PERRONE v. JOHNSON & JOHNSON

*NOT FOR PUBLICATION*

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

_____________________________________

:

MICHAEL PERRONE, TOM TARANTINO,:

and ROCHELLE ROSEN :

: Civil Action No.: 19-00923 (FLW)

Plaintiffs, :

: OPINION

vs. :

:

JOHNSON & JOHNSON, et al., :

:

Defendants. :

_____________________________________:

WOLFSON, Chief Judge:

In this consolidated class action, plaintiffs Michael Perrone, Tom Tarantino, and Rochelle

Rosen (collectively, “Plaintiffs”), who are all participants in the Johnson & Johnson Savings Plan,

assert violations of the Employee Retirement Income Security Act of 1974 (“ERISA”) by

defendants Johnson & Johnson (“J&J” or the “Company”), Peter Fasolo (“Fasolo”), and Dominic

Caruso (“Caruso”) (collectively, “Defendants”). Plaintiffs allege that Defendants breached their

fiduciary duties to participants in the Johnson & Johnson Savings Plan, the Johnson & Johnson

Savings Plan for Union Represented Employees, and the Johnson & Johnson Retirement Savings

Plan (collectively, the “Plans”), because J&J’s senior leadership, including Fasolo and Caruso (the

“Individual Defendants”) have been aware for decades that J&J’s talc-based products, including

J&J’s Baby Powder, contain asbestos and concealed that information from investors, resulting in

an artificial inflation of the value of the Company’s stock. In a prior opinion, dated April 29, 2020

(“Prior Opinion”), I granted Defendants’ motion to dismiss the original complaint and gave

Plaintiffs leave to amend their claims. Plaintiffs filed an Amended Complaint and now,

Defendants, once again, move to dismiss Plaintiffs’ claims under Federal Rule of Civil Procedure

12(b)(6). Defendants also seek to strike Plaintiffs’ jury demand. Plaintiffs oppose the motion.

For the reasons set forth below, Defendants’ motion to dismiss is GRANTED Plaintiffs’

claims are dismissed without prejudice with the right to file an amended complaint within 30

days, consistent with the ruling in this Opinion.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

The following allegations are taken from the Amended Consolidated Class Action

Complaint (“Am Compl.”) and assumed true for purposes of this motion to dismiss. The facts and

procedural history of this case were set forth in detail in the Prior Opinion, and the crux of the

Amended Complaint’s factual allegations, particularly with regard to the Company’s alleged

historical knowledge of asbestos in its talc products, and the alleged misstatements and omissions

in the Company’s securities filings, are largely unchanged. Accordingly, I will not recount them

in detail, here, and only briefly summarize the most salient facts, and incorporate any new

allegations, when necessary.

Plaintiffs allege that J&J has known since as early as 1957 that its talc products contained

asbestos, and the Company has gone to great lengths to conceal this information from government

regulators and consumers. Am. Compl. at ¶¶37-43. According to Plaintiffs, the truth was

eventually revealed, on December 14, 2018, when Reuters published an article entitled “Special

Report: Johnson & Johnson knew for decades that asbestos lurked in its Baby Powder” (the

“Reuters Article”), which examined internal company documents obtained as part of discovery

during recent asbestos-related ovarian cancer litigation, and outlined the Company’s alleged

knowledge of asbestos in its talc and the ensuing cover-up. Id. at ¶¶44,93. Allegedly, “[s]hares

of Johnson & Johnson stock declined by more than 12.5% following the release of this report.”

Id. at ¶94.

Like in their prior complaint, the Amended Complaint alleges that Defendants had the

“opportunity to correct the record and make the truth about asbestos in Johnson & Johnson’s talc

products known to the public” and if they had done so, “the Plans’ participants could have avoided

millions of dollars in purchases of artificially inflated J&J shares, and subsequent losses in the

value of the Johnson & Johnson stock in their Plan accounts when the truth was revealed to the

market.” Id. at ¶20. I will refer to this theory of the case as the “corrective disclosure” theory.

