HALL v. JOHNSON & JOHNSON et al
Filing
49
OPINION filed. Signed by Chief Judge Freda L. Wolfson on 12/27/2019. (jdb)
*NOT FOR PUBLICATION*
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
FRANK HALL, individually and on behalf :
of all others similarly situated,
:
:
Civil Action No.: 18-1833 (FLW)
Plaintiff,
:
:
OPINION
vs.
:
:
JOHNSON & JOHNSON, et al.,
:
:
Defendants.
:
____________________________________:
WOLFSON, Chief Judge:
Presently before the Court is a motion by Defendants Johnson & Johnson (“J&J” or the
“Company”), Alex Gorsky (“Gorsky”), Dominic Caruso (“Caurso”), Sandra Peterson
(“Peterson”),
Carol Goodrich (“Goodrich”), Joan Casalvieri (“Casalvieri”), Michael Sneed
(“Sneed”), and Tara Glasgow (“Glasgow”) (collectively, “Defendants”), to dismiss Lead Plaintiff
San Diego County Employees Retirement Association’s (“Plaintiff”) Amended Class Action
Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). In this putative class
action securities litigation, Plaintiff alleges that it, and other similarly situated investors, purchased
J&J stock between February 2013 and October 2018 (the “Class Period”), and that Defendants
violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §
78j(b), and Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240.10b–5. Furthermore, Plaintiff
avers that Defendants Gorsky, Caruso, Peterson, Goodrich, Sneed, Glasgow, and Casalvieri
(collectively, “Individual Defendants”) violated Section 20(a) of the Exchange Act, 15 U.S.C. §
78t(a). Plaintiff alleges that Defendants fraudulently inflated the value of J&J’s stock by issuing
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false and misleading statements as part of a long-running scheme to conceal the truth from
investors that the Company’s talc products were contaminated with asbestos, and that Plaintiff and
other investors relied on these material misrepresentations and omissions to their detriment. In the
instant matter, Defendants move to dismiss the Amended Complaint on the basis that the alleged
misstatements and omissions were not material, that Plaintiff has failed to plead with particularity
that Defendants acted with scienter, and that Plaintiff has not sufficiently alleged loss causation.
For the reasons set forth below, Defendant’s motion is granted in part and denied in
part. Plaintiff’s Section 10(b) and Rule 10b–5 claims are limited to those stemming from
Defendants’ statements regarding the safety of its talc products, the “asbestos-free” nature of its
talc, and the Company’s commitment to product safety, quality assurance, and research, and
Plaintiff’s claims based upon Defendants’ alleged misstatements about the viability of the Product
Liability lawsuits are dismissed. Furthermore, because Plaintiff has not adequately alleged facts
suggesting a strong inference of scienter as to defendants Caruso, Peterson, and Sneed, those
defendants are dismissed from the lawsuit.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The following allegations are taken from the Amended Complaint (“AC”) and are
assumed to be true for purposes of this motion to dismiss.1
A. Defendants
J&J is a multinational company engaged in research and development, manufacturing, and
sale of a broad range of healthcare products. AC ¶20. J&J has three business segments:
pharmaceutical, medical device, and consumer. Id. The products produced by the consumer
1
The Amended Complaint spans approximately 250 pages, plus exhibits, and includes numerous
detailed factual allegations describing J&J’s alleged thirty-year long fraudulent scheme. The
following factual background does not purport to be an exhaustive summary of all of those facts,
but rather recounts the most salient allegations.
2
segment include Baby Powder (“Baby Powder”) and “Shower-to-Shower” 2 (“Shower-toShower”) (collectively, the “Talc Products”), which are both made from cosmetic talc. 3 Id. at
¶¶48, 49.
Each of the Individual defendants is, or was, a senior J&J executive and, along with other
personnel, allegedly helped perpetuate the Company’s fraudulent scheme over its investors. 4
Alex Gorsky is the Chairman of the Board and Chief Executive Officer (“CEO”) of J&J.
Id. at ¶21. He has served as CEO since April 26, 2012, and has been the Chairman since December
28, 2012. Id. Gorsky began his career at J&J in 1988, and has served in various leadership roles
in the Company prior to being selected as CEO. Id.
Dominic Caruso was the Chief Financial Officer (“CFO”) of the Company from 2007 until
his retirement in September 2018, and also served as the Executive Vice President from April 2016
until his retirement. Id. at ¶22.
Sandra Peterson was Group Worldwide Chair at J&J from 2012 to October 2018. Peterson,
the first outsider to ever join the Company’s Executive Committee, is allegedly a “corporate fixer”
who was hired to fix quality and supply chain issues, which the Company was facing leading up
to the Class Period. Id. at ¶23. However, on June 22, 2018, just over two months after the first
2
J&J produced Shower-to Shower until 2012, after which the brand was sold to Valeant
Pharmaceuticals International, Inc. AC ¶49 n.5
3
The consumer segment is housed within a subsidiary of J&J, Johnson & Johnson Consumer, Inc.
(“JJCI”). JJCI is the entity primarily responsible for the formulation, manufacture, testing,
marketing, and sale of the Talc Products. In order to avoid confusion, for the purposes of this
Opinion, the Court will refer to both JJCI and J&J as J&J.
4
In addition to Individual Defendants, Plaintiff’s Complaint and Exhibit 1 to Plaintiff’s Brief in
Opposition to Defendants’ Motion to Dismiss (“Pl. Br.”) identify numerous other J&J employees
who purportedly played a role in the Company’s alleged scheme. AC ¶¶28-41; ECF No. 45-3 Ex.
1, “J&J Personnel Involved in J&J’s Longstanding Fraudulent Scheme.”
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jury verdict against J&J in a case alleging harm from asbestos in the Company’s Talc Products,
the Company announced Peterson’s retirement, effective October 1, 2018. Id. at ¶211.
Carol Goodrich is the Director of Corporate Media Relations at J&J. Id. at ¶24. In 2013,
Goodrich allegedly drafted the text of J&J’s “Our Safety & Care Commitment” website, which
addressed the safety of the Talc Products, and made public statements on behalf of J&J from
2016 through 2018. Id.
Joan Casalvieri, Ph.D. was the Director of Toxicology and Skincare at JJCI. Id. at ¶25.
She allegedly spearheaded the Company’s efforts to defend talc from both scientific and
regulatory scrutiny in 2005. Id.
Michael Sneed has worked at the Company since 1983, and has been J&J’s Executive VP
of Global Corporate Affairs & Chief Communication Officer since 2012. Id. at ¶26. He is also a
member of J&J’s Executive Committee. Id.
Tara Glasgow was VP of Research and Development (“R&D”) for the baby product unit
of J&J’s consumer division. Id. at ¶27. Glasgow allegedly made public statements on behalf of
J&J from 2015 through 2017. Id.
B. The Talc Products and the Alleged Fraudulent Scheme
Defendants allegedly concealed the truth about the asbestos in its Talc Products through a
highly organized campaign of deceit and regulatory manipulation. According to Plaintiff, Baby
Powder “stands out as a symbol of J&J’s history and legacy” and has been described by the
Company’s executives as “an institution,” “flagship product,” and “sacred cow.” AC ¶¶43,47.
Plaintiff contends that the Talc Products “are contaminated with cancer-causing asbestos.” Id. at
¶1. Cosmetic talc is a naturally occurring mineral that is mined from rock and then ground into
powder form. Id. at ¶49. Talc can be naturally contaminated with different types of asbestos, such
as chrysotile, tremolite, actinolite, anthophyllite, amosite, and crocidolite minerals, that develop
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as bundles of long, thin fibers that are flexible and easily separable, rather than as solid rock. Id.
at ¶50 Tremolite, actinolite, and anthophyllite minerals can also develop naturally as larger rocks,
i.e., “non-asbestiform.” Id. at ¶50 n.6. The parties dispute the health risks, if any, posed by those
minerals in their non-asebstos form, however, they agree that asbestos fibers can cause fatal
cancers. Id. at ¶50, 50 n.6; see ECF No. 44-1, Memorandum of Law in Support of Defendants’
Motion to Dismiss First Amended Class Action Complaint (“Def. Br.”), at 5.
According to Plaintiff, in the 1970’s, concerns about the safety of talc-based products and
the potential for asbestos contamination began to surface, and as a result, J&J allegedly initiated a
concerted effort to convince the public that talc was safe. Id. at ¶51. Similarly, after public health
researchers in the 1980’s started to consider a potential association between talc powder usage and
ovarian cancer, the Company’s alleged scheme turned to quelling those concerns. Id. at ¶74. To
that end, the Company allegedly “lied to the public, influenced regulators, and purposely avoided
testing methods that could detect the trace amounts of asbestos that the Company knew were
present,” id. at 51, and sought to preclude health organizations such as the National Toxicology
Program (“NTP”) and the World Health Organization (“WHO”) from listing talc as a carcinogen,
id. at ¶¶82-84, 100-102.
Plaintiff alleges that the Company was aware, as early as 1969, that J&J’s talc contained
“unavoidable trace amounts of tremolite,” and Plaintiff cites to internal documents wherein
pediatricians and the Company’s own employees had expressed concern about potential adverse
effects of talcum powder on the lungs of babies or mothers. Id. at ¶52. Throughout the 1970’s,
the Company allegedly received testing results from outside laboratories, and following those
results, internally acknowledged the existence of asbestos in its Talc Products, but endeavored to
keep the issue hidden from regulators and the public. Id. at ¶¶55, 57, 59. For example, Plaintiff
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alleges that in 1971, an internal Company memorandum, drafted by Dr. T. M. Thompson, the son
of the Company’s co-founder, noted that that “[t]he talc used in JOHNSON’S Baby Powder came
from a Vermont mine containing ‘trace amounts of fibrous minerals (tremolite/actinolite).’ While
the talc went through a ‘washing process,’ ‘three independent consulting laboratories’ showed that
the resulting talc still had ‘traces of fibrous minerals.’”
Id. at ¶¶55.
Further, the memo
acknowledged that “if it became known that [the Company’s] formulations contained any
significant amount of Tremolite” the [C]ompany could face a “furor” and “become involved in
litigation.” Id. at ¶53. In 1972, two other outside laboratories allegedly tested talcum powder
samples and found the presence of tremolite asbestos fibers. Id. at ¶¶56-57.
J&J allegedly avoided testing methods which might reveal the presence of asbestos in its
talc. Id. at ¶¶63-67, 230. Plaintiff alleges that in 1973, J&J hired a consultant who concluded that
detecting trace amounts of asbestos was like looking for a “needle in a haystack” and requires
testing large amounts of talc. Id. at ¶63. Accordingly, the consultant “considered [it] essential” to
concentrate the asbestos before the talc was examined. Id. at ¶63. Knowing that the concentration
method might lead to the detection of asbestos, the Company allegedly agreed internally that it
“want[ed] to avoid promotion of this [testing] approach,” and that it “really want[ed] to exclude
concentration techniques in any proposed analytical procedure.” Id. at ¶65. Plaintiff also alleges
that in addition to the historical issues regarding J&J’s testing methods, more recently, a 2016
internal audit report found that the Company’s methods for testing its talc were “questionable at
best.” Id. at ¶110. Furthermore, RJ Lee, the outside lab utilized by J&J indicated that the test
method required by J&J was “not an optimal method for asbestos testing.” Id. In addition to
avoiding testing methods which might find asbestos in its Talc Products, in 1974, J&J allegedly
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authorized a clandestine “asbestos-destruction experiment,” through which the Company hoped to
identify methods to destroy the tremolite and chrysotile in its talc. Id. at ¶60.
Unable to remove the asbestos fibers from its talc, J&J also allegedly made efforts to
control the scientific community’s research regarding the safety of talc and purportedly sponsored
“talc safety studies” to “neutralize or hold in check data already generated by investigators who
question the safety of talc.” Id. at ¶68. Simultaneously, J&J set out to obtain “maximal leverage
for defending the product” by contradicting “negative data,” id at ¶70; see also id. at ¶¶ 68-73. To
that end, J&J allegedly led efforts to preclude the National Toxicology Program (“NTP) from
considering whether talc was a potential carcinogen and including talc in its biennial Report on
Carcinogens (“RoC”). Id. at ¶¶37, 82-84. The RoC is published every two years and lists
substances “either known or reasonably anticipated to be human carcinogens.” Id. at ¶37. In 2000,
the NTP was considering whether to include talc in its next RoC, and J&J and its talc supplier
allegedly worked hand in hand to undermine those efforts. Id. at ¶¶82-85. They succeeded in
convincing the NTP to defer its decision on talc, by pointing out an “alleged fatal flaw” in the thenexisting research linking ovarian cancer and talc: most of the studies involved the use of talc
products produced before 1976, the year after which talc was supposedly required to be “asbestosfree.” Id. at ¶¶82-83.
Later, when the NTP, again, decided to review whether talc was a potential carcinogen, the
Company allegedly assigned Casalvieri the task of directing the project to “defend talc.” Id. at
¶94.
J&J worked with its talc supplier and outside experts “to develop documents” that
undermined any link between talc and ovarian cancer, for potential submission to the NTP and for
publication. Id. at ¶¶95,97. For example, J&J and its talc supplier allegedly secretly funded a
study that sided with the Company on the safety of talc. Id. at ¶¶97-99. In order to conceal their
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involvement, J&J purportedly retained a law firm which hired the researchers and through which
payments to the researchers were funneled. Id.
In October 2005, the NTP withdrew talc from consideration as a carcinogen. Id. at ¶¶37,
103. An internal company email sent to 30 individuals, including Casalvieri, celebrated the NTP’s
decision, proclaiming, “We did it!” and acknowledging that the decision was “a direct result” of
J&J’s efforts, along with those of its talc supplier. Id. at ¶104.
Plaintiff alleges that J&J went to extreme lengths to defend its products, including updating
the Company’s website to address the safety of the Talc Products, and seeking to conceal negative
data from the FDA. Id. at ¶¶227, 288, 299. Plaintiff alleges that while the Company was engaged
in its offensive tactics to conceal negative data regarding its talc from the public, J&J was
repeatedly informed, and internally discussed, the asbestos contamination in its Talc Products. For
example, a March 1992 internal memorandum at J&J’s talc supplier allegedly illustrates that it was
“common knowledge” that asbestiform minerals such as tremolite and actinolite were present in
the Vermont talc mines utilized by the Company. Id. at ¶76. In 2004, a news channel allegedly
tested J&J Baby Powder and found that it “tested at above normal levels for asbestos.” Id. at ¶88.
Upon receiving the information, the Company allegedly “frantically called its talc supplier,” and
discovered that during the prior three years, the supplier had not been performing quarterly
asbestos testing on the talc it was supplying to J&J. Id. at ¶90. In a series of 2008 emails, the
Company’s Global Creative Director repeatedly expressed concern that talc was not safe for use
around babies, and was ultimately, reprimanded. Id. at ¶¶107-108.
C. Alleged Misrepresentations and Omissions during the Class Period
In 2013, J&J began facing lawsuits alleging a connection between ovarian cancer and talc,
and that asbestos in its talc powder caused cancer. ¶¶120, 179-186, 192-201, 204, 213-222.
Plaintiff alleges that, shortly thereafter, the Company began issuing numerous false and misleading
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statements – a continuation of its decade’s long scheme– which form the basis of Plaintiff’s instant
claims. Plaintiff further alleges that the various misstatements made during the Class Period were
aimed at preserving the public trust and precluding the discovery of the Company’s longstanding
misinformation campaign.
