10 Tr. at 55:20-55:13 (Gordon) (Dock. # 377). By that time, RJR’s managers, including its lawyers, had become aware that the statement was false, but nevertheless permitted the communication to be sent to participants. 1/25/10 Tr. at 201:13-202:11 (Folan) (Dock. # 383); 1/22/10 Tr. at 210:23-211:16 (Blixt) (Dock. #382). Again, the erroneous statement of law was never corrected, even though responsible RJR officials knew that it was wrong. 1/20/10 Tr. at 82:12-25 (Beasley) (Dock. # 380). L. Final Meetings and Communications to Participants In the fall of 1999 and first part of 2000, plans and communications centered around the logistics of eliminating the funds. In November 1999, Mr. Folan (an EBC member and serving as Secretary of the EBC) drafted and signed a document that included language which would have eliminated the Nabisco Funds as required investment options in the Plan on January 31, 2000, but it was not validly executed or voted upon by the EBC. The purported amendment to the Plan was dated as being effective February 1, 2000, and included the following language: 4.03 Separate Funds. The Trustee shall maintain the following separate Investment Funds within the Trust Fund: the Interest Income Fund, the RJR Common Stock Fund, the Total Stock Market Fund, the Total International Fund, the Conservative Growth Fund, the Moderate Growth Fund and the Growth Fund. All Investment Funds under the Plan are active Funds. In addition, the Trustee shall maintain any other Investment Funds as are designated by the RJR Pension Investment Committee. PX-34 at RJR1261-62 (§ 4.03). Because it was not distributed to other EBC members for signature as a consent in lieu of meeting or voted on by EBC members in a meeting, the amendment was held to be invalid because the amendment procedures outlined in the Plan were not followed. Tatum v. R.J. Reynolds Tobacco Co., et al., 2011 WL 2160893 (M.D.N.C.2011) (Dock. # 420). The December quarterly PIC meeting included a review of the performance of the NGH and NA funds with PIC investment advisor, Ed Robertiello. During the third quarter of 1999, the NGH Fund had declined 22.1 percent and the NA Fund had declined 18.8 percent. DX-133 at RJR000082; DX-134 at RJR000238; 1/20/10 Tr. at 153:19-25 (Beasley) (Dock. # 380). At that time, PIC members discussed those figures and were reminded of the January 31 time frame by Mr. Robertiello. 1/20/10 Tr. at 154:1-155:2 (Beasley) (Dock. #380); 1/27/10 Tr. at 52:17-53:1 (Lapiejko) (Dock. #385); DX-134 at RJR000238. There was no further inquiry into or discussion about the Nabisco Funds. Also in December 1999, all participants received a revised SPD which included a reminder about the Nabisco Funds. DX-42 at RJR000037-38. This SPD was in effect from December 1999 until at least January 31, 2000. 1/19/10 Tr. at 189:17-190:9 (Cissna) (Dock. #379). As noted earlier, the final Plan statements were sent to participants in January 2000, with a reminder letter that again contained the erroneous statement that eliminating the funds was required by regulation. That final statement showed that the Nabisco Common Stock Fund was down an additional 7.7 percent in the fourth quarter, and the Nabisco Group Holdings Common Stock Fund was down a further 27.3 percent in the fourth quarter. From January 1, 1999 through December 31, 1999, the Nabisco Common Stock Fund had declined by 21.7 percent. DX-292; 1/19/10 Tr. at 185:25-187:3 (Cissna) (Dock. # 379). M. Sale of Nabisco Stocks On January 31, 2000, the units of the Nabisco Funds held by participants who had not sold prior to that date were eliminated at prices set by the public stock market — $8.62 per share for NGH and $30.18 per share for NA. PX-302 at 5; PX-303 at 5. When the Nabisco Funds were terminated, participants’ accounts were credited with the closing price of NGH and/or NA stock as of the end of trading on January 31, 2000. The last shares were sold on February 4, 2000. The proceeds of the sale were invested in the Plan’s Interest Income Fund, and participants could immediately move those proceeds to any existing fund option. 1/19/10 Tr. at 195:20-22 (Cissna) (Dock. # 379). By contrast, the following RJR officers held their personal Nabisco stock and/or options until December 11, 2000: • Andrew Schindler — Chairman, President and CEO for RJRT (held stock and stock options). 1/20/10 Tr. at 185:13-18 (Schindler) (Dock. # 380). • Ken Lapiejko — Executive Vice President and Chief Financial Officer for RJRT (held restricted stock and stock options). 1/26/10 Tr. at 214:14-215:217-218) (Lapiejko) (Dock. # 384). • Francis Suozzi — Treasurer and Senior Vice President of Corporate Development for RJR Nabisco and NA (held stock and stock options). 