Plaintiffs supplement their prior allegations regarding Defendants’ alleged ability to reveal “the

truth about asbestos in J&J’s talc products” by asserting that

Defendants, as the Plan’s fiduciaries, determined that they would

communicate with participants about the J&J shares in the Plan by

incorporating J&J’s securities filings by reference into their

communications with the participants. Accordingly, making

securities disclosures was not a purely corporate act, but

Defendants specifically adopted a policy of restating those

disclosures by incorporation as part of their fiduciary

communications with the Plan’s participants. And, as with all

fiduciary communications, Defendants had a fiduciary obligation

to ensure that these communications were truthful and accurate.

Id. In that regard, Plaintiffs allege that Plan participants were provided with a “Summary Plan

Description and Prospectus,” which expressly “incorporated by reference” all of the following

documents as participant communications:

(a) The Company’s and the Plan’s latest annual reports, filed

pursuant to Sections 13(a) or 15(d) of the Exchange Act, or in the

case of the Company either (1) the Company’s latest prospectus

filed pursuant to Rule 424(b) under the Securities Act which

contains, either directly or by incorporation by reference, audited

financial statements for the Company’s latest fiscal year for which

such statements have been filed or (2) the Company’s annual report

on Form 10-K filed under the Exchange Act containing audited

financial statements for the Company’s latest fiscal year.

(b) All other reports filed pursuant to Section 13(a) or 15(d) of the

Exchange Act since the end of the fiscal year covered by the annual

reports or the prospectus or effective registration statement referred

to in (a) above.

(c) The description of J&J common stock contained in the

Registration Statement on Form S-3, filed with the Commission on

August 7, 2001, as amended (Registration No. 333- 67020),

including any amendments or reports filed for the purpose of

updating such description. All documents filed by the Company

and the Plan pursuant to Sections 13(a), 13(c), 14 or 15(d) of the

Exchange Act after the date hereof, and prior to the filing of a post-

effective amendment which indicates that all securities offered

have been sold or which deregisters all securities then remaining

unsold, shall be deemed to be incorporated by reference in the

Plan’s prospectus (but are not part of this SPD).

Id. at ¶108. Thus, Plaintiffs allege that those securities filings were “not merely communications

made by [J&J] officers in their corporate capacity, but by ERISA fiduciaries in their fiduciary

capacity to the extent that those filings were made part of fiduciary communications to Plan

participants.” Id. at ¶109.

As an alternative to disclosure, Plaintiffs also allege, what I will refer to as the “cash buffer

theory,” that “Defendants could have used the unitized nature of the Plans’ stock funds to increase

the cash buffer of the funds rather than invest in new stock purchases until such time as the stock

was no longer artificially inflated.” Id. at ¶22; see also ¶¶134-136. Plaintiffs explain that under

the Plans’ terms “the [Employee Stock Ownership Plan (“ESOP”)] component of the Plan is

designed to invest primarily in Employer Shares.” Id. at ¶134 (citing 2008 Savings Plan, Art. I,

Preamble). Therefore, Plaintiffs aver that “Defendants could have directed the Plans to hold

incoming ESOP assets in cash until Johnson & Johnson stock was no longer artificially inflated.”

Id. at ¶136. In such a scenario, plan participants would allegedly “still be able to purchase and sell

units of the ESOP, and the Fund would still closely track Johnson & Johnson stock, because the

enormous size of the ESOP’s stock holdings would still dwarf any increase in cash holdings that

would occur”; however, the “Plan assets would not be exposed to the artificial inflation of Johnson

& Johnson’s stock.” Id. In Plaintiffs’ view, “[b]ecause no purchase or sale of stock would be

required, and because the cash buffer’s size was not otherwise disclosed, taking this action would

not require disclosure to Plan participants under the Plan’s governing language, nor would ERISA

itself require this specific disclosure.” Id. Further, Plaintiffs allege that “disclosure would not be

necessary under the federal securities laws, so any concern Defendants might have about ‘spooking’

Plan participants or the market generally would be unfounded.” Id. at ¶137. Allegedly, “[o]nce

the truth came out about Johnson & Johnson’s talc products -- as it inevitably would -- Plan

participants would have been spared significant harm.” Id.

