Hall v. Johnson & Johnson
| Decision Date | 27 December 2019 |
| Docket Number | Civil Action No.: 18-1833 (FLW) |
| Parties | FRANK HALL, individually and on behalf of all others similarly situated, Plaintiff, v. JOHNSON & JOHNSON, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
*NOT FOR PUBLICATION*
:
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 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.
The following allegations are taken from the Amended Complaint ("AC") and are assumed to be true for purposes of this motion to dismiss.1
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 consumersegment include Baby Powder ("Baby Powder") and "Shower-to-Shower"2 ("Shower-to-Shower") (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 firstjury 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.
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 developas 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, Plaintiffalleges that in 1971, an internal Company memorandum, drafted by Dr. T. M. Thompson, the son of the Company's co-founder, noted that that 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...
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