1/13/10 Tr. at 193:4-195:2 (Suozzi) (Dock. # 372). • Bob Gordon — Executive Vice President of Human Resources for RJRT (held stock). 1/15/10 Tr. at 14:8-14; 156:3-58:4 (Gordon) (Dock. # 378). • Charles Blixt — Executive Vice President and General Counsel for RJRT (held NGH stock) 1/22/10 Tr. at 187:20-189:20 (Blixt) (Dock. #382). Between June 15, 1999 and January 31, 2000, the market price of NGH had fallen 60 percent and NA had fallen 28 percent. DX-157 at RJR00437-42; DX-158 at RJR001448-53. N. Rise of Nabisco Stock Values Nabisco stocks began to rise in the early spring of 2000, two months after the sale of the NGH and NA stocks out of the Tobacco Plan. On March 30, Carl Icahn made a renewed attempt to take over Nabisco in the form of an unsolicited tender offer to purchase NGH for $13 per share. Because the Icahn offer was unsolicited, under the tax laws, NGH could pursue corporate restructuring without endangering the tax-free nature of the spin-off. 1/13/10 Tr. at 171:21-172:10 (Angowitz Dep.) (Dock. # 372); 1/22/10 Tr. at 211:22-212:13 (Blixt) (Dock. # 382); 1/25/10 Tr. at 19:23-20:2 (Blixt) (Dock. # 383). On April 4, 2000, NGH’s Board of Directors rejected Icahn’s original bid, but announced that it would explore all alternatives to maximize shareholder value, effectively putting NGH on the auction block. 1/25/10 Tr. at 20:3-10 (Blixt) (Dock. # 383). After several months of competitive bidding, on June 25, 2000, it was announced that definitive agreements were signed for the sales of NGH and NA. Under the agreements, NA would be sold for $55 per share to Philip Morris, which would infuse NGH (the sole asset of which was NA) with $11 billion in cash. RJR would then purchase NGH for $30 per share, or $9.5 billion. The transactions closed on December 11, 2000. On that day, NGH was priced at $29.9375 per share and NA was priced at $55 per share. PX-302 at 9; PX-303 at 9. The closing prices represented an increase of 247 percent for NGH and 82 percent for NA from the January 31, 2000 share prices. DX-157 at RJR001432-37; DX-158 at RJR001443-48. Before 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. PX-271 at TAT3326; PX-275 at TAT3447; PX-276 at TAT3467-68; PX-277 at TAT3473; PX-278 at 2-4; PX-304 at 4, 6; see also PX-228 at TAT193; PX-248 at TAT281; PX-221 at TATI 17; PX-304 at 4. Prior to the spin-off, Icahn had attempted a takeover in March 1999 and was vocal about his belief that RJR and Nabisco should part ways. After that attempt, he continued to hold a significant number of shares through at least June 1999. PX-221 at TAT117; PX-275 at TAT3447; PX-276 at TAT3467-68; PX-277 at TAT3473; PX-278 at 2-4; PX-304 at 4, 6. On November 26, 1999, a Wall Street Journal article reported that Icahn had purchased six million shares of NGH stock, and speculated that “Mr. Icahn might just be bottom fishing.” PX-346. While the Wall Street Journal speculated about the significance of the purchase, there was no price reaction to this report. 2/2/10 Tr. at 127:23-129:1 (Montgomery) (Dock. # 388). No analyst reports or news articles between the spin-off and February 1, 2000, mentioned the possibility of Icahn making an offer for NGH. 2/2/10 Tr. at 127:23-129:1 (Montgomery) (Dock. # 388). As late as March 27, 2000, after divestment and three days before the unsolicited tender offer by Mr. Icahn, Salomon Smith Barney noted that “derivative tobacco fears continue to compress NA valuation despite strong fundamentals” and warned that “with storm clouds gathering on the tobacco litigation front in the near-term, NA may remain volatile, but we see this as a strong long term idea in food stocks.” DX-279. The report went on to say: We have had a Buy rating on NA shares for more than a year; however that recommendation has been disappointing since the middle of 1999. After peaking at $43 in July 1999, NA shares are down 37% since then, in addition to the under-performance of the food group, we believe the weakness in NA shares relates in large part to the formation of NGH as well as the increasing uncertainty in the tobacco industry. Although we believe that Nabisco is ultimately insulated from tobacco financial liability, the shares continue to be impacted by investor concerns. DX-279, TAT000106. There was no mention of Carl Icahn in the report. O. Communications with Mr. Tatum On January 27, 2000, shortly before the scheduled liquidation, Mr. Tatum sent an email to Ann Johnston and Bob Gordon requesting that the forced sale not go through, because it would result in a 60 percent loss in his 401(k) account. Tatum indicated that he was waiting to sell his stock until the