For example, in October 2013, following a jury verdict against the Company in a case
where the plaintiff alleged that there was a link between asbestos and talc, the Company’s “Safety
& Care Commitment” webpage was updated to state that “[f]ew ingredients have demonstrated
the same performance, mildness and safety profile as cosmetic talc, which has been used for over
100 years” and has “a long history of safe use.” Id. at ¶¶126-127. The webpage stated that the
Company’s “talc is carefully selected, processed and tested to ensure that [it] is asbestos free” and
that this has been “confirmed by regular testing conducted since the 1970s.” Id. at ¶127. Plaintiff
alleges that these statements were false, as indicated by a draft version of the website contained in
the Company’s internal documents. Id. at ¶¶128-129, 142. Plaintiff alleges that the draft of the
webpage, modified by Goodrich and held in her files, contained the following edit: “Talc has over
100 years of safe use in personal care products.” Id. at ¶128. Additionally, Plaintiff further alleges
that commentary in the draft document, purportedly added by Goodrich, acknowledged, “I don’t
think we can link cosmetic talc to 100 years of use,” and that J&J “cannot say [the Talc Products
have] ‘always’ been asbestos free.” Id. at ¶128
In February 2016, a Missouri state jury returned a verdict against J&J for failure to warn,
negligence, and conspiracy, and awarded $72 million in damages to a long-time user of J&J’s
talcum powders who suffered from ovarian cancer. Id. at ¶147. This verdict was reportedly the
first to award damages to a plaintiff linking ovarian cancer to J&J’s talc products, and it included
an award of $62 million in punitive damages. Id.
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On February 25, 2016, following the $72 million verdict, the FDA requested, in writing,
that J&J “provide all safety literature and data regarding talc, including data in support of the safety
of this active ingredient and data that shows potential harmful effects.” Id. at ¶150. In the
company’s letter-response, J&J allegedly represented that “[n]o asbestos-form structures have
been found during any testing” of its body powders. Id. at ¶151. The Company did not reveal that
over the years at least three independent laboratories had found asbestos in the Company’s talc.
The statements to the FDA were not the Company’s only commentary on the safety of talc during
that time period. Following articles about that jury verdict, Plaintiff alleges that the Company’s
website was updated to include various “materially false and misleading” statements including the
following:
•
•
•
•
•
•
•
•
•
•
“JOHNSON’s talc products do not contain asbestos.”
It is a “misperception . . . that JOHNSON’s Baby Powder contains talc made with
asbestos.”
“Since the 1970s, talc used in consumer products has been required to be asbestosfree.”
“The grade of talc used in cosmetics is of high purity . . . and is free from asbestos
and asbestiform fibers.”
“Cosmetic grade talc is only mined from select deposits from certified locations ..”
“Cosmetic grade talc is . . . milled to relatively large, non-respirable particles size.”
“Our sources for talc undergo comprehensive qualification.”
“The incoming talc is routinely evaluated . . . .”
“The incoming talc is . . . evaluated using a sophisticated battery of tests designed
to ensure quality, safety, and compliance with all global standards.”
“The safety of talc is based on a long history of safe use and decades of research by
independent researchers and scientific review boards.”
Id. at ¶148. Defendant Glasgow allegedly made similar representations in a June 2016 Houston
Chronical editorial. Id. at ¶163. There, she claimed that 30 years of scientific studies and
regulatory reviews have shown that “cosmetic talc is safe” and that “I can tell you the science is
clear – cosmetic talc is, and has been, safe for use and that is the most important guiding principle
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for every product Johnson & Johnson Consumer Inc. offers to consumers and patients.” Id. at
¶¶163-164.
Despite the Company’s efforts, throughout 2017 and 2018, it is alleged that the truth
regarding asbestos in the Talc Products was slowly disclosed, and the Company’s stock price
began to decline. Id. at ¶¶184-237. On September 21, 2017, a law firm issued a press release (the
“Bernstein Liebhard Press Release”), entitled “Talcum Powder Lawsuit Plaintiffs Claim Unsealed
Documents Show Johnson & Johnson Knew of Talc-Asbestos Danger in 1970s, Bernstein
Liebhard LLP Reports.” Id. at ¶184. The press release indicated that plaintiffs in the ovarian cancer
lawsuits were looking to add asbestos allegations to their ovarian cancer claims. Id. In response
to the news, J&J’s stock price declined from a close of $130.94 on September 26, 2017 to a close
of $129.75 on September 27, 2017, and an event study allegedly “determined that [the decline]
was statistically significant” and “cannot be attributed to market and sector factors, or to random
volatility, but rather was caused by new company-specific information.” Id. at ¶185, 185 n.21.
On January 30, 2018, testimony began in a New Jersey state court case (the “Lanzo Case”)
where the plaintiff, Stephen Lanzo, alleged that he developed mesothelioma as a result of exposure
to J&J Baby Powder containing asbestos. That same day, after the markets closed, Law360
published an article regarding the Plaintiff’s allegations and summarizing some of the testimony,
including the allegation that J&J had been aware that its talc contained asbestos since the 1970s.
Id. at ¶192. In response to that disclosure, J&J’s stock dropped 3% from a close of $142.43 on
January 30, 2018 to a close of $138.19 on January 31, 2018. Id. ¶193. An event study allegedly
determined that the decline was statistically significant. Id.
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On February 5, 2018, Mesothelioma.net published an article anticipating use of “damaging
internal company documents” during the Lanzo trial. Id. at ¶194. The article explained that the
anticipated documents would
show that as long ago as the early 1970s, company officials
were questioning each other about the impact of asbestos,
and specifically about how much asbestos an infant might
inhale if the company’s baby powder contained a 1%
concentration of the carcinogen. This type of documentation
is likely to weigh heavily against the consumer products
giant as they assert in court that their product has always
been completely asbestos free.
Id. Plaintiff alleges that following the publication of that article, the Company’s stock declined
over 5%, from a close of $137.68 on February 2, 2018, to a close of $130.39 on February 5, 2018,
the following trading day, which an event study determined to be statistically significant. Id. at
¶195. Contemporaneous publications from financial news outlets and analysts also attributed the
stock drop to the article’s pronouncements. Id. at ¶196-199.
On February 7, 2018, the Beasley Allen Law Firm, co-lead counsel on behalf of thousands
of women in ovarian cancer related product liability lawsuits, issued a press release emphasizing
the significance of recently disclosed J&J internal documents, which had been produced to it in
discovery. Id. ¶201. Among other things, the press release alleged that the documents “shed light
on just how prevalent asbestos and heavy metals are in the talc used in Baby Powder. The
documents also show the corporations’ response to growing concerns about cancer risks.” Id.
Following the press release, J&J’s stock declined nearly 4%, from a close of $131.42 on February
7, 2018 to a close of $126.36 on February 8, 2018, which was determined to be statistically
significant. Id. at ¶202.
Shortly thereafter, in April 2018, the jury in the Lanzo case found J&J and its talc supplier
liable for the plaintiff’s mesothelioma. Id. at ¶204. Following the verdict, Goodrich was quoted
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in a New York Daily News article as stating that “Johnson’s Baby Powder has been used for more
than 120 years and it does not contain asbestos or cause mesothelioma,” and “[w]e believe that
once the full evidence is reviewed, this decision will be reversed.” Id. at ¶205. Other spokespeople
for the Company made similar statements to investors during various conferences throughout May
2018. For example, during the Consumer and Medical Devices Business Review, Global Chief
Technology Officer Josh Ghaim claimed that, “our ingredients have . . . always been safe” and
Jorge Mesquita, Executive VP of the J&J subsidiary which produces the Baby Powder product,
promised that “we’ve been through this extensively, and we are 100% sure that our talc product is
safe.” Id at ¶208. During another conference on May 21, 2018, Mesquita similarly promised on
May 21, 2018, that “[w]e are absolutely certain that science shows that our talcum product is safe.”
Id. During that same conference, Peterson represented that the Company’s global supply chain
had been largely fixed, and that she had ensured “we’ve got the right quality and compliance in all
of our manufacturing sites around the world, both internal and external.” Id. at ¶210.
On July 12, 2018, a jury in a Missouri product liability lawsuit (the Ingham case), the first
trial where plaintiffs alleged that their ovarian cancer was caused by asbestos in the Talc Products,
rather than talc itself, issued a $4.69 billion verdict in favor of the plaintiffs. Id. at ¶213. Following
the jury verdict, the Company’s stock price declined 1% which an event study determined to be
statistically significant. Id. at ¶214. Market commenters and financial analysists also contributed
the decline to the jury verdict. Id. at ¶¶215-218.
Much like after the Lanzo verdict, the Company went on the defensive, and made public
statements decrying the verdict in the Ingham case. Id. at ¶¶219-222. In a July 2018 corporate
statement, J&J promised that “the evidence in the case was simply overwhelmed by the prejudice”
J&J had suffered during the proceeding, and J&J “remains confident that its products do not
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contain asbestos and do not cause ovarian cancer.” Id. at ¶219. In fact, the Company allegedly
commented that the “the multiple errors in this trial were worse than those in the prior trials which
have been reversed.” Id. Similarly, Bloomberg reported on July 12, 2018, that Goodrich had
stated in an email that the verdict “‘was the product of a fundamentally unfair process,’” and that
“‘the evidence in the case was simply overwhelmed by the prejudice’” of the proceeding. Id. at
¶220. Goodrich also blamed “‘multiple errors’” in the proceeding for the verdict and again
promised that J&J’s products were asbestos-free and did not cause ovarian cancer. Id. During an
earnings call on July 17, 2018, Gorsky specifically referenced the Ingham case and avowed that
“we remain confident that our products do not contain asbestos and do not cause ovarian cancer,”
and that “preeminent scientific and regulatory bodies . . . have fully reviewed the full body of
scientific evidence on multiple occasions and found that it does not support the allegation that talc
causes ovarian cancer.” Id. at ¶222.
On December 14, 2018, Reuters published a highly detailed investigative report (the
“Reuters report”) entitled, “Powder Keg: Johnson & Johnson knew for decades that asbestos
lurked in its Baby Powder.” Id. at ¶223. The article purportedly provided new information
regarding the Company’s knowledge of asbestos contamination in the Talc Products, the
Company’s alleged offensive campaign to convince regulators that talc was not a carcinogen, the
Company’s unsuccessful efforts to remove asbestos from its talc, and its failure to use “essential”
testing methods. Id. at ¶¶223-243. Furthermore, the article allegedly included never-before-seen
internal J&J documents that detailed the Company’s knowledge of asbestos in the Talc Products
and documented J&J’s longstanding fraudulent cover-up scheme. Id. at ¶223.
Following the publication of the Reuters article, J&J’s stock price plummeted 10% from a
closing price of $147.78 the prior day to a closing price of $133. Id. at ¶233. An event study
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allegedly determined that the decline “was statistically significant.” Id. Financial analysts and
market commenters from entities such as Forbes, Wells Fargo, and Credit Suisse also attributed
the decline to the new information revealed in the Reuters article. Id. at ¶¶234-237.
Following the Reuters report’s revelations, several government entities announced
investigations into its allegations. A U.S. senator from the Environment and Public Works
Committee requested that the FDA “immediately investigate” to determine whether J&J’s “actions
have placed at risk the public’s health and safety.” Id. at ¶245. Another senator, from the
Committee on Health, Education, Labor and Pensions, requested documents related to the
“‘alleged decades-long effort by J&J to potentially mislead regulators and consumers about the
safety’” of Baby Powder. Id. at ¶248. The Department of Justice (“DOJ”) and Securities and
Exchange Commission (“SEC”) sent J&J “preliminary inquiries and subpoenas” regarding the
instant securities class action lawsuit, a shareholder derivative suit, two Employee Retirement
Income Security Act of 1974 class action lawsuits, and the product liability multidistrict litigation.
¶¶250-252.
D. This Putative Class Action
On February 8, 2019 plaintiff Frank Hall filed a putative class action complaint, on behalf
of all investors that purchased J&J securities between February 22, 2013 and February 7, 2018,
alleging violations of Section 10(b) of the Securities Act of 1934 and Rule 10(b)(5) (Count 1) by
all Defendants, and violations of Section 20(a) of the 1934 Act by defendants J&J, Gorsky, and
Caruso (Count 2). See ECF. No. 1. On February 28, 2019, the Court appointed San Diego County
Employees Retirement Association as Lead Plaintiff. See ECF No. 20. An Amended Complaint
was filed on February 28, 2019. See ECF No. 33. The new pleadings added Sandra Peterson,
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Carol Goodrich, Joan Casalvieri, Michael Sneed, and Tara Glasgow as defendants, and also
extended the Class Period through December 2018. Id.
Subsequently, Defendants filed the instant motion to dismiss, arguing that Plaintiff has
failed to state a claim under the applicable securities laws because: (1) the allegedly “new”
information about the existence of asbestos in J&J’s talc is immaterial; (2) alleged
misrepresentations and omissions are either true or a non-actionable opinion; (3) Plaintiff has
failed to allege a strong inference of scienter; 4) Plaintiff has not sufficiently alleged loss causation;
and (5) Plaintiff’s claims based on events occurring after February 7, 2018 (the end of the class
period proposed in the initial Complaint) are not viable. Plaintiff opposes the motion.
II. LEGAL STANDARD
Under Fed. R. Civ. P. 12(b)(6), a complaint may be dismissed for “failure to state a claim
upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When reviewing a motion to dismiss
on the pleadings, courts “accept all factual allegations as true, construe the complaint in the light
most favorable to the plaintiff, and determine whether, under any reasonable reading of the
complaint, the plaintiff may be entitled to relief.” Phillips v. Cnty. of Allegheny, 515 F.3d 224,
233 (3d Cir. 2008) (quotations omitted). Under such a standard, the factual allegations set forth in
a complaint “must be enough to raise a right to relief above the speculative level.” Bell Atlantic
Corp. v. Twombly, 550 U.S. 544, 555 (2007). Indeed, “the tenet that a court must accept as true
all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). “[A] complaint must do more than allege the plaintiff's
entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts.” Fowler v.
UPMC Shadyside, 578 F.3d 203, 211 (3d Cir. 2009).
16
However, Rule 12(b)(6) only requires a “short and plain statement of the claim showing
that the pleader is entitled to relief” in order to “give the defendant fair notice of what the . . . claim
is and the grounds upon which it rests.” Twombly, 550 U.S. at 555. The complaint must include
“enough factual matter (taken as true) to suggest the required element. This does not impose a
probability requirement at the pleading stage, but instead simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of the necessary element.” Phillips,
515 F.3d at 234 (citation and quotations omitted); Covington v. Int’l Ass’n of Approved Basketball
Officials, 710 F.3d 114, 118 (3d Cir. 2013) (“[A] claimant does not have to set out in detail the
facts upon which he bases his claim. The pleading standard is not akin to a probability requirement;
to survive a motion to dismiss, a complaint merely has to state a plausible claim for relief.” (citation
and quotations omitted)).
In sum, under the current pleading regime, when a court considers a dismissal motion, three
sequential steps must be taken: first, “it must take note of the elements the plaintiff must plead to
state a claim.” Connelly v. Lane Constr. Corp., 809 F.3d 780, 787 (3d Cir. 2016) (quotations
omitted). Next, the court “should identify allegations that, because they are no more than
conclusions, are not entitled to the assumption of truth.” Id. (quotations omitted). Lastly, “when
there are well-pleaded factual allegations, the court should assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief.” Id. (quotations and brackets
omitted).
“Independent of the standard applicable to Rule 12(b)(6) motions,” Fed. R. Civ. P. 9(b)
“imposes a heightened pleading requirement of factual particularity with respect to allegations of
fraud.” In re Rockefeller Ctr. Props. Secs. Litig., 311 F.3d 198, 216 (3d Cir. 2002); see also Fed.