A. The Prior Opinion

In my prior decision, I concluded, inter alia, that Plaintiffs had adequately alleged that the

Individual Defendants were plan fiduciaries, and that J&J could be held vicariously liable for

actions committed by the Individual Defendants within the scope of their employment. See Prior

Opinion at 13, 19. However, I questioned whether the corrective disclosure theory satisfied the

standard set forth by the United States Supreme Court in Fifth Third Bancorp v. Dudenhoeffer,

573 U.S. 409, 425 (2014). Id. at 20-38. Under Dudenhoeffer, in order to successfully assert a

breach of the duty of prudence

a plaintiff must plausibly allege an alternative action that the

defendant could have taken that would have been consistent with

the securities laws and that a prudent fiduciary in the same

circumstances would not have viewed as more likely to harm the

fund than to help it.

Dudenhoeffer, 573 U.S. at 428.

As an initial matter, I explained that the Court was required to “presume as true that the

Company’s products contained asbestos, that the Company allegedly sought to conceal that

information from the public at large, including investors, and that the Company’s statements that

its talc products were safe and did not contain asbestos were not in good faith, but rather part of

J&J’s scheme to conceal the truth about the dangers of talc.” Prior Opinion at 25. Nonetheless, I

concluded that Plaintiffs’ allegations did not satisfy Dudenhoeffer for two reasons. First, I found,

based on pre-Dudenhoeffer cases regarding the dual role of ERISA fiduciaries who are also

corporate insiders, that because “ERISA fiduciaries cannot be held liable for breach of fiduciary

duty based on statements made in SEC filings, such fiduciaries also may not be held responsible

for failing to issue a corrective disclosure, an action which could only be taken in a corporate

capacity.” Id. at 29. Therefore, Plaintiffs’ alleged alternative was insufficient because it would

have required the Individual Defendants to take an action which could not have been completed in

their fiduciary capacity, but only in their corporate one. Id. at 31-34.

Second, I concluded that “[e]ven assuming, arguendo, that Plaintiffs have alleged an

appropriate alternative action, they have not adequately alleged, as required by Dudenhoeffer, that

their prescribed course of conduct would not “do more harm than good.” Prior Opinion at 34

(quoting Amgen Inc. v. Harris, 136 S. Ct. 758, 759 (2016)). I, first, noted that there was a

significant drop in J&J stock price following the publication of the Reuters article and it was “not

readily apparent that an earlier disclosure of the alleged asbestos in J&J’s [had] products would

have caused less damage than a later disclosure.” Id. at 37. As such, I concluded that “Plaintiffs

[had] not alleged any particularized facts in support of their contention that an earlier disclosure

would have minimized the stock price-drop.” Id. at 38. Accordingly, I dismissed Plaintiffs’

Complaint in its entirety, and granted Plaintiffs leave to amend their claims. Plaintiffs did so;

now, Defendants, once again, move to dismiss Plaintiffs’ breach of fiduciary and breach of co-

fiduciary duty claims.

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).

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).

III. ANALYSIS

A. The Alleged Alternative Actions

In order to state a claim for breach of fiduciary duty in the ERISA-context, a plaintiff must

allege that the defendants are “1) . . . plan fiduciar[ies] (2) that breache[d] an ERISA-imposed duty

(3) causing a loss to the plan.” Sweda v. Univ. of Pennsylvania, 923 F.3d 320, 328 (3d Cir. 2019)

(quoting Leckey v. Stefano, 501 F.3d 212, 225–26 (3d Cir. 2007)). The crux of the parties’ dispute,

at this juncture, is whether Plaintiffs have adequately alleged that Defendants breached their

ERISA-imposed fiduciary duties to the Plans’ beneficiaries, namely the duty of prudence. As I

explained in my Prior Opinion, in order to successfully allege breach of the duty of prudence on

the basis of inside information, “a plaintiff must plausibly allege an alternative action that the

defendant could have taken that would have been consistent with the securities laws and that a

prudent fiduciary in the same circumstances would not have viewed as more likely to harm the

fund than to help it.” Dudenhoeffer, 573 U.S. at 428. Explained differently, the complaint must

plausibly allege that “a prudent fiduciary in the same position could not have concluded that the

alternate action would do more harm than good.” Amgen, 136 S. Ct. at 759.

