British American Tobacco Wins Appeal Dismissing Putative Class Action Suit Arising from the $27.6 Billion Reynolds‑Lorillard Merger

On December 7, 2018, the Supreme Court of North Carolina ruled in favor of Cravath client British American Tobacco plc (“BAT”), reversing the state’s Court of Appeals and dismissing the putative class action suit asserting a claim for breach of fiduciary duty related to the $27.6 billion acquisition of Lorillard Inc. by Reynolds American, Inc. (“RAI”).

Plaintiff, on behalf of a purported class of RAI shareholders, claimed that BAT, as RAI’s largest shareholder with 42% ownership, breached fiduciary duties allegedly owed to other shareholders by causing the transaction to be structured in ways that unduly benefitted BAT. In August 2015, the North Carolina Business Court dismissed the claims against BAT in their entirety, holding that BAT did not exercise sufficient control over RAI to owe the remaining shareholders any fiduciary duty. Plaintiffs appealed to the North Carolina Court of Appeals, which reversed the dismissal. BAT filed a Petition for Discretionary Review with the Supreme Court of North Carolina, and Cravath partner Gary A. Bornstein argued the appeal in January 2018.

In its decision, the Supreme Court of North Carolina held that “[b]ecause BAT was not a majority or controlling stockholder, it did not owe fiduciary duties to the other Reynolds stockholders, and the Business Court properly dismissed plaintiff’s breach‑of‑fiduciary‑duty claim against BAT.”

In addition to partner Gary A. Bornstein, the Cravath team included associates M. Brent Byars, Michael P. Addis, Michael J. Zaken and Andrew D. Huynh. The case is Dr. Robert Corwin as Trustee for the Beatrice Corwin Living Irrevocable Trust v. British American Tobacco plc, et al., No. 56PA17 (N.C.).