R. Civ. P. 9(b) (“In alleging fraud or mistake, a party must state with particularity the
17
circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a
person's mind may be alleged generally.”). To satisfy this heightened pleading standard, a plaintiff
must state the circumstances of its alleged cause of action with “sufficient particularity to place
the defendant on notice of the 'precise misconduct with which [it is] charged.’” Frederico v. Home
Depot, 507 F.3d 188, 200 (3d Cir. 2007) (quoting Lum v. Bank of America, 361 F.3d 217, 223-24
(3d Cir. 2004)). Specifically, the plaintiff must plead or allege the “date, time and place of the
alleged fraud or otherwise inject precision or some measure of substantiation into a fraud
allegation.” Frederico, 507 F.3d at 200 (citing Lum, 361 F.3d at 224). Indeed, the Third Circuit
has advised that, at a minimum, Rule 9(b) requires a plaintiff to allege the “essential factual
background that would accompany ‘the first paragraph of any newspaper story’—that is, the ‘who,
what, when, where and how’ of the events at issue.” In re Suprema Specialties, Inc. Sec. Litig.,
438 F.3d 256, 276-77 (3d Cir. 2006) (quoting In re Rockefeller, 311 F.3d at 216).
In addition to Rule 9(b)’s heightened pleading requirements, Congress enacted the PSLRA,
15 U.S.C § 78u, et seq., to require an even higher pleading standard for plaintiffs bringing private
securities fraud actions. In re Suprema, 438 F.3d at 276. This heightened pleading standard is
targeted at preventing abusive securities litigation. See Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 313 (2007) (“Private securities fraud actions . . . if not adequately contained,
can be employed abusively to impose substantial costs on companies and individuals whose
conduct conforms to the law.”); Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71,
81 (2006) (identifying “ways in which the class-action device was being used to injure the entire
U.S. economy” and listing examples such as “nuisance filings, targeting of deep-pocket
defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients
whom they purportedly represent . . .”) (quotes and citations omitted).
18
The PSLRA provides two distinct pleading requirements, both of which must be met in
order for a complaint to survive a motion to dismiss. Institutional Investors Group v. Avaya, Inc.,
564 F.3d 242, 252 (3d Cir. 2009). First, under 15 U.S.C. § 78u-4(b)(1), the complaint must
“specify each allegedly misleading statement, why the statement was misleading, and, if an
allegation is made on information and belief, all facts supporting that belief with particularity.”
Winer Family Trust v. Queen, 503 F.3d 319, 326 (3d Cir. 2007) (construing 15 U.S.C. § 78u4(b)(1)). Second, the complaint must, “with respect to each act or omission alleged to violate this
chapter, state with particularity facts giving rise to a strong inference that the defendant acted with
the required state of mind.” 15 U.S.C. § 78u-4(b)(2).
Both provisions of the PSLRA require facts to be pled with “particularity.” Avaya, 564
F.3d at 253. This particularity language “echoes precisely Fed. R. Civ. P. 9(b).” In re Advanta
Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999); see Fed. R. Civ. P. 9(b) (“[A] party must state
with particularity the circumstances constituting fraud or mistake.”). Indeed, although the PSLRA
complements Rule 9(b) as the pleading standard governing private securities class actions, the
rule's particularity requirement “is comparable to and effectively subsumed by the requirements
of [§ 78u-4(b)(1) of] the PSLRA.” Avaya, 564 F.3d at 253 (citations omitted).
III. ANALYSIS
A. Judicial Notice
Defendants request that this Court take judicial notice of seventeen documents pursuant to
Federal Rule of Civil Procedure 201. See ECF No. 44, Defendants’ Request for Judicial Notice in
Support of Their Motion to Dismiss (“Def. Judicial Notice Br.”), Ex. 1-17. Plaintiff objects to
19
judicial notice of eleven of the proffered exhibits. 5 See ECF No. 45-4, Lead Plaintiff’s Brief in
Opposition to Defendants’ Request for Judicial Notice (“Pl. Judicial Notice Br.”).
On a motion to dismiss, courts may consider “document[s] integral to or explicitly relied
upon in the complaint” or any “undisputedly authentic document that a defendant attaches as an
exhibit to a motion to dismiss if the plaintiffs’ claims are based on the document.” In re Asbestos
Product Liability Litig. (No. VI), 822 F.3d 125, 134 n.7 (3d Cir. 2016). Courts may also consider
facts and documents which are subject to judicial notice under Federal Rule of Evidence 201. A
fact is appropriate for judicial notice if it “is not subject to reasonable dispute because it: (1) is
generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily
determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b).
Plaintiff does not oppose limited judicial notice of Exhibit 1, an SEC form 10-K filed by
J&J, for the fact that the form was filed with the SEC and that the statements included in the filing
were made. Pl. Judicial Notice Br. at 5. However, Plaintiff objects to judicial notice of the
document to the extent J&J seeks to admit the exhibit “for the truth of contested matters it discusses
– such as J&J’s defensive position that there is an ‘absence of any credible scientific evidence
suggesting that the Talc Products contain dangerous levels of tremolite asbestos or any other type
of asbestos.” Id.
Similarly, Plaintiff does not object to judicial notice of the existence of the
contents of Exhibits 2, 5, and 9, each of which is a document issued by a government entity or
public agency, but objects to the Court assuming the truth of the matters asserted in those
documents. Id. Because these documents are publicly available authentic records, or documents
5
Plaintiff does not oppose Defendants’ request for judicial notice of Exhibits 6-8,11,13,15, each
of which was either expressly relied upon in the Amended Complaint or consists of historical stock
price data. See Pl. Judicial Notice Br. at 3-5. Accordingly, the Court takes judicial notice of those
exhibits.
20
issued by government and public agencies, the Court will take judicial notice of Exhibits, 1, 2, 5,
and 9, however, to the extent Defendants attempt to rely on those documents to create a defense
to the Complaint’s otherwise well-pled allegations, and suggest that this Court should assume the
factual assertions in those documents to be true, the Court finds it inappropriate to do so, at this
juncture.
Finally, Plaintiff objects to judicial notice of the remaining exhibits: Ex 3., March 5, 2019
Statement from U.S. Food and Drug Administration Commissioner Scott Gottlieb, M.D. and Susan
Mayne, Ph.D., director of the Center for Food Safety and Applied Nutrition; Ex. 4, The U.S. Food
and Drug Administration webpage regarding a 2009-2010 talc study; Ex. 10, a 2016 scientific
study from the Journal of the National Cancer Institute, entitled “Douching, Talc Use, and Risk of
Ovarian Cancer”; Ex. 12, “Prospective Study of Talc Use and Ovarian Cancer”; Ex. 14, February
13, 1975 letter from G. Lee regarding “CTFA Talc Subcommittee Meeting with Food and Drug
Administration, Washington, D.C., February 7, 1975,”; Ex. 16-17., CNN articles by Matt Egan
from February 5 and February 8, 2019.
Exhibits 3 and 4 are both excerpts from the Food and Drug Administration’s (FDA)
website. Although statements from government entities are typically appropriate for judicial
notice, Exhibit 3 was issued on March 5, 2019, three months after the close of the Class Period.
Thus, it arguably has minimal relevance to the claims at issue, here. Exhibit 4, although it does
not contain a publication date, notes the release of a March 12, 2019 safety alert regarding cosmetic
talc, and thus, also appears to post-date the Class Period. Accordingly, the Court declines to take
judicial notice of either document. See In re PTC Therapeutics, Inc. Sec. Litig., 2017 WL 3705801,
at *3 n.5 (D.N.J. Aug. 28, 2017) (declining to take judicial notice of post-class period public
21
documents because “their relevance to the issues here – e.g., what was known to PTC at the time
it made the alleged misstatements – is quite low”).
Exhibit 10 is a scientific study sponsored U.S. National Institutes of Health (NIH) and
published in the National Cancer Institute journal. Defendants contend that the study is appropriate
for judicial notice because it was sponsored by the NIH and courts may take notice of information
reported by government administrative agencies.
Def. Judicial Notice Br. at 5. Although
Defendants are correct that courts may generally take judicial notice of a document issued by a
governmental agency, the Court declines to take judicial notice of Exhibit 10. Schmidt v. Skolas,
770 F.3d 241, 249 (3d Cir. 2014) (finding it appropriate to take judicial notice of documents that
are the records of government agencies). Defendant primarily seeks to introduce Exhibit 10 to
contest the allegation that there is a link between talc and ovarian cancer. See Def. Br. at 27 (citing
Exhibit 10 for the proposition that “a large prospective study” “did not observe an association
between recent talc use and ovarian cancer.”) Because Exhibit 10 addresses the merits of Plaintiff's
claims, is not relied upon or integral to the Complaint, and would require the court to delve into
the scientific evidence that forms the crux of the parties’ dispute, the Court declines to take judicial
notice of the study.
Defendants contend that Exhibits 12 and 14 are documents linked directly from the Reuters
article, which is Exhibit 3 to the Amended Complaint. Def. Judicial Notice Br. at 5-6. Similarly,
Exhibit 12 is a study referenced in the draft of the J&J Safety Care and Commitment Website, and
quoted in Paragraph 131 and Exhibit 2 of the Amended Complaint. Id. Although these documents
are referenced in exhibits to the Complaint, they are not, themselves, “integral to” or “expressly
relied upon” in the Complaint. In re Asbestos Product Liability Litig., 822 F.3d at 134 n.7. The
mere fact that the documents are referenced or quoted in an Exhibit to the Amended Complaint
22
does not render the exhibits themselves appropriate for consideration on a motion to dismiss. See
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (“[T]he critical
[issue] is whether the claims in the complaint are ‘based’ on an extrinsic document and not merely
whether the extrinsic document was explicitly cited.”).
Furthermore, the inferences that
Defendants wish to draw from these documents are inappropriate at this juncture. Like Exhibit
10, Defendants largely point to these documents to establish substantive merits-based defenses
regarding the science underlying the Complaint’s allegations. Accordingly, the Court declines to
take judicial notice of Exhibits 12 and 14.
Exhibit 16-17 are both CNN news articles, which are not referenced in the Complaint, but
provide analysis of the Dow Jones’ historical average price data. Because the documents convey
historical stock data, the Court will take judicial notice of Exhibits 16 and 17. See In re Intelligroup
Sec. Litig., 527 F. Supp. 2d 262, 272-74 (D.N.J. 2007) (taking judicial notice of “stock price data
compiled by a reliable financial news service.”). However, to the extent Defendants seeks to create
factual disputes regarding the cause for the decline in J&J stock, the Court will grant Plaintiff the
benefit of all reasonable inferences from the facts as alleged, as required at this phase of the
litigation.
B. The Section 10(b) and Rule 10b–5 Claims
The private right of action under Section 10(b) and Rule 10b–5 “creates liability for false
or misleading statements or omissions of material fact that affect trading on the secondary market.”
In re Burlington Coat Factory Sec. Litig., 114 F.3d at 141. In relevant part, Rule 10b–5 makes it
unlawful for an individual “[t]o make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading . . . in connection with the purchase or sale of any
23
security.” 17 C.F.R. § 240.10b–5(b). To state a claim under Section 10(b) and Rule 10b–5, the
plaintiff must allege: “(1) a material misrepresentation or omission, (2) scienter, (3) a connection
with the purchase or sale of a security, (4) reliance, (5) economic loss, and (6) loss causation.”
Gold v. Ford Motor Co., 577 F. App’x 120, 122 (3d Cir. 2014) (citing Dura Pharms., Inc. v.
Broudo, 544 U.S. 336, 341-42 (2005)).
Under Section 10(b) and Rule 10b–5, a misrepresentation or omission of fact is material
“if there is a substantial likelihood that a reasonable shareholder would consider it important” in
making an investment decision, and there is a “substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable investor as having significantly altered the
‘total mix’ of information made available.” Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)
(quoting TSC Indus. v. Northway, 426 U.S. 438, 440, 449 (1976)); see also Oran v. Stafford, 226
F.3d 275, 282 (3d Cir. 2000). Importantly, to be actionable, a statement or omission must have
been materially misleading at the time it was made; liability cannot be imposed on the basis of
subsequent events. In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002).
Additionally, because materiality is a mixed question of law and fact, “[o]nly if the alleged
misrepresentations or omissions are so obviously unimportant to an investor that reasonable minds
cannot differ on the question of materiality is it appropriate for the district court to rule that the
allegations are inactionable as a matter of law.” Shapiro v. UJB Financial Corp., 964 F.2d 272,
280 n. 11 (3d Cir. 1992) (citation omitted). The Third Circuit has warned that the task of
determining materiality can be especially difficult when the statement at issue contains “soft”
information, i.e., statements of subjective analysis or extrapolation, such as opinions, motives, and
intentions, or forward looking statements, such as projections, estimates, and forecasts. Craftmatic
Sec. Litig. v. Kraftsow, 890 F.2d 628, 642 (3d Cir. 1989).
24
However, regardless of whether a piece of information is material, Section 10(b) and Rule
10b–5 “do not create an affirmative duty to disclose any and all material information.” Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011). Indeed, “[s]ilence, absent a duty to disclose,
is not misleading under Rule 10b–5.” City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 174
(3d Cir. 2014) (quoting Basic, 485 U.S. at 239 n. 17). Rather, “[d]isclosure is required ... only
when necessary ‘to make ... statements made, in the light of the circumstances under which they
were made, not misleading.’” Matrixx, 563 U.S. at 44 (quoting 17 C.F.R. § 240.10b–5(b)); see
also City of Edinburgh, 754 F.3d at 174; Burlington, 114 F.3d at 1432 (“[P]ossession of material
nonpublic information alone does not create a duty to disclose it.”).
Additionally, according to the Supreme Court’s decision in Omnicare, Inc. v. Laborers
Dist. Council Constr. Indus. Pension Fund, when the alleged misleading statement at issue is an
opinion or a belief, whether that statement is ‘misleading’ “depends on the perspective of a
reasonable investor: The inquiry (like the one into materiality) is objective.” 575 U.S. 175, 185
(2015). Although Omnicare examined claims under Section 11 of the Securities Act of 1933, these
principles are “not unique to § 11.” Id. at 191. Rather, “[t]hey inhere, too, in much common law
respecting the tort of misrepresentation,” id., and are therefore arguably applicable to claims under
Section 10(b) as well. See In re Merck & Co., No. 05-1151, 2015 WL 2250472, at *21 (D.N.J.
May 13, 2015) (finding Omnicare's analysis of misleading opinions, instructive, to some extent,
on the viability of claims regarding misleading opinions under Section 10(b)).
As the Supreme Court observed:
The Restatement of Torts, for example, recognizes that ‘[a]
statement of opinion as to facts not disclosed and not otherwise
known to the recipient may’ in some circumstances reasonably ‘be
interpreted by him as an implied statement’ that the speaker ‘knows
facts sufficient to justify him in forming’ the opinion, or that he at
least knows no facts ‘incompatible with [the] opinion.’ When that is
25
so, the Restatement explains, liability may result from omission of
facts—for example, the fact that the speaker failed to conduct any
investigation—that rebut the recipient's predictable inference.
Omnicare, 575 U.S. at 191 (quoting Restatement (Second) of Torts § 539 at 85, Comment a at 86,
Comment b at 87 (1976) (citations omitted)). These principles are consistent with the Third
Circuit's admonition that when evaluating Section 10(b) claims, courts must examine allegedly
misleading statements in context, to determine whether they were indeed misleading. See City of
Edinburgh, 754 F.3d at 167. Furthermore, the Third Circuit has deemed determinative that
“[o]pinions are only actionable under securities laws [including Section 10(b),] if they are not
honestly believed and lack a reasonable basis.” Id. at 170.
