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District Of New Jersey Certifies Class Of Investors In Suit Against Healthcare Product Company
01/09/2024On December 28, 2023, Judge Zahid N. Quraishi of the United States District Court for the District of New Jersey granted class certification in a securities fraud class action, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a healthcare product company (the “Company”). Hall v. Johnson & Johnson, No. 18-1833 (ZNQ) (TJB) (D.N.J. Dec. 28, 2023). Specifically, plaintiff alleged that the Company inflated the value of its stock through false and misleading statements regarding the alleged contamination of the Company’s talc products. The Court certified the class after holding that plaintiff met the requirements of Rule 23(a) as well as the predominance and superiority requirements of Rule 23(b)(3).
Concerns about the potential for asbestos contamination in cosmetic talc products emerged in the 1970s. Against this backdrop, plaintiff alleges that the Company “initiated a concerted effort to convince the public that talc was safe,” which included allegedly “l[ying] to the public, influenc[ing] regulators, and purposefully avoid[ing] testing methods that could detect the trace amounts of asbestos that the Company knew were present.” In 2013, the Company began facing lawsuits (the “Talc Lawsuits”), some of which alleged a connection between ovarian cancer and talc contaminated with asbestos. Plaintiff claims that the Company made false and misleading statements during this time intending to preserve public trust and preclude discovery of the Company’s allegedly long-term effort to convince the public that talc was safe.
Beginning in September 2017, plaintiff alleges six relevant corrective disclosures were made: (1) a September 2017 law firm press release indicating that plaintiffs in the Talc Lawsuits intended to add asbestos-related allegations to their claims; (2) a January 2018 news article covering one of the Talc Lawsuits and noting discussion of a “1975 report in which the [Company’s predecessor] allegedly said it found asbestos;” (3) a February 5, 2018 blog posting concerning “anticipating use of ‘damaging internal company documents’” during trial in one of the Talc Lawsuits; (4) a February 7, 2018 law firm press release regarding an ongoing talcum powder product liability investigation; (5) the announcement of a July 2018 jury verdict for $4.69 billion against the Company in a Talc Lawsuit that alleged a link between asbestos and ovarian cancer; and (6) a December 2018 investigative report asserting that the Company knew for decades that its talc products were contaminated with asbestos.
The Court focused its analysis on the predominance requirement under Rule 23(b)–whether common questions of reliance predominated over questions affecting only individual class members–noting that there was no dispute that the numerosity, commonality, typicality and adequacy requirements of Rule 23(a) and the superiority requirement of Rule 23(b) were met.
First, the Court addressed the Company’s argument that certification of claims was “inappropriate because [the alleged] corrective disclosures contained no ‘new’ information, i.e., any of the allegedly corrective information was already publicly available.” Although plaintiff argued that the Company’s entire argument was a “thinly disguised ‘truth-on-the-market’ defense which is not properly considered or resolved at the class certification stage,” the Court disagreed. Citing the Supreme Court’s decision in Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, the Court noted that, at the class certification stage, it “must take into account all record evidence relevant to price impact, regardless of whether that evidence overlaps with materiality or any other merits issue.” The Court therefore held that, because the Company’s “evidence about the prior public availability of allegedly corrective information is necessarily probative of price impact, it must not be so quickly brushed aside.”
After finding that plaintiff was entitled to a presumption of reliance under the Supreme Court’s decision Basic v. Levinson, the Court examined whether the Company rebutted the presumption by proving lack of price impact for each of the six alleged corrective disclosures. With respect to the September 2017 law firm press release, the Court held that the press release “was more than a republication of already known information as it signaled a new development” to the Company’s investors. Specifically, the Court noted that the release “disclosed that the thousands of ovarian cancer plaintiffs planned to include asbestos allegations.” Turning to the January 2018 press coverage of the 1975 report featured in one of the Talc Lawsuit trials, the Court rejected the Company’s argument that new coverage of statements made at trial should not be considered a corrective disclosure because they were made publicly in court prior to the article. The Court held that “an article analyzing the 1975 report a day after the trial could still affect the stock price.” With respect to the two February 2018 disclosures, the Court held that it was “not persuaded that the . . . disclosures merely ‘repackaged’ information that was already public.” As to the July 2018 jury verdict, the Company argued that the verdict itself did not convey any new information not already made public during trial and reported on by news outlets, whereas plaintiff argued that the “multi-billion dollar verdict constitute[d] new fraud-related information.” Here, the Court “decline[d] to resolve that dispute” at the class certification stage, but nevertheless held that the Company had failed to rebut the presumption of reliance. With respect to the December 2018 investigative report, the Court found significant that, while the report relied on some publicly available documents, it also “painstakingly annotated . . . various documents linked, explaining and providing necessary context.” Although the Court held that the Company’s “various arguments as to why the disclosure d[id] not contain any new information may make it less likely that the disclosure impacted the stock price,” the Court held that this does “not suffice to rebut the presumption of price impact by a preponderance of the evidence.”