Nabisco stock prices rebounded, and observed that company communications had been “optimistic” that the stock would perform better after the spinoff. PX-41 at RJR122; 1/13/10 Tr. at 26:22-29:6 (Tatum) (Dock. # 372). He also stated his understanding that former RJR employees of Winston-Salem Health Care and Winston-Salem Dental Care still had frozen Nabisco and RJR funds in their plans. Upon their receipt of Mr. Tatum’s email, Ms. Johnston and Kathy Cissna met with Mr. Tatum to discuss his request that the Plan not divest the Nabisco stocks. During the discussion, Ms. Johnston told Mr. Tatum that others had complained and nothing could be done to reverse the decision. Mr. Tatum reiterated his understanding that Novant had retained the RJR and Nabisco stocks as a frozen investment option in the Winston-Salem Health Care and Winston-Salem Dental Care Plan. 1/13/10 Tr. at 29:19-31:8 (Tatum) (Dock. # 372). Ms. Johnston responded that there was nothing that could be done to stop the divestment, and Tatum did not have further conversations with any company officials about the divestment until after January 31, 2000. Id. In mid-November of 2000, Mr. Tatum requested a meeting with Mr. Gordon to discuss losses to the Plan as a result of selling the Nabisco stocks at close to their lowest point. At the meeting, Tatum expressed his concern over the marked increase in value of the Nabisco Funds since the divestment of them from the Plan. 1/13/10 Tr. at 33:3-34:1 (Tatum) (Dock. # 372). On March 22, 2001, Mr. Tatum wrote a letter to the RJR Employee Benefits committee stating his concern that the Nabisco Funds “could have been maintained as ‘frozen funds’ with no further contributions or transfers into them allowed,” and asking for copies of Plan documents and other information. PX-46. On April 5, 2001, Mr. Folan, writing on behalf of the EBC, responded to Mr. Tatum’s March 22, 2001 letter. In his response, Mr. Folan wrote, in part, that “[w]e disagree with your contention; we believe that the fiduciaries of the CIP did act prudently and in the interests of Plan participants and beneficiaries when the frozen NGH and NA stock funds were eliminated from the CIP on January 31, 2000.” PX-47. On May 1, 2001, Mr. Tatum responded to Mr. Folan’s letter making the following claim, “As a participant in the RJR CIP Plan I should receive a total of $30 per share instead of between $8 and $9 dollars per share for all NGH shares I held in the plan on January 31, 2000.” PX-48. On July 20, 2001, Mr. Gordon, as chair of the Benefits Administration Committee § “BAG”), responded to and denied Mr. Tatum’s claim. PX-43. In its Basis for Denial, the BAC cited to the regulations under ERISA 404(c) for self-directed accounts, 29 C.F.R. §§ 2550.404c-l et seq., and stated that “[a]s a participant in the RJR CIP, you had and continue to have the ability to direct the investment of all assets in your account” and cited to the 1998 and 1999 SPDs, stating that “the 1998 and 1999 SPD each clearly explains that the Plan Fiduciary will provide a range of investment choices for RJR CIP participants to invest in, but [ ] each participant is responsible for directing the investment of assets in his/her own account.” The letter also emphasized that Tatum received notice of the intent to eliminate the Nabisco Funds in the 1999 SPD, as well as in communications sent to Plan participants in April 1999, June 1999, October 1999, and December 1999, and that Tatum could have redirected his investment at any time but that Tatum “chose to wait, presumably in the hope that the price of the NGH shares would increase.” PX-43. In denying the claim, Gordon wrote that Tatum’s claim had no merit “[bjecause of your decision not to redirect your investment in the frozen NGH Fund before it was liquidated.” PX-43, RJR000292. Tatum appealed the BAC’s decision to the EBC on August 7, 2001, and received a written response from Mr. Gordon, as Chairman of the EBC, on September 27, 2001. PX-56. In the denial of Mr. Tatum’s claim, Mr. Gordon writes as an “undisputed fact” that “Plan Section 4.03 vests the RJR Pension Investment Committee with the absolute right to change or eliminate investment options.” Id. (emphasis added). Again, the major basis for denying Mr. Tatum’s claim is that ERISA § 404(c) “permits a participant to exercise control over assets in his account” and that in such cases, “no person who is otherwise a fiduciary shall be liable under this part of any loss, or by reason of any breach, which results from such participant’s or beneficiary’s exercise of control.” PX-56, RJR00150. Part C of the letter is entitled “The Fiduciary Right to Change or Eliminate Investment