In addition to opinions and beliefs, a defendant may not be held liable for an alleged
misrepresentation that consists of nothing more than vague and nonspecific expressions of
corporate optimism. Advanta, 180 F.3d at 538. Such statements “constitute no more than ‘puffery’
and are understood by reasonable investors as such.” Id. (quoting Burlington, 114 F.3d at 1428
n. 14). Thus, if a false or misleading statement is “too vague to ascertain anything on which a
reasonable investor might rely,” it is inactionable as corporate puffery. In re Aetna, Inc. Sec. Litig.,
617 F.3d 272, 284 (3d Cir. 2010)
i. The Alleged Material Misstatements and Omissions
As an initial matter, the Court makes clear that, at this pleading phase of the litigation, the
Court has not, and will not, assess the substantive merits, or truthfulness, of the alleged
misstatements and omissions identified by Plaintiff. Critically, in this case, many of the identified
misstatements involve interpretations of complex scientific evidence, which are the appropriate
fodder for expert testimony. The Court assumes, as it must on a motion to dismiss, the truth of
Plaintiff’s well-pled allegations; to the extent Plaintiff has sufficiently alleged facts suggesting that
26
the identified statements were false or misleading, the Court grants Plaintiff all reasonable
inferences from those facts, without expressing an opinion as to the underlying substance of
Plaintiff’s allegations.
The basis of Plaintiff’s claims in the instant case are hundreds of allegedly false or
misleading misstatements issued by Defendants between February 2013 – and October 2018 in
furtherance of J&J’s purported scheme to conceal the truth about the safety of its Talc Products
from investors and the public. See AC ¶¶253-391. Here, Defendants argue that Plaintiff has failed
to adequately allege that Defendants' statements are materially false or misleading. In that regard,
Defendants do not specifically point to particular misleading statements in the Amended
Complaint; instead, they identify categories of statements, and provide examples within those
categories, which they contend are insufficient to sustain a securities fraud claim. Def. Br. at 101. Specifically, Defendants argue that each of the alleged misstatements falls into one of several
broad categories 1) “[g]eneral statements regarding J&J’s commitment to quality, research and
development, and product safety,” see, e.g., AC ¶¶ 253, 258, 261, 263, 269, 271, 273, 275, 277,
278, 281, 284, 296, 309, 327, 356, 358, 360, 361, 367-69.; 2) “[s]pecific statements that J&J’s
talc and consumer talc products are ‘carefully tested,’ ‘safe,’ and ‘asbestos free,’” see, e.g., id. at
¶¶ 292, 294, 299, 302-03, 311, 318, 321, 331, 335, 338-41, 346-47, 350, 359, 370, 375, 379, 382,
and 3) “[s]tatements about J&J subsidiaries involvement in product liability lawsuits . . . and
[c]ertain Defendants . . . assessment of jury verdicts rendered against the Company in the PL
Lawsuits,” see, e.g., id. at ¶¶ 272, 274, 282, 286, 297, 302, 307, 315-16, 324-26, 329, 333, 344,
353-55, 365, 379-80, 388, 390. The Amended Complaint spans over 240 pages and contains
numerous, detailed, allegations of false or misleading statements which were issued in, among
other things, J&J’s SEC filings, website, earnings calls, press releases, and media reports. See
27
generally id. at ¶¶ 253-391. In that connection, Plaintiff has provided the Court with a chart,
totaling over 100 pages, summarizing each misstatement or omission identified in the complaint,
the speaker, and the reason why the statement is allegedly false or misleading. See ECF No. 451, Appendix 1. However, the Court will not examine each statement individually, but rather,
consistent with the parties’ briefing, the Court will assess each category of allegedly false and
misleading statements, and identify specific statements as examples, where necessary.
1. General Statements Regarding the Company’s Commitment to
Product Safety and Quality
Defendants contend that Plaintiff has not adequately alleged that any of the statements
regarding the quality and safety of the Talc Products are inaccurate. Def. Br. at 31. Furthermore,
Defendants contend that even if false, the statements are “vague” and “general,” and constitute
non-actionable “puffery.” Def. Br. at 31.
Plaintiff contends that both Defendants’ present-day and historical statements about J&J’s
commitment to safety and quality assurance policies were materially misleading. Pl. Br. at 27. In
that regard, Plaintiff points to Defendants’ statements, in various SEC filings between 2013 and
2017, expressing that the Company was “committed to investing in research and development with
the aim of delivering high quality,” and “improving existing products.” See, e.g., AC ¶¶256, 258,
263, 273, 275, 281, 296, 327, 356. Plaintiff also alleges, for example, in July 2013, during a
conference call with investors, Peterson allegedly informed investors that as part of its “quality
initiative,” the Company was “trying to ensure that we have the highest standard of quality for the
safety and care of our patients and consumers” and the Company was identifying problems with
its products early and taking any necessary corrective action. Id. at ¶261. As another example,
during a healthcare conference on January 12, 2015, Gorsky allegedly stated that “quality and
safety” was the Company’s “number-one priority” and that they had made a number of changes to
28
“make sure that [J&J] addressed any of the outstanding issues that [the Company] was facing.” Id.
at 277. On several occasions, Gorsky and Glasgow, both in oral statements and on the Company’s
website, emphasized the Company’s commitment to “taking care of mothers and babies” and
helping people live longer, healthier, and happier lives.” Id. at 278, 284
In Plaintiff’s view, these statements regarding the safety and quality of J&J’s products
were material misstatements or omissions, because Defendants failed to disclose that (i) asbestos
had repeatedly been found in the Company’s Products, (ii) J&J purposely avoided “essential”
testing methods, and (iii) J&J had purposely influenced and manipulated regulators and lied to the
FDA regarding asbestos testing and safety. Pl. Br. at 29. Relying primarily on out-of-circuit cases,
Plaintiff contends that “puffery in one context may be material in other contexts” and here, because
the Company’s actions were such an extreme departure from its public representations about J&J’s
current and past practices, the statements were materially misleading, rather than mere puffery.
Id.
“[V]ague and general statements of optimism constitute no more than puffery and are
understood by reasonable investors as such.” Advanta, 180 F.3d at 538 (internal quotes and
citations omitted); see also Aetna, 617 F.3d at 283 (noting that puffery includes “statements of
subjective analysis or extrapolations, such as opinions, motives and intentions, or general
statements of optimism.”). “[A]lthough questions of materiality have traditionally been viewed as
particularly appropriate for the trier of fact, complaints alleging securities fraud often contain
claims of omissions or misstatements that are obviously so unimportant that courts can rule them
immaterial as a matter of law at the pleading stage.” Aetna, 617 F.3d at 283.
In Shapiro v. UJB Fin. Corp., 964 F.2d 272, 282 (3d Cir. 1992), relied upon by Plaintiff,
the defendant, a banking institution, characterized its lending policies as “prudent,” “cautious,”
29
and “conservative,” and also emphasized its “strict” credit administration practices, its “minimal”
foreign loan exposure, and its “basic” approach to loan management. Id. at 276. It also represented
that its loan loss reserves were “strong” or “very strong,” and had been and would continue to be
“maintained at a level adequate.” Id. While making those representations, the company allegedly
concealed the truth about the company’s loan loss reserves, financial health, lending practices, and
internal controls. Id. at 281–82. The Third Circuit explained that “[b]y addressing the quality of
a particular management practice, a defendant declares the subject of its representation to be
material to the reasonable shareholder, and thus is bound to speak truthfully.” Id. at 282. Further,
it found that, although the terms used by the company were general, “a reasonable investor would
be influenced significantly by knowledge that a bank has knowingly or recklessly hidden its true
financial status by deliberately misstating its level of non-performing loans, failing to provide
adequate reserves, and indulging its problem loan customers.” Id. Thus, the court found that
defendant’s general statements in that regard were actionable as securities fraud.
Here, although Defendants have broadly identified this category of statements as “[g]eneral
statements regarding J&J’s commitment to quality, research and development, and product
safety,” the Court finds that certain statements within this category are actionable as securities
fraud, while others are not.
As an initial matter, some of the alleged misstatements within this category are clearly
more general statements regarding the Company’s values and motivations, and thus, constitute
puffery.
For example, the Amended Complaint identifies the following misstatements: (1)
statements on the Company’s website that J&J “continue[s] to take [its] research to the next level
by looking at all the science . . . that help our babies thrive and grow” and that J&J “help[s] families
make the little moments – like bath time” serve as “an opportunity to nurture your baby’s ability
30
to learn,” AC ¶278; (2) a statements by Gorsky during a January 2014 conference call that the
Company’s “Chief Medical and Chief Quality Officers are setting new benchmarks for medical
safety and implementing a more consistent global approach for monitoring the use of our end
market products that is very patient- and consumer-centric for ensuring that they are safe and
performing as expected and as intended. While we’re pleased with the progress that we’ve made
here, we’re not yet satisfied, and we’ll keep doing whatever it takes to ensure that we continue to
earn the trust of consumers and patients around the world,” id. at ¶269; (3) a statement by Gorsky
at an April 23, 2015 Shareholders Meeting, that “Johnson & Johnson is committed to helping
mothers and babies, we never want to forget the needs of the world’s smallest patients . . . Caring
inspires us day in and day out as we strive to make a difference for people who count on us the
most. And as the world’s largest and best healthcare company in the world, we’re committed to
reaching more people in more places in more ways. We’re helping people ultimately live longer,
healthier, and happier lives,” id. at ¶284; and (4) a statement by Gorsky at an April 2018
shareholder meeting that “at Johnson & Johnson, we are committed to meeting the needs of our
stakeholders, as defined in Our Credo, the doctors, the nurses and patients and the mothers and
fathers and all others who use our products. . . . Guided by our purpose-driven strategies and values
that are rooted in our credo, we will always put the needs and well-being of the people we serve
first,” id. at ¶361. These statements – and other similar statements identified in the Amended
Complaint – are general value-oriented statements regarding the Company’s commitment to
consumer safety; critically, many of these statements do not even specifically address the Talc
Products or make any specific claims about the Company’s quality assurance process and
procedures, related to those products. See Ong v. Chipotle Mexican Grill, Inc., 294 F. Supp. 3d
199, 232 (S.D.N.Y. 2018) (finding that company’s statements that it was “committed to serving
31
safe, high quality food to [its] customers” and that its “food safety programs are also designed to
ensure that [the company] compl[ies] with applicable federal, state and local food safety
regulations” were inactionable puffery because they were “couched in aspirational terms.”).
Unlike in Shapiro, where the defendant addressed specific business practices, these statements are
the type of “vague and general statements of optimism” and aspirational goal statements routinely
issued by companies selling consumer products and not the type of assertions upon which a
reasonable investor would rely. Advanta, 180 F.3d at 538; see also U.S. S.E.C. v. Kearns, 691 F.
Supp. 2d 601, 617 (D.N.J. 2010) (finding that medical transcriptions company’s statements about
“disciplined business practice” and the experience and discipline of its management team, were
merely puffery because no reasonable investor would have relied on them); In re Hertz Glob.
Holdings, Inc. Sec. Litig., No. 13-7050, 2017 WL 1536223, at *11 (D.N.J. Apr. 27, 2017), aff’d
sub nom, 905 F.3d 106 (3d Cir. 2018) (finding that statements about “strong” and “record”
financial results, as well as the generally optimistic statements, constituted puffery because they
“are not determinate, verifiable statements.”). Thus, I find that the identified value-oriented
statements – and other similar statements -- are not sufficiently material to rise to liability for
securities fraud, and Plaintiff’s claims premised on such statements are dismissed.
However, certain statements regarding the Company’s quality assurance process were
ostensibly meant to preclude investors and the public from second-guessing the Company’s
approach to quality assurance and research, which according to Plaintiff, furthered the alleged
scheme to cover up the truth about the safety of the Talc Products. In addition to the statements
regarding quality control and assurance in the Company’s SEC filings, many of the Individual
Defendants made public announcements that, although they did not specifically reference the Talc
Products, suggested that the Company was taking corrective action to address quality control
32
issues with its products. For example, in a July 2013 conference call regarding the Company’s
second-quarter 2013 financial results, Peterson explained that
[the Company’s] quality effort is across the enterprise, across all of
our businesses, our manufacturing sites as well as all of our R&D
sites, because they are under the scope of trying to ensure that we
have the highest standard of quality for the safety and care of our
patients and consumers. So, when we launched the quality initiative
a number of years ago, the focus really was on ensuring that we’ve
got consistent quality standards. . . . And we have, obviously as
we’ve gone through all of this work, we have identified corrective
actions, and we’ve immediately taken those corrective actions. . . .
We’re putting in place processes and systems so that we have early
warning systems in place to understand if we think there may be
something going on with a product. So we identify it early and we
go out and correct it. . . . one of the very important changes that we
have been making with our global supply chain is ensuring that all
of our external suppliers – so, our material suppliers – are
thoroughly reviewed, are thoroughly managed, and that they are
living up to our quality standard
id. at ¶261. Similarly, during a healthcare conference on January 12, 2015, Gorsky stated that
“quality and safety, [is] our number-one priority in dealing with patients and consumers. We’ve
made a number of changes over the last few years, frankly to make sure that we addressed any of
the outstanding issues that we were facing, but also more importantly to set us up for a benchmark
going forward.” Id. at ¶277.
By placing the nature of the Company’s quality assurance procedures “in play,”
Defendants were also required to disclose “certain facts contradicting th[ose]representations.”
Shapiro, 964 F.2d at 281. Here, Plaintiff specifically alleges that, despite various individual
defendants’ attestations to the contrary, the Company was not focused on quality assurance, and
research and development. The identified statements, and other similar attestations, go to the heart
of Plaintiff’s theory that the Company’s quality assurance procedures were intentionally deficient,
and that the Company deliberately avoided utilizing “essential” testing which might reveal the
33
existence of asbestos in its Talc Products. Other courts have similarly concluded that statements
emphasizing the strength of a particular business operation may be actionable as securities fraud,
where those operations are in reality deficient. See e.g., In re Equifax Inc. Sec. Litig., 357 F. Supp.
3d 1189, 1218–19 (N.D. Ga. 2019) (finding that defendants’ alleged representations that it
possessed a “highly sophisticated data information network” and “advanced security protections”
were material misrepresentations where the plaintiff alleged “a variety of facts showing that [the
company’s] cybersecurity systems were outdated, below industry standards, and vulnerable to
cyberattack, and that [the company] did not prioritize data security efforts.”); Bricklayers &
Masons Local Union No. 5 Ohio Pension Fund v. Transocean Ltd., 866 F. Supp. 2d 223, 243
(S.D.N.Y. 2012) (finding that defendants alleged representations that it “conducted ‘extensive’
training and safety programs” were materially misleading where the plaintiff alleged facts
suggesting that “the measures were insufficient to address applicable legal requirements and
created a high risk of legal exposure.”); cf. Howard v. Arconic Inc., 395 F. Supp. 3d 516, 547
(W.D. Pa. 2019) (finding that company’s “general statements about its values, workplace safety,
and ethics—which read like mission statements rather than guarantees” were not misleading where
the plaintiff’s securities fraud claims did not involve safety issues, but rather, involved allegations
that the company sold a particular product for inappropriate end uses). Thus, at this juncture, in
light of Plaintiff’s allegations that the Company was knowingly hiding the existence of asbestos
in its Talc Products, purposefully avoiding the use of testing methods which might reveal the
existence of asbestos, and making misrepresentations to the FDA regarding asbestos testing and
safety, the Court cannot conclude that the Company’s representations that it was focusing on
research and development, ensuring the quality of its outside materials, and providing high quality
34
products, were “so obviously unimportant to an investor that reasonable minds cannot differ on
the questions of materiality.” Shapiro, 964 F.2d. at 280.
