18th Annual Workplace Class Action Report - 2022 Edition

Annual Workplace Class Action Litigation Report: 2022 Edition 347 would have paid less when they failed to explain how they contributed to the fund in the first place. The Court thus concluded that Plaintiffs failed to allege that they suffered a concrete and particularized injury sufficient to confer standing. For these reasons, the Court granted Defendants’ motion to dismiss. (xi) ERISA Stock Drop Class Actions Osborne, et al. v. Employee Benefits Administration Board Of Kraft Heinz, 2021 U.S. Dist. LEXIS 158717 (N.D. Ill. Aug. 23, 2021). Plaintiffs, a group of participants in Defendants’ retirement plans, brought a class action under the ERISA alleging that the administrators’ benefits determinations were improper and that their actions constituted a breach of fiduciary duty. Defendants filed a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), which the Court granted. Defendant Employee Benefits Administration Board of Kraft Heinz (the "EBAB") was a committee established by the governing documents of the Plan and maintained discretionary authority and control regarding the management of the Plan or the Plan’s assets or both. Id . at *4. Following the 2015 Kraft-Heinz merger, Plaintiffs alleged that its cost-cutting measures damaged the Company’s brands and drained its resources, which caused serious declines in sales of its legacy brands. Id . Plaintiffs asserted that Defendants knew, or should have known, of the decrease in brand value prior to the announcement of its fourth quarter of 2018 earnings report in which they disclosed that the Company took an impairment charge of $15.4 billion, which resulted in a net loss attributable to common shareholders of $12.6 billion and diluted loss per share of $10.34. Id . at *5. The same day, Kraft Heinz also disclosed that it was subject to an investigation by the SEC into accounting practices and internal controls over financial reporting. Plaintiffs alleged that Defendants failed to disclose information that would have corrected the allegedly misleading statements that drove up the Company’s stock price. The Court found that the complaint failed to meet the requirement that a Plaintiff plead that a prudent fiduciary could not conclude that public disclosure would do more harm than good to the Plan. The Court determined that the vague allegations in the complaint made it difficult to determine whether there was an "alternative action that Defendant could have taken" that a prudent fiduciary "would not have viewed as more likely to harm the fund than to help it." Id. at *11. Additionally, the Court reasoned that the amended complaint’s allegations of harm relied on generic assertions, which did not satisfy the applicable pleading standard. Accordingly, the Court granted Defendants’ motion to dismiss. Perrone, et al. v. Johnson & Johnson, 2021 U.S. Dist. LEXIS 36230 (D.N.J. Feb. 26, 2021). In this consolidated class action, Plaintiffs, a group of participants in the Johnson & Johnson (“J & J”) Savings Plan (“the Plan”), asserted that Defendants violated the ERISA. Plaintiffs alleged that Defendants breached their fiduciary duties to participants in the Plan because its senior leadership had been aware for decades that J & J’s talc-based products, including its Baby Powder, contained asbestos and concealed that information from investors, which resulted in an artificial inflation of the value of J & J’s stock. Defendants moved to dismiss Plaintiffs’ claims pursuant to Rule 12(b)(6), and the Court granted the motion. The crux of the parties’ dispute was whether Plaintiffs had adequately alleged that Defendants breached their ERISA-imposed fiduciary duties to the Plans’ beneficiaries. In order to successfully allege breach of the duty of prudence on the basis of inside information, the Court observed that Plaintiffs must plausibly allege an alternative action that Defendants could have taken that would have been consistent with securities laws and that prudent fiduciaries in the same circumstances would not have viewed as more likely to harm the fund than to help it. In other words, Plaintiffs’ complaint was required to plausibly allege that prudent fiduciaries in the same position could not have concluded that the alternate action would do more harm than good. Plaintiffs alleged two different alternate actions, including the corrective disclosure theory and the cash buffer theory. First, the Court held that issuing a corrective SEC disclosure revealing the alleged truth about the over inflation of J&J stock and/or the asbestos in the company’s talc products was not a viable alternative action because it was not one which could be taken in a fiduciary capacity, but only in a corporate one. As to the cash buffer theory, the Court found that had Defendants opted to increase the Plans’ cash buffers, Defendants would have been required to reveal to the public-at-large that they were doing so, and to explain that they were doing so because the J & J’s stock was artificially inflated and/or that J&J’s talc based products contain asbestos. In essence, the Court concluded that increasing the cash buffer – like issuing a corrective disclosure – would have required the J & J to reveal the alleged truth about the talc product. As such, the Court held that Plaintiffs failed to allege that that increasing the Plans’ cash buffer would not have done more harm than good. For these reasons, the Court granted Defendants motion to dismiss pursuant to Rule 12(b)(6).