Here, Plaintiffs allege two different alternate actions: the corrective disclosure theory and

the cash buffer theory. I address each alternate action separately.

i. The Corrective Disclosure Theory

Defendants challenge Plaintiffs’ corrective disclosure theory on two bases. See ECF No.

44, Def Br at 8-15. First, Defendants assert that issuing a corrective disclosure in a regular SEC

filing is not a viable alternative, because it is not an action that the Individual Defendants could

have taken in their fiduciary capacities. Def. Br. at 10-11. Further, Defendants assert that, even if

issuing a corrective disclosure was a viable alternative, it does not satisfy the second prong of the

Dudenhoffer test, because it is not plausible that a prudent fiduciary in the same position could

have concluded that it would cause more harm than good. Def. Br. at 15-16.

Plaintiffs argue that ERISA fiduciaries have a duty under ERISA to disclose nonpublic

information about a plan sponsor, even if that information was obtained in the fiduciary’s capacity

as a corporate executive, and therefore, Defendants should have issued a corrective disclosure

revealing the alleged truth about the talc in J&J’s products. ECF No. 45, Pl. Br. at 12-13. Plaintiffs

acknowledge that in the Prior Opinion I held that issuing a corrective disclosure was not a viable

alternative action under Dudenhoeffer, but they argue that “given the newly pleaded allegations

showing that Defendants intentionally linked their securities disclosures with their ERISA-covered

fiduciary communications, Plaintiffs respectfully submit that the failure to disclose non-public

information is subject to ERISA’s fiduciary duties in this case.” Pl. Br. at 13. In other words,

Plaintiffs reason that by incorporating J&J’s securities filings “into plan-related documents,” i.e.,

the Summary Plan Description (“SPD”) and Prospectus, issuing a corrective securities disclosure,

or failing to issue such a disclosure, is no longer “a purely corporate” act. Id. at 11. I remain

unconvinced.

In my Prior Opinion, I found that at least one of the Individual Defendants “had the ability

to issue public disclosures on behalf of the Company, or at minimum, the authority to review the

Company’s securities filings and correct any misstatements therein, such that he could have caused

J&J to issue a corrective disclosure.” Prior Opinion at 25-26. However, I, nonetheless, concluded

that issuing a corrective disclosure was not an adequate alternative course of action under

Dudenhoeffer. Prior Opinion at 25-26 I explained that “[n]ot all actions taken by ERISA

fiduciaries constitute fiduciary conduct. ERISA’s statutory scheme recognizes that fiduciaries of

ERISA plans are often also corporate officers and thus, may wear different hats. Pre-

Dudenhoeffer, other courts within this district have dismissed claims where plaintiffs sought to

allege that ERISA fiduciaries breached their duties to the plan based on misrepresentations made

in SEC filings, finding that the issuance of the SEC filing was a purely corporate activity.” Prior

Opinion at 28-29 (internal quotation marks and citation omitted). Accordingly, I concluded that

based on that pre-Dudenhoeffer line of cases, which are still good law, Individual Defendants could

not be held responsible for failing to issue a corrective disclosure, an action which could only be

taken in their corporate capacities. Id. at 33. I further explained “there is no indication in

Dudenhoeffer that the Supreme Court’s imposition of the alternative action standard was intended

to erode the pre-existing case law recognizing that corporate insiders, who are also fiduciaries of

an ERISA plan, play a dual role, and should not be subject to ERISA liability for actions taken

solely in their corporate capacity.” Id. at 31. I elaborated that

ERISA liability can only arise from actions or omissions taken in

connection with the plan, and not corporate actions. . . . . [T]he inverse,

therefore, should also be true. Because duties owed to ERISA plan

beneficiaries are separate and distinct from a fiduciary’s corporate

obligations, such as the Individual Defendants’ roles as corporate officers

of J&J, Plaintiff cannot allege, as an alternative action, that the Individual

Defendants must act in their corporate capacity in order to satisfy their

fiduciary obligations under ERISA.