2. Statements
that
the
“safe” and “asbestos free”
Talc
Products
were
Defendants also contend that the statements that the Talc Products are “safe” and “asbestos
free” are inactionable. Def. Br. at 19-20. First, Defendants argue that those statements are actually
true, as Plaintiff has failed to identify data, test results, or other facts supporting the inference that
the statements were false at the time they were made; and second, that even if proven false, the
statements are inactionable opinions. Def. Br. at 20; ECF No. 48, Reply Brief to Opposition to
Motion (“Def. Reply Br.”) at 5. In that connection, Defendants insist that Plaintiff has not provided
“contemporaneous testing data” indicating the existence of asbestos in the Company’s Talc
Products and that Plaintiff relies on isolated and debunked testing results which are insufficient to
adequately allege that the Talc Products were unsafe or contaminated with asbestos between 2013
and 2018. Def. Br. at 22-23. In Defendants’ view, the historical allegations regarding the
avoidance of essential testing methods in the 1970s and the finding of asbestos in the Baby Powder
in 2004, “are irrelevant to the question of whether Defendants made misstatements regarding
troubling testing results regarding asbestos during (or anywhere near in time) to the Class Period”
which began in 2013. Def. Reply Br. at 5. Further, Defendants argue that the statements are “at
most, subjective interpretations of complex data, which constitute inactionable opinion statements
that cannot support a claim for securities fraud.” Def. Reply Br. at 6.
Plaintiff disputes Defendants’ characterization of the statements regarding the asbestos free
nature of their products as opinions, and contends that Defendants’ statements “were not
‘subjective interpretation[s] or expression[s] of belief,’” but rather “‘painted a favorable picture
without including the details that would have presented a complete and less favorable one.’” Pl.
35
Br. at 18 (quoting SEB Inv. Mgmt. AB v. Endo Int’l, PLC, 351 F. Supp. 3d 874, 900 (E.D. Pa.
2018)).
Furthermore, even if the statements are found to be opinions, in Plaintiff’s view,
Defendants did not honestly believe the proffered statements regarding the safety of talc, as
indicated by the Company’s internal documents, and Defendants lacked a reasonable basis for
making the proffered statements. Id. at 19. Additionally, Plaintiff contends that “Defendants’
statements put the safety and purported asbestos-free nature of the products at issue, but withheld
existing material information on those same subjects,” such as J&J’s alleged avoidance of
important testing methods, J&J’s unsuccessful attempts to remove tremolite from its talc, and the
Company’s alleged scheme to conceal the asbestos contamination; according to Plaintiff, these
omissions rendered the Company’s statements materially misleading. Pl. Br. at 30. Thus, Plaintiff
argues that both Defendants’ historical statements, and those during the Class Period, are
materially misleading. Id.
The Court finds that Plaintiff has sufficiently alleged facts suggesting that that Defendants’
statements regarding the safety and asbestos free nature of its Talc Products were either false or
materially misleading, at the time they were made. To begin, in addition to public statements in
newspapers and to investors during conference calls, during the Class period, the Company
repeatedly issued statements on its website reaffirming the safety of talc and its talc products. The
Company’s “Our Safety and Care Commitment” website was updated to include the following
statement from Casalvieri, Director of Toxicology and Skincare, which stated that
[a]s a toxicologist in our Consumer business, my job is to make
certain a product is safe by assessing whether any ingredient in that
product poses a risk. We want to assure women and caregivers who
use our talc products that numerous studies support its safety, and
these include assessments by external experts in addition to our
company testing. Many research papers and epidemiology studies
have specifically evaluated talc and perineal use and these studies
have found talc to be safe.
36
AC ¶266. On February 24, 2016, following the $72 million verdict in one of the first successful
cases linking talc and ovarian cancer, J&J allegedly created a page on its website, entitled “The
Facts About Talc Safety” which explained among other things, that “Johnson’s talc products do
not contain asbestos,” the “[t]he safety of talc is based on a long history of safe use and decades
of research by independent researchers and scientific review boards,” and that the Company’s
“sources for talc undergo comprehensive qualification. The incoming talc is routinely evaluated
using a sophisticated battery of tests designed to ensure quality, safety, and compliance with all
global standards.” Id. at ¶299; see also ¶147. Similarly, Goodrich was quoted in a New York
Daily News article, following the Lanzo verdict, as stating that “Johnson’s Baby Powder has been
used for more than 120 years and it does not contain asbestos or cause mesothelioma.” Id. at ¶359
Notwithstanding those statements, Plaintiff’s Complaint alleges that during the Class
Period, J&J and Goodrich internally acknowledged that the Company could not espouse that “talc
has over 100 years of safe use in personal care products,” id. at ¶¶128, 267; see also AC Ex. 2;
that J&J’s outside testing laboratory did not think the testing method used by J&J was “optimal”
for identifying asbestos, id. at 110; and that “[t]o this day, J&J has not adopted concentration
method for testing its talc despite the Company’s knowledge that this would allow detection of
asbestos in its talc and talcum powders when present in trace amounts,” id. at ¶67. To the extent
Defendants rely on other tests as providing a reasonable and good faith basis for their statements,
Plaintiff has sufficiently alleged the existence of alternative testing and that Defendants allegedly
chose to remain willfully ignorant of the possibility that there was asbestos in the Company’s Talc
Products. Additionally, Plaintiff claims that Goodrich admitted internally that scientific sources
“could be interpreted as suggesting a causal effect” between talc and ovarian cancer, and that
studies cited by J&J “send mixed messages.” Id. at ¶¶266-268.
37
Indeed, as alleged, Defendants were admittedly aware of contrary test results and yet,
indicated to the public at large, via statements on the Company website and elsewhere, that J&J
had “carefully assessed all available data on talc and consumers can feel confident that the
overwhelming body of research and clinical evidence continues to support the safety of cosmetic
talc.” Id. at ¶288. Thus, Plaintiff has sufficiently alleged the existence of scientific evidence, of
which defendants were aware, suggesting the falsity of Defendants’ statements; although expert
discovery may eventually prove otherwise, at this early juncture, the Court assumes those
statements to be true. Accordingly, the Court finds that Defendants’ statements that their Talc
Products were asbestos-free, in the face of the alleged contrary scientific evidence that Defendants
were aware of, were arguably false.
Furthermore, even assuming Defendants’ statements were merely opinions based on
assessment of all the scientific evidence available to the Company, Plaintiff has sufficiently alleged
that the statements were “materially misleading,” because they did not express the actual belief of
the Company and lacked a reasonable basis. City of Edinburgh, 754 f.3d at 170. In Omnicare, the
Supreme Court explained that an opinion may be an actionable misrepresentation or misleading
omission if (1) the statement expresses an opinion not actually held by the speaker (subjectively
false) and contains an embedded assertion of incorrect facts (objectively false), or (2) the speaker
omits facts concerning the basis for the opinion and “those facts conflict with what a reasonable
investor would take from the statement itself.” Id. at 1326, 1329; see also City of Edinburgh, 754
F.3d at 170 (“Opinions are only actionable under the securities laws if they are not honestly
believed and lack a reasonable basis.”).
Although Defendant’s statements regarding the safety of its Talc Products required some
degree of interpretation of scientific evidence, here, unlike in City of Edinburgh, Plaintiff alleges
38
that defendant’s own internal statements undercut their public interpretations of the data available.
In that case, investors brought a securities fraud suit against Pfizer, a pharmaceutical manufacturer,
and the company’s executives. City of Edinburgh, 754 F.3d at 170. The plaintiff alleged that the
pharmaceutical manufacturer’s statement in a press release, that it planned to proceed to the third
phase of a clinical trial of an experimental drug based on the success of the second phase’s interim
results, was false and actionable as securities fraud. Id. The plaintiff alleged that confidential
witnesses from the company indicated that phase 2 of the trial had presented certain safety
concerns and did not show a significant deviation between patients treated with the experimental
drug and the placebo. Id. In reviewing the allegations, the Third Circuit concluded that at best,
plaintiff’s allegations demonstrated “a difference of opinion” regarding whether initiating phase
3 of the clinical trial was warranted, and absent allegations that defendants “did not honestly
believe their interpretation of the interim results or that it lacked a reasonable basis” the opinion
was not actionable as securities fraud. Id. Further, the Third Circuit noted that that the press
release did not proffer statements about the efficacy or safety of the drug, or the strength of the
results, and in fact, explicitly cautioned investors that no conclusion could be drawn about the
phase 2 interim results until the conclusion of the phase 2 trial. Id. at 174-75. Here, unlike in City
of Edinburgh, J&J’s statements regarding the safety of its Talc Products and the existence of
asbestos in those products, as alleged, do not merely stem from a difference in opinion regarding
the efficacy of the testing utilized or the interpretation of the scientific results. Critically, Plaintiff
has alleged that the Company’s own internal documents and statements directly contradicted the
Company’s public statements regarding the safety of the Talc Products. C.f. Hoey v. Insmed Inc.,
No. 16-4323, 2018 WL 902266, at *15-17 (D.N.J. Feb. 15, 2018)(finding that plaintiff had failed
to adequately allege falsity where there were no allegations of the company being “informed about
39
any concerns” with the trial and no allegations that defendant doubted or contradicted the opinion
it represented to investors). For example, the draft version of the Company’s “Safety & Care
Commitment” deliberately omitted the word “safe” from the Company’s statement that “Talc has
over 100 years of safe use in personal care products” and internal comments by Goodrich stated
“I don’t think we can link cosmetic talc to 100 years of use,” and that J&J “cannot say [the
company’s Talc Products have] ‘always’” been asbestos free. AC ¶128; see also AC, Ex. 2.
Furthermore, another note in the draft document acknowledged that there were omitted scientific
sources from the webpage which “could be interpreted as suggesting a causal effect [between
ovarian cancer and talc]” and noted that even some of the studies references on the webpage “send
mixed messages,” because one of the studies cited indicated that “that ‘perineal talc use may
modestly increase the risk of invasive serous ovarian cancers.’” Id. at ¶131. Furthermore, the
internal
documents
referenced
in
the
Reuters
article
allegedly
show
that
from at least 1971 to the early 2000s, the Company’s raw talc and finished powders sometimes
tested positive for small amounts of asbestos, and that company executives, mine managers,
scientists, doctors and lawyers discussed the problem and how to address it while failing to disclose
it to regulators or the public. Id. at ¶223. Although Defendants correctly contend that the last
alleged test which identified asbestos in any of the Talc Products was conducted in 2004, the lack
of contemporaneous testing during the Class Period is not dispositive of Plaintiff’s claims. See
Def. Br. at 23. The misstatements identified by Plaintiff do not only address the present-day safety
of Talc Products during the Class Period. Plaintiff alleges that, in addition to making statements
about the current safety of the Talc Products, at various points throughout the Class Period
defendants also allegedly represented that the Talc Products had never contained asbestos and had
always been safe. See e.g., AC ¶338 (Since the 1970s, talc used in consumer products has been
40
required to be asbestos-free, so Johnson’s talc products do not contain asbestos”), id. at ¶339 (“We
are confident that our talc products are, and always have been, free of asbestos, based on decades
of monitoring, testing and regulation”), id. at ¶350 (same), id. at ¶369 (“While our ingredients have
always been safe, our new formulations contain no unwanted ingredients.”). More importantly,
Plaintiff alleges that despite being aware of potential asbestos contamination in its Talc Products,
J&J did not conduct further scientific studies, using the appropriate methodology, because it chose
to remain willfully blind to the existence of asbestos in its talc. Accordingly, the alleged evidence
of historical testing – of which Defendants were allegedly aware – renders those statements
materially misleading, at this pleading stage.
Accordingly, Plaintiff has sufficiently alleged that Defendants statements that J&J’s Talc
Products were “safe” and “asbestos free” were either false or materially misleading.
3. The Statements Regarding the Product Liability Lawsuits
Plaintiff alleges that Defendants repeatedly represented to J&J’s investors that the
Company believes it has “substantial defenses” to the Product Liability lawsuits. See AC at ¶¶259,
272, 274, 297. The Amended Complaint alleges that in various SEC filings, Defendants “boasted
of having substantial defenses” to talc-related litigation, but omitted critical information that
undermines its statements such as, the prior findings of asbestos in the Company’s talc, the
Company’s attempts to remove tremolite from
its talc, and the Company’s avoidance of
concentration methods that could potentially detect asbestos. Id. at ¶¶166, 169, 272, 389, 390-91.
For example, in the Company’s First Quarter 2013 10-Q, it disclosed that
[c]ertain subsidiaries of [J&J] are involved in numerous product
liability cases. The damages claims are substantial, and while these
subsidiaries are confident of the adequacy of the warnings and
instructions for use that accompany the products at issue, it is not
feasible to predict the ultimate outcome of litigation. The Company
has established product liability accruals in compliance with ASC
41
450-20 based on currently available information, which in some
cases may be limited. Changes to the accruals may be required in
the future as additional information becomes available.
AC ¶259. Additionally, various individual defendants made statements criticizing the Lanzo and
Ingham verdicts against J&J and avowing that they would be overturned on appeal, such as, “[w]e
believe that once the full evidence is reviewed, this decision will be reversed,” and “the evidence
in the case was simply overwhelmed by the prejudice,” and that there were “multiple errors” in
the verdicts. Id. at ¶¶148, 205, 219-22, 358. Plaintiff argues that Defendants “understood J&J
faced massive litigation exposure,” yet did not disclose the degree of that exposure to its investors,
thus Defendants’ statements regarding the Talc Litigation were “false and misleading statements.”
Pl. Br. at 30.
Defendants contend that those statements are nonactionable opinions, as indicated by the
repeated use of the word “believe,” and Plaintiff has not demonstrated that Defendants did not
actually believe that the Company had substantial defenses. Def. Br. at 29. In that regard, the
Defendants highlight “numerous recent jury verdicts” in favor the Company. Def. Reply Br. at 910.
Defendants’ statements regarding the viability of the lawsuits against J&J clearly constitute
opinions regarding the success of the litigation, rather than statements of fact. See Axar Master
Fund, Ltd. v. Bedford, 308 F. Supp. 3d 743, 756-57 (S.D.N.Y. 2018) (finding litigation disclosure
stating that “[w]e believe the allegations [in a lawsuit] are unfounded and without merit” and that
defendant intended to “pursue [its] rights, remedies and defenses in the litigation” was nonactionable opinion statement).
Plaintiff has not adequately alleged facts suggesting that
Defendants’ opinion statements regarding the existence of defenses to the product liability lawsuits
were “not honestly believed and lack a reasonable basis.” City of Edinburgh, 754 F.3d at 170.
42
Plaintiff’s argument on this point is, essentially, that because Defendants knowingly engaged in a
fraudulent scheme to conceal the truth about its asbestos products, none of the statements regarding
the viability of the lawsuits against the Company could have possibly been in good faith. That
type of circular reasoning is insufficient to satisfy the Supreme Court’s decision in Omnicare.
Notably, even assuming as true that there was asbestos in J&J’s Talc Products, the Company may
very well have defenses to the lawsuits premised on other bases such as lack of causation, or
procedural issues occurring at trial. Plaintiff has not identified any specific facts indicating that
any of the Defendants possessed information regarding the viability of the lawsuits against the
Company or suggesting that Defendants knew they had no viable defenses against the lawsuit.