Options Offered Under the Plan” and states, in part: Under Plan Section 1.03, the RJR Pension Investment Committee has been delegated the unambiguous right to change or eliminate investment alterna Uves. Once a decision is reached to change or eliminate an investment alternative, the [EBC] has a duty to inform participants of the changes in the investment alternatives. Consistent with that duty, as evidenced by the undisputed facts, the [EBC] gave you and the other Plan participants considerable, advance notice of the changes in investment alternatives with respect to the NGH stock, including the elimination of that investment option from the Plan. PX-56, RJR000151 (emphasis added). In addition to the above statement, the letter contained sections entitled “The Fiduciary Obligation to Give Notice to Participants of the Change or Elimination of Investment Options Offered Under the Plan,” “Participant Control and Self-direction of Investments,” and “the Measure of a Fiduciary’s Duty is not based on Hindsight.” The acts discussed throughout the letter are discussed in terms of fiduciary acts and fiduciary duties. II. PROCEDURAL HISTORY Tatum filed the original complaint in this case in May 2002, naming RJR as defendant as well as the EBC and the PIC. Tatum alleged that RJR breached its fiduciary duties by eliminating the Nabisco stock from the Plan without the thorough investigation or analysis required by ERISA, thereby causing losses to the Plan. In July 2002, RJR filed a motion to dismiss. The motion was granted based on a determination that Tatum’s allegations involved “settlor” rather than “fiduciary” actions and thus Tatum had not stated a claim of breach of fiduciary duty. Tatum v. R.J. Reynolds Tobacco Co., 294 F.Supp.2d 776, 784 (M.D.N.C.2003), rev’d, 392 F.3d 636 (4th Cir.2004). On appeal, the Fourth Circuit reversed, holding that Plan amendments created in the relevant time period (the June and November amendments), which this Court found had mandated removal of the Nabisco stock, did not mandate removal and thus did not preclude Tatum from stating a claim that divesting the Nabisco stock from the Plan was a discretionary, fiduciary act. Tatum v. R.J. Reynolds Tobacco Co., 392 F.3d 636, 640 (4th Cir.2004). In January 2005, RJR filed a second motion to dismiss [Dock. # 43, 44] on several grounds. After limited discovery was allowed, Tatum filed a second amended complaint, adding new facts to the allegation that RJR was a “functional fiduciary” and thus also subject to the duty of prudence. Dock. #49-4 (Second Amended Complaint). In April 2007, RJR filed a third motion to dismiss, which sought, among other things, to dismiss the EBC and the PIC as defendants in this case. This Court granted RJR’s motion as to the two plan committees but allowed the case to proceed against RJR. Dock. # 90. The class was certified in September 2008. Dock. # 209. The class is described as: All participants in the R.J. Reynolds Tobacco Company Capital Investment Plan (“Plan”) for whose individual accounts the Plan held shares of Nabisco Group Holdings (NGH) Common Stock and/or Nabisco (NA) Common Stock at any time from June 14, 1999 and including January 31, 2000. The following individuals are excluded from the Class: Officers and directors of R.J. Reynolds Tobacco Holdings, Inc., R.J. Reynolds Tobacco Company, RJR Industries, Inc., R.J. Reynolds Tobacco International, Inc. and RJR Tobacco Consolidated IHC, Inc., members of their immediate families; and the heirs, successors or assigns of any of the foregoing. Dock. # 209, at 5. In May 2008, RJR filed a Motion for Judgment on the Pleadings With Respect to “Voluntary Seller” class members [Dock. # 169], claiming that Tatum had not adequately pled causation with respect to a Plan participants (referred to as “Early Sellers”) who directed sales of their Nabisco stocks before the final divestiture date of the Plan’s Nabisco stocks. [Dock. # 277]. Because Tatum’s claim was brought under ERISA § 502(a)(2), it was determined that he sufficiently pled causation as to all Plan participants, including the Early Sellers, by alleging in the complaint that the Plan had suffered losses as a result of RJR’s breach of fiduciary duty. Id. at 3-4. On January 9, 2009, RJR filed a Motion to Decertify the Class [Dock. # 263], which was denied. [Dock. # 359], The parties’ cross motions for summary judgment were denied in December 2009, and a bench trial on Tatum’s breach of fiduciary duty claim was held from January 13, 2010 to February 9, 2010. Pre-trial motions were heard on January 11 and 12, 2010, but the Court reserved judgment on a number of motions until after the close of evidence.