Id. at 33. In their attempt to cure that deficiency, Plaintiffs have not identified a new alternative

action; rather, they now seek to reconstrue what I previously held was a corporate act, i.e., issuing

a corrective SEC disclosure, as a fiduciary action. The crux of the alternative action asserted by

Plaintiffs has not changed: the Amended Complaint, like its predecessor, alleges that “[a] proper

disclosure could have, and should have, been made in the regular course of Johnson & Johnson’s

securities filings” and that “[m]aking a corrective disclosure once it became inevitable that the

public would learn about the asbestos in the talc powder was an alternative action that the

Defendants could have taken that would have been entirely consistent with the securities laws and

which no prudent fiduciary could have viewed as more likely to harm the Plan than to help it.”

Compare Am. Compl. ¶¶129, 130 with Compl. ¶¶1120, 121; Compare Am. Compl. 173 (“The

Individual Defendants, as the Plans’ fiduciaries, could, and should, have acted to protect the Plans,

including making corrective disclosure publicly admitting the existence of asbestos in Johnson &

Johnson’s talc powder or directing new investments by Plan participants toward increasing the

ESOP’s cash buffer rather than toward purchasing artificially inflated stock”) with Compl. 158

(“The Individual Defendants, as the Plans’ fiduciaries, could, and should, have acted to protect the

Plans, including making corrective disclosure publicly admitting the existence of asbestos in

Johnson & Johnson’s talc powder.”). In the Amended Complaint, however, Plaintiffs add a new

gloss over their allegations related to issuing SEC disclosures:

Defendants, as the Plan’s fiduciaries, determined that they would

communicate with participants about the J&J shares in the Plan by

incorporating J&J’s securities filings by reference into their

communications with the participants. Accordingly, making securities

disclosures was not a purely corporate act, but Defendants specifically

adopted a policy of restating those disclosures by incorporation as part of

their fiduciary communications with the Plan’s participants. . . . It is well

established in this and other courts that when an ERISA fiduciary

specifically incorporates securities filings into participant communications,

the communications become fiduciary in character and defendants can be

subject to fiduciary liability for errors and misstatements in those

communications . . . To be clear, Plaintiffs are not claiming that Defendants

bear ERISA fiduciary liability for making false statements in the securities

filings to Plan participants—as in Plaintiffs’ original complaint, Defendants

bear fiduciary liability because they failed to make general corrective

disclosure to the market in time to prevent severe damage to J&J’s

reputation. What is clear is that Defendants’ securities filings were not, as a

matter of fact, made in a purely corporate capacity, but were made (or not

made) in a dual capacity designed to fulfill both securities law and ERISA

disclosure requirements. Accordingly, Defendants were not wearing a

purely corporate hat when they made, or did not make, securities

disclosures; they were as a matter of their own choosing also wearing their

ERISA fiduciary hat

Am. Compl. ¶¶20-21.

To that end, Plaintiffs largely rely on In re Schering-Plough Corp. ERISA Litig., No. 03-

1204, 2007 WL 2374989, at *1 (D.N.J. Aug. 15, 2007) and the Second Circuit’s decision in Jander

v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018) (“Jander I”).1 See Pl. Br. at 13-16.

Neither decision is persuasive here.

As an initial matter Schering-Plough, which predates Dudenhoeffer, addressed whether

defendants, who were the fiduciaries of an ERISA-plan, could be held liable for misstatements in

certain SEC filings. 2007 WL 2374989, at *4. It does not bear on the issue presented here: whether

1 Jander I was vacated and remanded by the Supreme Court. See Ret. Plans Comm. of IBM

v. Jander, 140 S. Ct. 592, 594-95(2020) (“Jander II”). In its per curiam opinion, the Supreme

Court explained that the arguments raised on appeal focused on issues which had not been raised

before the Second Circuit, and therefore, it remanded the case “leaving it to the Second Circuit . .

. to determine the[ ] merits” of the late-raised arguments. Id. at 595. On remand, the Second

Circuit reinstated its prior decision without change, finding that “[t]he arguments raised in the

supplemental briefs either were previously considered by this Court or were not properly raised.

To the extent that the arguments were previously considered, we will not revisit them. To the

extent that they were not properly raised, they have been forfeited, and we decline to entertain

them.” Jander v. Ret. Plans Comm. of IBM, 962 F.3d 85, 86 (2d Cir. 2020) (“Jander III”). The

Supreme Court denied the subsequent petition for writ of certiorari. Ret. Plans Comm. of IBM v.