Indeed, the Company continues to actually litigate these cases to resolution, with some success,
demonstrating its belief in the viability of its defenses. Accordingly, Plaintiff’s claims premised
on alleged misstatements regarding the viability of the Product Liability lawsuits are dismissed.
ii. Scienter
Scienter” stands for the “mental state [of] intent to deceive, manipulate or defraud.” Ernst
& Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12 (1976). Under the PSLRA’s pleading requirement,
a plaintiff must “‘state with particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind.’” Avaya, 564 F.3d at 267 (quoting 15 U.S.C. § 78u-4(b)(2)).
The scienter standard requires a plaintiff to allege facts giving rise to a strong inference “of either
reckless or conscious behavior.” Advanta, 180 F.3d at 534-35. Courts must weigh the “plausible,
nonculpable explanations for the defendant’s conduct” against the “inferences favoring the
plaintiff.” Tellabs, 551 U.S. at 324. A “strong inference” of scienter is one that is “cogent and at
least as compelling as any opposing inference of nonfraudulent intent.” Id. at 314; see id. at 324
(“The inference that the defendant acted with scienter need not be irrefutable, i.e., of the ‘smoking-
43
gun’ genre, or even the most plausible of competing inferences” (internal quotation marks
omitted)). Scienter can typically be shown via recklessness, which is defined as “an extreme
departure from the standards of ordinary care . . . which presents a danger of misleading . . . that
is either known to the defendant or is so obvious that the actor must be aware of it.” In re Phillips
Petroleum Sec. Litig., 881 F.2d 1236, 1244 (3d Cir. 1989) (internal quotation marks omitted).
However, “it is not enough for plaintiffs to merely allege that defendants ‘knew’ their statements
were fraudulent or that defendants ‘must have known’ their statements were false.” GSC Partners
CDO Fund v. Washington, 368 F.3d 228, 239 (3d Cir. 2004). Rather, a plaintiff must, at least,
specifically allege facts constituting strong circumstantial evidence that “defendants knew or, more
importantly, should have known that they were misrepresenting material facts related to the
corporation.” In re Campbell Soup Co. Sec. Litig., 145 F.Supp.2d 574, 599 (D.N.J.2001).
In conducting the scienter analysis, “[t]he inquiry . . . is whether all of the facts alleged,
taken collectively, give rise to a strong inference of scienter, not whether any individual allegation,
scrutinized in isolation, meets that standard.” Tellabs, 551 U.S. at 322-23 (emphasis in original).
However, the Third Circuit has “explicitly approved of scienter analyses that assess individual
categories of scienter allegations individually when it is clear, as it is here, that a district court
ultimately considered the allegations as a whole.” Hertz, 905 F.3d at 115 (citing OFI Asset Mgmt.
v. Cooper Tire & Rubber, 834 F.3d 481, 493 (3d Cir. 2016) (concluding that just because a court
is “thorough in explaining why it found scienter lacking as to each asserted misrepresentation does
not suggest that it did not consider the allegations as a whole”)); see also Avaya, 564 F.3d at 280
(“Although we have discussed each of the alleged facts bearing on defendants’ scienter one at a
time, we have heeded Tellabs’s command to evaluate [the plaintiffs’] allegations collectively
rather than individually.”). Accordingly, the Court will, therefore, follow this approach and
44
consider the alleged facts bearing on scienter individually, while at the same time considering
whether, holistically, they give rise to a strong inference of scienter.
Here, Plaintiff contends that Defendants’ consistent and repeated denials that there was
not, and has never been, asbestos in the Company’s Talc Products are indicative of scienter in light
of the various efforts allegedly taken by Defendants to conceal the truth. Id. at 37. In that regard,
Plaintiff identifies certain public statements by Glasgow, Casaliveri, and Gorsky, as well as
internal documents drafted by Casalvieri and Goodrich, which, Plaintiff argues, are also indicative
of scienter. Id. at 37-40. Furthermore, Plaintiff alleges that because Baby Powder is the
Company’s “sacred cow” and “flagship” product, “[t]he perceived importance of [Baby Powder]
supports an inference that [defendants were] paying close attention to [it],” Pl. Br. at 44 (quoting
Avaya, 564 F.3d at 271), as does the extensiveness of the Company’s scheme and the number of
employees allegedly involved, id. at 47. Additionally, Plaintiff contends that ongoing government
investigations, including by the FDA, SEC, DOJ, and U.S. Senate, further support the strong
inference of scienter. Id. at 48.
Defendants, in turn, argue that the “core operations doctrine” does not support an inference
of scienter under the circumstances, as the Talc Products represent .3% of J&J’s combined
company sales. Def. Br. at 36-37; Def. Reply Br. at 12; AC at ¶186. Further, Defendants argue
that Plaintiff has not pled specific facts showing that “any individual Defendant was aware of any
credible test results that contradicted JJ’s public statements, let alone that any Defendant intended
to deceive investors.” Def. Reply Br. at 12.
As an initial matter, the Court finds that the each of the alleged misrepresentations at issue
involve the “core operations” of J&J, supporting an inference of scienter. The “core operations
45
doctrine” 6 provides that a plaintiff may be able to demonstrate a strong inference of scienter by
alleging “that a defendant made misstatements concerning the ‘core matters’ of central importance
to a company.” Martin v. GNC Holdings, Inc., 757 F. App'x 151, 155 (3d Cir. 2018); see also
Avaya, 564 F.3d at 268 (explaining that when the misrepresentations and omissions involve “ ‘core
matters’ of central importance” to the company and its principle executives, an inference of
scienter may arise). In order to support a finding of scienter based upon the core operations
doctrine, plaintiff must also allege “some additional allegation of specific information conveyed
to management and related to the fraud.” Id. (internal quotation marks omitted); see Rahman, 736
F.3d at (declining to apply core operations doctrine in the absence of allegations demonstrating
that defendants knew the information they disseminated was false); PharmaNet, 720 F. Supp. 2d
at 566 (rejecting application of the core operations doctrine in absence of “other individualized
allegations”); In re Amarin Corp. PLC, Civ. No. 13-6663, 2015 WL 3954190, at *12 (D.N.J. Jun.
29, 2015) (rejecting application of the core operations doctrine “absent particularized allegations
showing that defendants had ample reason to know of the falsity of their statements”).
6
In addition to the core operations doctrine, the parties also discuss the “corporate scienter,” also
known as “collective scienter” doctrine. Under that doctrine, a plaintiff may successfully “plead
an inference of scienter against a corporate defendant without raising the same inferences required
to attribute scienter to an individual defendant.” Rahman, 736 F.3d at 246. Defendants contend
that Plaintiff implicitly raises a “corporate scienter” theory because the Amended Compliant does
not tie the scienter allegations to any Individual Defendants. Plaintiff contends that the Third
Circuit has suggested that the corporate-scienter doctrine may be viable where a company
“engaged in a variety of tactics . . . to keep news of the scope of the problem from reaching safety
regulators and investors,” as alleged here. Pl. Br. at 49. n.42 (internal citations and quotation marks
omitted). The Third Circuit has “neither ... accepted nor rejected the doctrine of corporate scienter
in securities fraud actions.” Rahman, 736 F.3d at 246; see also City of Roseville Emps. Ret. Sys.,
442 F. App’x at 676-77 (declining to decide “if ... it were possible to plead scienter against a
corporation without pleading scienter against an individual”). However, Plaintiff does not rely
solely on corporate scienter; the Amended Complaint does, in fact, proffer individualized
allegations of scienter as to each Individual Defendant. Accordingly, this Court need not – and
does not -- determine whether corporate scienter, alone, is applicable to the instant facts.
46
Plaintiff has sufficiently alleged that the Talc Products are a “core matter” of central
importance.” Avaya, 564 F.3d at 268. Although Defendants contend that the Talc Products make
up only .3% of the Company’s total sales, Plaintiff has alleged that that the Company views its
Talc Products, more specifically Baby Powder, as “an institution,” “flagship product,” and “sacred
cow.” AC ¶¶43,47. One corporate representative allegedly testified under oath that Baby Powder
is among “the top one or two products that people think of when they think of J&J.” Id. at ¶412.
In June 2012, the entire Board of Directors allegedly received, via email, a presentation on the
“reputational risk” the talc-related lawsuits posed to the Company. Id. at ¶171. The safety of
J&J’s self-professed flagship product clearly falls within the Company’s core operations. Makor
Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 709 (7th Cir. 2008) (noting that alleged
misrepresentations at issue in securities fraud case involved company’s “flagship product” thus,
finding it “exceedingly unlikely” that false statements about product were innocently made by
corporate executives); In re Allergan Generic Drug Pricing Sec. Litig., No. 16-9449, 2019 WL
3562134, at *12 (D.N.J. Aug. 6, 2019) (applying core operations doctrine where alleged
misrepresentations addressed three drugs that made up a “substantial portion” of the defendant
company’s revenues and operations during the class period).
Accordingly, Plaintiff has
sufficiently alleged that the misstatements and omissions at issue in this case touch upon J&J’s
“core operations.” However, the Court must also assess whether Plaintiff’s core operations theory
of scienter is supported by additional specific allegations that each of the Individual Defendants’
had access to specific information related to the alleged fraud and the Talc Products. Rahman, 736
F.3d at 247.
1. Gorsky
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With respect to defendant Gosky, Plaintiff alleges that that he publicly stated that he had
been “paying attention to ‘the significant amount of clinical information [and] control data’
involving talc and talcum powders, including from agencies like the National Cancer Institute
(“NCI”) and FDA, and claimed to have sufficient knowledge to form an opinion on ‘the safety of
talc.” AC ¶394. During a health care conference in September 2017, Gorsky allegedly assured
investors that “more than a 100 years of experience,” and findings from agencies, including the
FDA “clearly demonstrate[d] the safety of talc.” Id. at ¶335. Further, Plaintiff alleges that on
June 6, 2017, Gorsky received an email which provided an update on the talc lawsuits and
discussed the potential “reputational risk” the lawsuits posed to the Company. Id. at ¶171. Gorsky
also assured investors, on at least one occasion, that the Company’s “Chief Medical and Chief
Quality Officers [were] setting new benchmarks for medical safety” and J&J was “monitoring the
use of our end market products” to “ensu[re] that they are safe.” Id. at ¶133
As alleged, Gorsky repeatedly professed to have knowledge regarding both the current
science as to the safety of Talc and the Company’s quality assurance procedures. However,
Gorsky began serving as the Company’s CEO in 2012, just as the allegations between talc and
cancer began to reach their zenith, and has continued to serve as CEO throughout the Class Period.
In that time period, a 2016 internal audit report allegedly discovered quality assurance issues at
the lab where J&J performed its asbestos testing, and revealed that the Company’s methods for
testing its talc were “questionable at best” and “not an optimal method for asbestos testing.” Id.
at ¶¶65, 111. Given Gorsky’s professed knowledge of the safety of talc, at best, he recklessly
disregarded potentially contrary facts – many of which involved incidents which occurred during
his tenure as CEO – Gorsky’s failure to disclose the contrary information of which he was allegedly
aware is suggestive of scienter. SEB Inv. Mgmt. AB v. Endo Int'l, PLC, 351 F. Supp. 3d 874, 906
48
(E.D. Pa. 2018) (finding scienter where plaintiff alleged that company executives made “public
comments regarding the clinical data in press releases and earnings calls” because the “officers
were speaking as authoritative sources who possessed the information to support their statements.
When they did so, they knew that withholding the negative data that contradicted their public
statements was misleading to investors.”) Accordingly, the Court finds that Plaintiff has
sufficiently alleged that Gorsky knew, or had reason to know, of the alleged falsity of his
statements, thus Plaintiff has adequately alleged a strong inference of scienter as to Gorsky.
2. Caruso
As to Caruso, Plaintiff alleges that as CFO of the Company, he was responsible for signing
the Company’s SEC filings and ensuring that the statements contained therein were not false or
materially misleading. AC at ¶395. Additionally, Plaintiff alleges that during the Class Period,
Caruso led the Company’s investor relations activities, which “effectively guaranteed that Caruso
had access to the information that defendants withheld from investors during the Class Period.”
Id.
Plaintiff has not sufficiently alleged that specific information regarding the alleged fraud
was conveyed to Caruso. Plaintiff’s only allegations in that regard are that Caruso must have had
information regarding the Company’s fraudulent scheme because he was the CFO who signed the
Company’s SEC filings. However, a “general awareness of the the day-to-day workings of the
company’s business does not establish scienter.” Rahman., 736 F.3d at 247. Accordingly, the
Court finds that Plaintiff has not alleged any specific facts suggesting that Caruso had knowledge
of the alleged falsity of any of the statements in the SEC filings.
3. Goodrich
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Goodrich allegedly personally worked on the Company’s “Our Safety & Care
Commitment” webpage, and touted talc’s “long history of safe use,” and use “for over 100 years,”
despite internally expressing misgivings that J&J could not accurately say that talc was “always”
safe. Id. at ¶401. Goodrich was also allegedly aware, as indicated by commentary on a draft of
the webpage, that other scientific sources not cited on the “Our Safety & Care Commitment”
website could actually “be interpreted as suggesting a causal effect” between talc and ovarian
cancer. Id. Additionally, she recognized that “[e]ven some of the studies” cited by J&J on its
website sent “mixed messages,” including a study recognizing that “perineal talc use may modestly
increase” the risk of ovarian cancer. Id. These alleged contradictions between Goodrich’s public
and internal statements demonstrate actual knowledge of the alleged falsity of her public
statements. Thus, the Court finds that Plaintiff has adequately alleged a strong inference of scienter
as to Goodrich.
4.
Casalvieri
Like Goodrich, Casalvieri is also alleged to have been involved in drafting and issuing
public statements on the Company’s website. Casalvierri was featured on the Company’s “Our
Safety & Care Commitment,” which represented that “[w]e have carefully assessed all available
data on talc,” including the “body of research and clinical evidence.” Id. at ¶402. She also issued
other public statements where she professed to examine “assessments by external experts” and
emphasized that “[a]s a toxicologist in our Consumer business,” “my job is to make certain a
product is safe.” Id. Furthermore, internal company emails indicate that she was allegedly
assigned the task of directing J&J’s project “to defend talc” from potential inclusion in the NTP’s
biennial RoC.
Id. at ¶403.
That project allegedly included “develop[ing] documents that
scientifically support the lack of a relationship of talc and ovarian cancer,” and secretly funding a
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-study supportive of talc. Id. at ¶403.
As alleged, Casalvieri was heavily involved in the
Company’s scheme to preclude the NTP and other organizations from listing talc as a potential
carcinogen. Accordingly, the Court finds that Plaintiff has sufficiently alleged a strong inference
of scienter as to Casalvieri.
5.
Peterson
Plaintiff generally alleges that because of her position in the Company, Peterson was, at
the very least, reckless to the potential falsity of her statements regarding the Company’s quality
assurance systems. In that regard, Plaintiff alleges that Peterson was brought into her role as Group
Worldwide Chair, for the purpose of “fixing the consumer and supply chain issues once and for
all.” Id. at ¶404. In that role, she allegedly represented to investors that she was paying attention
to and implementing J&J’s “processes and systems so that [J&J has] early warning systems” to
monitor potential product problems. Id. at ¶405. However, Plaintiff has not alleged facts
suggesting that during her tenure at J&J, Peterson was aware of, or should have been aware of,
specific facts alerting her to existing quality control issues, rendering her statements false.
Peterson joined the Company in September 2012, well after the most recent testing in 2004 which
indicated asbestos in J&J’s Talc Products. Id. at ¶88. Similarly, the audit report indicating quality
control issues with J&J’s outside asbestos testing facility was released in April 2012, before she
was hired by J&J. Id. at ¶110. Plaintiff has not adequately alleged that Peterson’s had knowledge
of, or reason to know, that her statements regarding the Company’s quality control systems were
false, or that Peterson was aware of the alleged scheme to prevent the truth about the safety of talc
from reaching the public.
In addition to Peterson’s alleged knowledge of the Company’s core operations, Plaintiff
alleges that Peterson retired under suspicious circumstances, supporting an inference of scienter:
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“(i) Peterson’s retirement was close in time to the first jury finding in favor of a plaintiff alleging
harm from asbestos in J&J’s talcum powders, (ii) Peterson had been brought in to fix the JJCI
business’s quality control issues but elected to retire at a time when the business had very serious
quality control issues still unresolved, (iii) Peterson had taken on an additional leadership role only
one year prior, (iv) J&J was required to shuffle various executives around as a result of Peterson’s
departure to leave, indicating lack of a premeditated transition plan, and (v) at least one analyst
following J&J expressed surprise at the announcement due to the strange timing.” Id. at ¶406.
Under certain circumstances, the departure of a corporate executive can strengthen an
inference of scienter. “For a resignation to add to an inference of scienter, a pleading must set
forth allegations suggesting a compelling inference that the resignation was the result of something
other than ‘the reasonable assumption that the resignation occurred as a result of’ the release of
bad news.” Hertz, 905 F.3d at 118 (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981,
1002 (9th Cir. 2009), amended on other grounds, (Feb. 10, 2009)). As the Third Circuit explained
in Hertz, “[c]hanges in leadership are only to be expected when leadership fails. That is not a
symbol of fraud. Corporate resignations do not strengthen an inference of scienter, when, as here,
the allegations do not cogently suggest that the resignations resulted from the relevant executives'
knowing or reckless involvement in a fraud.”
Id.
In this case, Plaintiff alleges that the
announcement of Peterson’s resignation occurred on June 22, 2018, just over two months after the
first jury verdict against J&J in a case alleging harm from asbestos in the Company’s Talc
Products. AC ¶211. First, as alleged, there is no indication, aside from the timing of the
announcement, that Peterson’s departure from the company was related to a discovery of her
involvement in the fraud. Roofer’s Pension Fund v. Papa, No. 16-2805, 2018 WL 3601229, at
*20 (D.N.J. July 27, 2018) (finding “some probative value,” in employee’s resignation, which was
52
announced the same day as an investigation into company’s revenue recognition practices but
noting that departure was not “involuntary or accompanied by some form of corporate sanction.”);
In re Intelligroup Sec. Litig., 527 F.Supp.2d 262, 347 (D.N.J. 2007)(“a defendant's resignation
could constitute a ‘piece to the scienter puzzle’ if the resignation both takes place within a couple
of months of the announcement of the errors committed and is accompanied by an extraordinary
corporate punishment measure, e.g., denial of severance payment.”). Furthermore, Plaintiff’s own
theory of the case undercuts the inference of scienter. “A resignation may support a finding of
scienter because it may be implied that the individual knew of the fraud being perpetrated. Once
those outside the fraud find out, supposedly, they terminate (or force to resign) all those who may
have been responsible.” In re Toronto-Dominion Bank Sec. Litig., No. 17-1665, 2018 WL
6381882, at *18 (D.N.J. Dec. 6, 2018). Here, however, Plaintiff’s theory of the case is that the
alleged fraud was a long-standing comprehensive scheme, reaching into every crevice of the
Company; yet, paradoxically, Peterson was the employee allegedly impacted by the scheme’s
reveal. The inference that Peterson resigned, or was forced to resign, due to her role in the
fraudulent scheme, is not as compelling or cogent as the inference that she resigned for other
business reasons.
Accordingly, the Court finds that Plaintiff has not sufficiently alleged, utilizing the core
operations theory or otherwise, particularized facts supporting a strong inference of scienter as to
Peterson.
6. Glasgow
Plaintiff alleges that Glasgow, the Company’s Vice President of Research and
Development, made public statements emphasizing that she, and others at the Company had
allegedly reviewed “decades” of scientific data on the safety of talc. AC at ¶407. She allegedly,
53
“held herself out as having reviewed “30 years of scientific studies and regulatory reviews,” along
with “the medical facts and science” regarding the Company’s talcum powder products” and
represented that she had reviewed the studies, “science, research and clinic evidence” regarding
the safety of talc. Id. at ¶408.
Taking those allegations at face-value, Glasgow would have been aware of the allegedly
contrary scientific evidence identified by Plaintiff. Accordingly, the Court finds that Galsgow’s
unqualified statements regarding the safety of talc, in the face of the contrary evidence, are
suggestive of scienter. See In re RAIT Fin. Tr. Sec. Litig., 2008 WL 5378164, at *12-*13 (E.D.
Pa. Dec. 22, 2008) (finding scienter where plaintiff alleged that the individual defendants were
senior executives, with access to information contradicting their public statements).
7. Sneed
As to Sneed, Plaintiff alleges that as VP of Global Corporate Affairs, Sneed was
“responsible for public relations and knew that checking the accuracy of corporate statements was
vitally important.” Id. at ¶409. Thus, in Plaintiff’s view, he knew or recklessly disregarded that his
statements were false and misleading. Id. As an initial matter, many of the misstatements attributed
to Sneed fall within the category of statements which this Court has already identified as puffery
and determined to be inactionable as securities fraud. Plaintiff alleges that the misleading
statements proffered by Sneed include, statements made at a 2013 annual shareholder meeting that
that J&J had “really embraced transparency”; that J&J had a history of and was driven by
“‘car[ing] unconditionally for others’” and that it had “‘own[ed] up to [its] mistakes,’” and that
J&J made “great strides” in “really get[ting] past” the quality issues the Company faced. Id. at
¶257. To the extent those statements are the only ones alleged to have been made by Sneed, the
54
Court need not assess whether they were made with scienter, because Plaintiff has not adequately
alleged that the statements were materially misleading.
Regardless, the Court finds that Plaintiff has not adequately alleged facts suggesting that
Sneed acted with scienter. The sole allegations Plaintiff makes in that regard are generalized
allegations regarding his role in the Company. Absent additional allegations of specific
information conveyed to Sneed, such generalized statements cannot adequately allege scienter.
Rahman, 736 F.3d at 247.
8. The Context and Content of the Individual Defendant’s
Statements Indicates Scienter
Additionally, irrespective of the core operations doctrine, the content and context of many
of the alleged misleading statements further enhances the finding of scienter with respect to the
individual defendants whom the Court has found to have the requisite scienter. See Utesch v.
Lannett Co., Inc, 385 F. Supp. 3d 408, 422 (E.D. Pa. 2019) (“‘the most powerful evidence of
scienter is the content and context’ of the misleading statements.”) (quoting Avaya, 564 F.3d at
269).). In Avaya, the company’s CEO made statements “repeatedly assur[ing] analysts and
investors that although there was pressure in the market, there were no significant changes to the
pricing environment.” 564 F.3d at 245. The plaintiffs alleged that the CFO made these statements
while “kn[owing] of or recklessly disregard[ing] the fact that competition was forcing unusually
large 20% to 40% price discounts that were hurting profit margins.” Id. Addressing whether the
complaint adequately alleged that those statements were made with scienter, the Third Circuit
explained that:
[t]aken together, the extent of the alleged discounting, the
importance to the “Avaya story” of maintaining margins, the
amount by which the second quarter results missed
expectations, the proximity of [the CFO]’s statements to the
end of the quarter and the release of results, [the CFO]’s
55
position as Chief Financial Officer, and most significantly,
the content and context of the statements themselves, give
rise to a strong inference that [the CFO] either knew at the
time that his statements were false or was reckless in
disregarding the obvious risk of misleading the public.
Thus, the Third Circuit found that “the context (specific analyst queries) and content (consistent
denials of unusual discounting) of the statements,” supported the inference that the statements were
made with scienter. Id. at 270. Similarly, here, the content and context of many of the Individual
Defendants’ statements suggest that the Invidual Defendants were, at best, reckless to the
possibility that their statements might mislead investors. As alleged, Defendants repeatedly stated
that the Talc Products were safe, in the face of contrary test results, various lawsuits, and inquiries
from the press and investors. Even following two high-figure jury verdicts linking the Talc
Products to ovarian cancer and mesothelioma, Defendants allegedly doubled down on their
insistence that the Talc Products were “safe” and “asbestos free.” Such repeated, unqualified
assurances, in the face of inquiries from the public, and regulatory authorities such as the FDA,
further suggest that Defendants’ statements were made with scienter. See Utesch, 385 F. Supp. 3d
at 422 (finding that defendants’ repeated statements, in the face of ongoing investigations by
multiple law enforcement bodies, and questions from the press, were indicative of
scienter.); Roofer’s Pension Fund, 2018 WL 3601229, at *21 (finding that defendant repeatedly
responded to questions from analysts and investors with answers that indicated knowledge about
drug pricing and the repeated inquiries “would have made Defendants aware of the importance of
generic drug pricing to the investing public” thus defendants’ failure to disclose certain facts in its
answers was indicative of scienter).
The internal acknowledgements of potential asbestos contamination in the Talc Products,
and the potential association with mesothelioma and ovarian cancer, coupled with the fact that the
56
allegations of fraud relate to a core operation of the Company, collectively, give rise to a strong
inference of scienter. Defendants assert that the facts as alleged support a plausible inference that
after reviewing the scientific data, defendants concluded that the bulk of the evidence supports
their position that the Company’s Talc Products were safe. However, taken together, Plaintiff’s
allegations are “as compelling as [that] opposing inference of nonfraudulent intent.” Tellabs, 551
U.S. at 314. Although Plaintiff has failed to specifically allege scienter as to certain defendants,
and those defendants are dismissed from the lawsuit, Plaintiff’s contentions, when considered
holistically, satisfy the scienter pleading standard as to Gorsky, Goodrich, Casalvieri, and
Glasgow.
Plaintiff has sufficiently pled that, at minimum, those defendants had access to
information which would have alerted them to the allegedly misleading nature of their statements
regarding the safety of the products. As alleged, Defendants either failed to adequately investigate
the potential dangers of the Talc Products, despite its obvious relevance evidenced by the many
public inquiries, or Defendants knowingly disseminated false and inaccurate statements as part of
a long standing fraudulent scheme. Either scenario is suggestive of scienter. The Court finds that,
viewing Plaintiff’s scienter allegations, holistically, Plaintiff has adequately pled scienter.
iii. Loss Causation
Under the PSLRA, “the plaintiff shall have the burden of proving that the act or omission
of the defendant . . . caused the loss for which the plaintiff seeks to recover damages.” 15 U.S.C.
§ 78u–4(b)(4). “The loss causation inquiry asks whether the misrepresentation or omission
proximately caused the economic loss.” McCabe v. Ernst & Young, LLP,494 F.3d 418, 426 (3d
Cir.2007). The fact that a misrepresentation occurred and the share price declined is not enough.
Id. Instead, to demonstrate loss causation, the plaintiff must prove “that the untruth was in some
reasonably direct, or proximate, way responsible for his loss.” Id. (quotation and citation omitted).
57
The Third Circuit has repeatedly cautioned that this determination is a fact-sensitive inquiry
typically left to the trier of fact. See id. at 427 n. 4; EP Medsystems, Inc. v. EchoCath, Inc., 235
F.3d 865, 884 (3d Cir. 2000).
As an initial matter, the parties dispute the applicable pleading standard for analyzing
whether Plaintiff has adequately pled loss causation. Defendants urge this court “to follow the
clear trend” and apply the heightened pleading requirements of Rule 9(b) to Plaintiff’s loss
causation allegations, consistent with the approach utilized by the Fourth, Seventh, Ninth, and
Eleventh Circuits. Def. Br. at 50 n. 37. However, Plaintiff contends that under Rule 8(a) it “need
only provide a ‘short and plain statement’ giving defendants ‘some indication of the loss and the
causal connection that [they have] in mind,’” Pl. Br. at 51 (quoting Dura, 544 U.S. at 336), and
that it has adequately alleged loss causation under either standard. Id. at 52 n.45.
In Dura, the Supreme Court reversed a Ninth Circuit decision that had found that a Section
10(b) complaint adequately pleaded loss causation merely by alleging that the price of the security
on the date of purchase was inflated because of the defendants’ misrepresentations. 544 U.S. at
338. In analyzing the plaintiff’s claims, the Court suggested that the pleading standard for loss
causation was governed by Rule 8(a)(2). Id. at 346. The Court noted that Rule 8(a)(2) merely
requires “a short and plain statement of the claim showing that the pleader is entitled to relief” and
“assume[d], at least for argument's sake, that neither the [Federal] Rules [of Civil Procedure] nor
the securities statutes impose any special further requirement in respect to the pleading of
proximate causation or economic loss.” Id. at 346 (finding that plaintiffs’ complaint failed to
allege loss causation under Rule 8 where it contained only one sentence addressing loss causation).
Since that time, the Supreme Court has not provided any further guidance as to the applicable
pleading standard for analyzing loss causation, and the Circuit courts have reached diverging
58
conclusions. As Defendants note, the Fourth Seventh, Ninth, and Eleventh Circuits apply Rule
9(b) as the pleading standard for loss causation. See e.g., In re Mutual Funds Investment Litigation,
566 F.3d 111, 119–20 (4th Cir. 2009) (noting that prior to the enactment of the PSLRA, Section
10(b) fraud claims were governed by Rule 9, and holding that, because the PSLRA does not govern
the analysis of loss causation or reliance, the traditional pleading requirement for fraud claims
applies to loss causation); Tricontinental Industries, Ltd. v. PricewaterhouseCoopers, LLP, 475
F.3d 824, 842 (7th Cir. 2007) (applying Rule 9(b) as the pleading standard for all elements of a
securities fraud claim without discussion); Oregon Public Employees Retirement Fund v. Apollo
Group Inc., 774 F.3d 598, 605 (9th Cir. 2014) (holding that Rule 9(b) is the appropriate pleading
standard for loss causation because 1) the rule “applies to all circumstances of common law fraud”
and since securities fraud is derived from common law fraud, it makes sense to apply the same
pleading standard; 2) “Rule 9(b) clearly states that ‘[i]n alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake” and “[l]oss causation is
part of the circumstances constituting fraud because, without it, a claim of securities fraud does
not exist” and 3) applying rule Rule 9(b) provides for a “consistent standard” for assessing
pleadings in a Rule 10(b) action); Sapssov v. Health Mgmt. Assocs., Inc., 608 F. App'x 855, 861
(11th Cir. 2015) (applying Rule 9(b) as the pleading standard for all elements of a securities fraud
claim without discussion).
However, the Fifth and Second Circuits generally apply Rule 8(a) to determine whether a
plaintiff has adequately pled loss causation. See Lormand v. US Unwired, Inc., 565 F.3d 228, 258
(5th Cir. 2009) (holding that in light of Dura and Twombly, in order to establish loss causation, a
plaintiff must plead a “facially ‘plausible’ causal relationship between the fraudulent statements
or omissions and plaintiff's economic loss”); Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec.,
59
LLC, 797 F.3d 160, 183 (2d Cir. 2015) (noting that the level of particularity necessary to plead
loss causation “is an open question” in the Second Circuit but also noting that pleading loss
causation is “not a heavy burden”); Wilamowsky v. Take–Two Interactive Software, Inc., 818
F.Supp. 2d 744, 753 & n. 7 (S.D.N.Y.2011) (“The question of whether Rule 9(b) applies to loss
causation has not yet been definitively addressed by the Second Circuit, but the vast majority of
courts in this district have required that loss causation only meet the notice requirements of Rule
8.”). Moreover, although the Third Circuit has not yet addressed the issue, courts of this district
have consistently analyzed loss causation under Rule 8(a), rather than the more stringent
requirements of Rule 9(b). See In re Galena Biopharma, Inc. Sec. Litig., No. 17-929, 2019 WL
5957859, at *18 (D.N.J. Nov. 12, 2019) (“[a] [p]laintiff need not satisfy the PSLRA or Rule
9(b)’s heightened pleading requirements to survive a motion to dismiss for loss causation; rather,
a plaintiff need only satisfy the requirements of Rule 8(a)(2)” (quoting Nat’l Junior Baseball
League v. Pharmanet Dev. Grp. Inc., 720 F. Supp. 2d 517, 558 (D.N.J. 2010)(Wolfson J.)); In re
Allergan Generic Drug Pricing Sec. Litig., No. 16-9449, 2019 WL 3562134, at *13 (D.N.J. Aug.