Jander, —S. Ct.—, 2020 WL 6551787 (Nov. 9, 2020).

the alternate action of issuing a SEC corrective disclosure is a corporate or a fiduciary act.

Defendants breached the duty of prudence to plan fiduciaries by failing to act on inside information.

Moreover, even if Schering-Plough were applicable, in this context, it is factually

distinguishable. In Schering-Plough the plaintiffs alleged that two SEC S-8 forms, the plan’s

prospectus, and its SPD, “contained material misrepresentations and that defendants breached their

fiduciary duties to [p]lan participants by preparing and distributing [p]lan-related communications

that incorporated these allegedly misleading statements by reference.” Id. at *4. The defendants

moved to dismiss the plaintiffs’ claims, arguing among other things that “the act of preparing and

distributing these documents could not have been an ERISA fiduciary action,” and that the SPD

did not “expressly incorporate any of the disclosures that form the basis for plaintiff's

misrepresentation claims.” Id. The court found that because the S-8 forms and the prospectus

“were required only by federal securities laws, not by ERISA” they were not actionable under

ERISA. Id. at 6. However, with respect to the SPD, the court noted that ERISA mandates that

ERISA requires “plan administrators to periodically furnish all plan participants with an SPD.” Id.

at *6 (citing 29 U.S.C. § 1024(b)(1)). Moreover, the court explained that misrepresentations in

securities filings may be actionable under ERISA when they are “incorporated by reference” into

“plan-related documents.” Schering-Plough., 2007 WL 2374989, at *6-7 (collecting cases).

Looking to the SPD, the court found that in a section titled “other important information,” the SPD

provided that plan participants could request “copies of any prospectuses and financial reports

relating to the investment fund to the extent that the [p]lan receives such reports.” Id. at *7.

Accordingly, the court found that “[b]y including a reference to the prospectus within the SPD in

this section, the drafters of the SPD explicitly stated that the prospectus contained ‘important

information and impliedly incorporated by reference the prospectus into the SPD. In so doing, the

SPD’s drafters brought any statements made in the prospectus, or incorporated therein, into

ERISA’s crosshairs.” Id.

Here, however, unlike the documents at issue in Schering -Plough, the SEC filings were

not incorporated by reference into the SPD, but only the Prospectus. The Plans’ SPD, in a section

titled “Documents Available Upon Request,” provides that plan participants “can receive, upon

request, copies of the following documents that are incorporated by reference in the Plan’s

prospectus (but that are not part of this SPD) and are filed by the Company with the Securities and

Exchange Commission pursuant to the Securities and Exchange Act of 1934.” ECF No. 44-3,

Certification of Keith Miller (“Miller Cert.”) Ex. 1, October 2018 SPD and Prospectus p. 542; see

also Am. Compl. ¶108. The document explicitly provides that “[a]lthough the above documents

and this SPD are part of the Plan’s prospectus, neither the Plan’s prospectus nor the above

documents are incorporated by reference in this SPD.” Miller Cert, Ex. 1. at 55. In other words,

the SPD, itself, expressly provides that the SEC filings are not part of the SPD and are only

incorporated by reference into the Prospectus. The Prospectus, unlike the SPD, is not a document

which ERISA requires the fiduciaries to furnish to the plan participants.3 See 29 U.S.C. § 1022

2 Although the SPD and Prospectus were not included as exhibits to the Amended

Complaint, the Court may consider the exhibit because the Amended Complaint specifically

references the document and it partially forms the basis of Plaintiffs’ claims. See Buck v. Hampton

Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (“In evaluating a motion to dismiss, we may

consider documents that are attached to or submitted with the complaint, and any matters

incorporated by reference or integral to the claim, items subject to judicial notice, matters of public

record, orders, and items appearing in the record of the case.”); In re Donald J. Trump Casino Sec.

Litig.-Taj Mahal Litig., 7 F.3d 357, 368 n.9 (3d Cir. 1993) (“[A] court may consider an

undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if

the plaintiff's claims are based on the document.”).