6, 2019)(“The PSLRA does not impose any heightened pleading standards on the element
of loss causation; ordinary pleading rules apply” (quoting Dura, 544 U.S. at 347)); Hull v. Glob.
Digital Sols., Inc., No. 16-5153, 2017 WL 6493148, at *11 (D.N.J. Dec. 19, 2017) (Wolfson
J.)(“Importantly, alleging loss causation or economic loss does not require a plaintiff to satisfy the
heightened pleading standard under Rule 9(b)”); Nat’l Junior Baseball League, 720 F. Supp. 2d
at 558 (“Plaintiff need not satisfy the PSLRA or Rule 9(b)'s heightened pleading requirements to
survive a motion to dismiss for loss causation; rather, a plaintiff need only satisfy the requirements
of Rule 8(a)(2)”); Dudley v. Haub, No. 11-5196, 2013 WL 1845519, at *18 (D.N.J. Apr. 30, 2013)
(“Allegations of loss causation are not subject to the heightened pleading requirements of Rule
60
9(b) and the PSLRA....”). In light of the Supreme Court’s reasoning in Dura, and absent guidance
from the Third Circuit, this Court aligns itself with the decisions of its sister districts, as well as
this Court’s prior decisions on this issue, and applies the standard provided by Rule 8(a) to
Plaintiff’s loss causation allegations.
Plaintiff relies on six disclosures to show loss causation: the Bernstein Liebhard Press
Release on September 27, 2017; the Lanzo Law 360 Article on January 30, 2018; the Lanzo
Metholeliona.net Article on February 5, 2018; the Beasley Allen Press Release on February 7,
2018; the Ingham Verdict on July 12, 2018; and the Reuters Article on December 14, 2018,
Plaintiff contends that after each of these disclosures, J&J’s stock price suffered statistically
significant declines. AC ¶ 421.
Defendants challenge loss causation on two bases. First, that none of the alleged corrective
disclosures revealed “new” information, but rather the alleged disclosures repeated or shed
additional light on longstanding allegations of asbestos contamination in J&J’s Talc Products and
a link between talc and cancer. Def. Br. at 48-57. In Defendants’ view, none of the alleged
disclosures contain material information which was disclosed for the first time, rather, the
identified disclosures merely proffer additional details about previously available information and
do not constitute corrective disclosures. Def. Br. at 51-55. Furthermore, Defendants contend that
Plaintiff cannot establish that the Class Members’ alleged losses are attributable to the alleged
misrepresentations rather than “overall market trends and market reaction to litigation risk.” Id. at
58-60. For example, Defendants note that on February 5 and February 8, 2018, the Dow Jones
Industrial Average dropped significantly, suggesting that any loss on those dates “can only be
reasonably attributed to market-wide phenomena that day” rather than the alleged corrective
disclosures. Id. at 60.
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The Court, first, addresses Defendants’ contention that the identified disclosures did not
proffer “new” information. 7 “A corrective disclosure need not take a particular form; it is the
exposure of the falsity of the fraudulent representation that is the critical component.” Hull v.
Glob. Digital Sols., Inc., No. 16-5153, 2017 WL 6493148, at *14. Ultimately, “so long as the
plaintiff alleges that the public disclosure reveals that the defendant company made false claims,
and that based on those disclosures, a corresponding drop in stock price occurred, loss causation
is adequately pled.” Id. Viewed in the light most favorable to Plaintiff, the facts as alleged suggest
that the disclosure do not merely repeat information. Although many of the alleged disclosures
address the same subject matter – J&J’s alleged knowledge of asbestos in its Talc Products and
the ensuing scheme to prevent the dissemination of that information – each provided new
information as to the seriousness and extent of the Company’s alleged fraud. See In re Bradley
Pharm., Inc. Sec. Litig., 421 F. Supp. 2d 822, 828–29 (D.N.J. 2006) (finding that the revelation of
the truth about the Company’s misrepresentations “did not take the form of a single unitary
disclosure, but occurred through a series of disclosing events.”). In that regard, some of the
disclosures clearly profess that the information being conveyed is new. As alleged, the Reuters
article purportedly indicated that it was disclosing new information from internal J&J documents
7
In support of their argument that the disclosures did not convey “new” information, Defendants
cite Lanzo for the proposition that “a large volume of [information regarding the product liability
lawsuits ] including copious internal testing documents – were cited and attached as exhibits in
support of publicly filed motions” prior to two of the alleged corrective disclosures identified by
Plaintiff, the release of the Bloomberg article and the Bernstein Liebhard Press Release. See Def.
Br. at 52. In its opposition to Defendants’ motion for judicial notice, Plaintiff moves to strike
Defendant’s reference to Lanzo pursuant to Federal Rule of Civil Procedure 12(f), arguing that
“the reference is confusing, immaterial and should not be considered.” Pl. Judicial Notice Br. at
14. Plaintiff further argues that the citation to Lanzo “lacks meaning” and notes that there is no
docket entry or date associated with the citation provided. Id. The Court denies Plaintiff’s motion
to strike and finds it appropriate to consider Lanzo in connection with Defendant’s argument that
certain allegedly damaging disclosures were already publicly available.
62
which were being “reported to the public for the first time.” ¶223-232. Accordingly, the Court
finds that Plaintiff has sufficiently alleged that each of the identified disclosures provided new
information. 8
Furthermore, Defendant’s argument that the drop in J&J’s stock price was attributable to
other causes such as market trends and the market’s reaction to litigation risk is premature.
Plaintiff’s theory of loss causation is that J&J made fraudulent misrepresentations and that the
truth was slowly revealed throughout the course of 2017 and 2018, culminating when the Reuters
Article revealed the true extent of the Company’s alleged deceptions. In support of that theory,
Plaintiff has identified specific disclosures of new information and corresponding impacts on stock
price. Each of the alleged drops in stock price is allegedly supported by an event study which
found the drops to be statistically significant and isolated the impact of the disclosure.
At this stage, plaintiff has sufficiently alleged loss causation, by alleging that after
Defendants’ purportedly misleading statements and fraudulent scheme were revealed, J&J’s stock
prices decreased significantly. Although Defendants point to other possible bases for the decline
in stock price, such a factual dispute cannot be adjudicated at this early, motion to dismiss stage
of the litigation. See Omanoff v. Patrizio & Zhao LLC, No. 14-723, 2015 WL 1472566, at *6
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Defendants also contend that the articles about jury verdicts cannot constitute a corrective
disclosure because “Plaintiffs cannot use a jury verdict as a conclusive disclosure of the ‘truth.’”
Def. Br. at 57-58 (collecting cases). However, none of the cases cited by Defendant stand for the
proposition that a jury verdict cannot, as a matter of law, constitute the disclosure of new
information. The Ingham jury verdict was allegedly the first to award damages to a plaintiff
linking ovarian cancer to asbestos in J&J’s talc products, rather than to the talc, itself. AC ¶213.
To the extent the jury verdict or documents publicly released during the lawsuit contained new
information regarding an association between asbestos and ovarian cancer, and the existence of
asbestos in the Company’s Talc Products – revealing the alleged falsity of Defendants’ assertions
to the contrary – the jury verdict may have been a corrective disclosure.
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(D.N.J. Mar. 31, 2015) (rejecting defendants argument, on a motion to dismiss, that decline in
share price was attributable to other weaknesses disclosed by the company because argument
raised “a factual dispute that cannot be adjudicated at this early stage”). Accordingly, Plaintiff has
sufficiently pled loss causation.
a. The Class Period
Defendants also seek to limit the Class Period to February 7, 2018, rather than December
13, 2018. Def. Br. at 60-62. Defendants contend that the allegations relating to events occurring
after February 7, 2018 – the date when this lawsuit was initiated – are not plausible because they
could not have “been material to investors.” Def. Br. at 61. Defendants argue that as of February
8, 2018 – when Plaintiff initiated this lawsuit – the market was fully aware of the allegations
regarding the Talc Products, thus Plaintiff’s allegations related to events occurring after that date
could not have “been material to investors.” Def. Br. at 61. In Defendants’ view, following the
filing of the Complaint, “no reasonable investor would consider any information allegedly
misstated or omitted form Defendants’ statements to ‘significantly alter the total mix of
information available.’” Id. Further, Defendants contend that Plaintiff’s theory of the case is
identical to the one alleged in the initial complaint “that J&J has known for decades that its talc
products . . . include asbestos fibers and that the exposure to those fibers can cause ovarian cancer
and mesothelioma,” and that Defendants allegedly “misrepresented and failed to disclose the
danger that J&J’s talc products posed to consumers . . . .” rendering it implausible that, “after
Plaintiffs had enough knowledge to file their claim, additional details could have significantly
altered the total mix of information available or served as a corrective disclosure.” Def. Br. at 2425 (comparing ECF No.1 ¶ 2 with AC ¶¶ 1-14).
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Plaintiff contends that the Class Period is appropriate because Plaintiff alleges that the true
extent of Defendants’ several decades long scheme was revealed for the first time by the Reuters
article published on December 14, 2018. Pl. Br. at 64. Furthermore, in Plaintiff’s view, the theory
of the operative complaint has changed significantly since the, now moot, initial complaint,
supporting the extension of the Class Period in light of the complex scheme detailed in the
Amended Complaint. Id. Accordingly, “considering all the information provided to the market
after February 7, 2018, ‘[p]articularly in light of defendants’ repeated’ reassuring statements, ‘it
was reasonable for plaintiffs to rely upon defendants’ statements until the publication of the’
Reuters report.” Pl. Br. at 64-65 (quoting Pharmacia, 554 F.3d at 351-52).
As a general rule, liability based on material misrepresentations or omissions is terminated
“when curative information is publicly announced or otherwise effectively disseminated.” In re
Data Access Sys. Sec. Litig., 103 F.R.D. 130, 143 (D.N.J.1984) (quoting McFarland v. Memorex
Corp., 96 F.R.D. 357, 364 (N.D. Cal. 1982)). Whether a release of corrective information
terminates liability based on misrepresentations or omissions is a determination of “whether the
facts which underlie the gravamen of the plaintiff's complaint continue to represent a reasonable
basis on which an individual purchaser or the market would rely.” Id. “[D]oubts regarding the
reasonableness of the reliance should be resolved in favor of extending the class period.” Id. (citing
In re LTV Sec. Litig., 88 F.R.D. 134, 147 (N.D.Tex. 1980)).
At this juncture, the Court finds that there is sufficient doubt as to whether the true extent
of the Company’s alleged fraudulent scheme was revealed prior to the publication of the Reuters
article on December 14, 2014. In re Alstom SA Sec. Litig., 253 F.R.D. 266, 292 (S.D.N.Y. 2008)
(finding that class period should close once plaintiffs had received sufficient notice regarding the
facts giving rise to fraud, “which in the exercise of reasonable diligence, would have led to actual
65
knowledge,” rather than on earlier date when accounting improprieties were first revealed, because
“[a]t that time, neither the full financial impact of the alleged improprieties nor the fact that it was
allegedly attributable to fraud by Alstom senior corporate officials had been revealed.”). Although
the alleged asbestos contamination and connection between ovarian cancer and talc, and
mesothelioma and talc, had already been publicly discussed and several product liability lawsuits
had already been filed prior to the publication of the Reuters article, Plaintiff has alleged that the
Company continued to issue public denials of wrongdoing and repeatedly averred that its products
were “safe” and “do not contain asbestos or cause mesothelioma.” See e.g, AC ¶¶379-380, 382,
390. As pled, it was the publication of the Reuters article that directly refuted Defendants’
allegedly false statements and provided never-before-seen internal Company documents that
detailed J&J’s knowledge of the asbestos in the Company’s talcum powder and J&J’s longstanding
fraudulent scheme to cover it up. Id. at ¶223. According to Plaintiff, the Reuters article kicked
off a crisis for J&J by exposing new details and analysis regarding the Company’s alleged
fraudulent scheme to conceal the truth about the safety of its Talc Products. The Reuters report,
itself, even professes that the information being reported was novel, stating “[a] small portion of
the documents have been produced at trial and cited in media reports. Many were shielded from
public view by court orders that allowed J&J to turn over thousands of documents it designated as
confidential. Much of their contents is reported here for the first time.” Id. at ¶223. Accordingly,
the Court finds that December 14, 2018, the publication date of the Reuters article, is an
appropriate conclusion for the Class Period.
b. The Section 20(a) Claims
Plaintiff also alleges that Individual Defendants are liable under Section 20(a) of the
Exchange Act. This statute reads, in pertinent part:
66
§ 78t. Liability of controlling persons and persons who aid and abet violations
(a) Joint and several liability
...
Every person who, directly or indirectly, controls any person liable under any
provision of this chapter or of any rule or regulation thereunder shall also be
liable jointly and severally with and to the same extent as such controlled person
to any person to whom such controlled person is liable ...
15 U.S.C. § 78t(a); see also Suprema, 438 F.3d at 285 (discussing the statute). However, “liability
under Section 20(a) is derivative of an underlying violation of Section 10(b) by the controlled
person.” Avaya, 564 F.3d at 252 (citing In re Alpharma Sec. Litig., 372 F.3d 137, 153 (3d Cir.
2004)). Where a Plaintiff fails to sufficiently plead a claim under Section 10(b), it is “impossible
to hold the [Individual Defendants] liable under § 20(a).” Shapiro, 964 F.2d at 279.
Because Defendants’ only arguments in support of dismissal of the Section 20(a) claim is
that Plaintiff failed to plead a claim under Section 10(b), Defendants’ motion to dismiss the Section
20(a) claim is also denied. However, because Plaintiff has failed to adequately plead a Section
10(b) claim against Caruso, Peterson, and Sneed, the Section 20(a) claims against those defendants
are dismissed, as well.
IV. CONCLUSION
For the reasons set forth above, Defendants’ Motion to Dismiss is denied in part and
granted in part. Plaintiff’s Section 10(b) and Rule 10b–5 claim is limited to Defendants’ statements
regarding the safety of its Talc Products, the “asbestos-free” nature of its talc, and the Company’s
commitment to product safety, quality assurance, and research. Plaintiff’s claims based upon
Defendants’ alleged misstatements about the viability of the Product Liability lawsuits are
dismissed. Furthermore, because Plaintiff has not adequately alleged facts suggesting a strong
67
inference of scienter as to defendants Caruso, Peterson, and Sneed, those defendants are dismissed
from the lawsuit.
Although the Court finds that Plaintiff has adequately alleged, for purposes of this motion
to dismiss and assuming the facts pled to be true, that Defendants made materially misleading or
false statements regarding the safety of J&J’s Talc Products, such a ruling should not be construed
as the Court’s acknowledgment of the underlying merits of the substance of Plaintiff’s claims,
including whether the scientific evidence supports Plaintiff’s allegations.
Any such a
determination must be based upon a full record and not upon the pleadings alone.
Date: December 27, 2019
/s/ Freda L. Wolfson
Hon. Freda L. Wolfson
U.S. Chief District Judge
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