3 The federal securities laws, not ERISA, require entities which offer stock to their

employees under an employee benefit plan to provide plan participants with a prospectus that

meets the requirements of Section 10(a) of the Securities Act. See 15 U.S.C. § 77j; 17 C.F.R. §§

230.428.

(detailing information which must be included in summary plan description); 29 U.S.C. § 1024

(requiring publication of the summary plan descriptions and annual reports participants and

beneficiaries of ERISA plans). Thus, even under the Schering-Plough court’s reasoning, it does

not appear that the SEC filings at issue could be considered a fiduciary communication.

More importantly, the inquiry regarding whether SEC filings were incorporated into plan

communications has no bearing on whether, under Dudenhoeffer, a plaintiff asserting a breach of

the duty of prudence is required to plead an alternative action which can be taken in the defendant’s

capacity as an ERISA fiduciary, rather than in a corporate capacity. Schering-Plough – to the

extent it is applicable post-Dudenhoeffer -- stands for the proposition that ERISA fiduciaries may

be liable for misstatements which are incorporated by reference into an ERISA required

communication; it does not resolve the question presently before this Court, and Plaintiffs have

expressly explained that they are not bringing a fiduciary claim in that regard.

Plaintiffs’ reliance on Jander is similarly misplaced because it also does not address the

question before this Court. Plaintiffs argue

The SEC/DOL, in their amicus brief in [Jander v. Ret. Plans Comm.

of IBM, 910 F.3d 620, 630 (2d Cir. 2018)], . . . took the position

that Dudenhoeffer “squarely” held that ERISA fiduciaries have a

duty under ERISA to disclose nonpublic information about the plan

sponsor” and that “Justice Kagan, in her concurring opinion in [Ret.

Plans Comm. of IBM v. Jander, 140 S. Ct. 592, 595 (2020)], agreed,

noting that Dudenhoeffer ‘makes clear’ that an ESOP fiduciary does,

at times, have a duty to act on inside information.”

Pl. Br. at 13. In Plaintiffs’ view, “[a]pplying Dudenhoeffer in this case means that the Amended

Complaint should survive the motion to dismiss on the issue of fiduciary status.” Id.

Critically, however, the issue on this motion is not whether ERISA imposes a duty for a

corporate insider who is also the fiduciary of an ERISA plan to act on insider information; rather,

the inquiry, here, is whether the alternate course of action alleged by Plaintiffs must be one that

Individual Defendants, the Plans’ fiduciaries, could have taken in their fiduciary capacity. Neither

Jander I nor Justice Kagan’s concurrence in Jander II expressly resolve that question.

In Jander I, the Second Circuit reversed the district’s court’s dismissal of an ERISA stock

drop case against IBM, finding that the plaintiffs had alleged facts satisfying the Dudenhoeffer

standard, where they alleged that defendants breached their duty of prudence by failing to issue a

corrective disclosure in certain SEC filings, when they knew that IBM's common stock was

overvalued, as a result of certain losses incurred by IBM's microelectronics business. 910 F.3d. at

624 Although the Jander court found that two defendants had the ability to issue public

disclosures regarding the stock, it does not appear that the parties addressed the question raised,

here, regarding whether disclosure was an adequate alternate course of action, in light of the fact

that the defendants could only have issuing an SEC filing, which is solely a corporate act. That

issue was never addressed by the court.

Nor does Justice Kagan’s concurrence in Jander II, answer the present question. On appeal

before the Supreme Court, petitioners argued that ERISA never imposes a duty on an ESOP

fiduciary to act on inside information, however, Justice Kagan’s concurrence makes clear that, in

her view, Dudenhoeffer plainly imposes such a duty. See Jander II, 140 S. Ct. at 595 (Kagan, J.

concurring) (“an ESOP fiduciary at times has such a duty; the decision sets out exactly what a

plaintiff must allege to state a claim that the fiduciary breached his duty of prudence by “failing to

act on inside information.). The concurrence concluded that Dudenhoeffer

recognizes that a fiduciary can have no obligation to take actions

“violat[ing] the securities laws” or “conflict[ing]” with their

“requirements” or “objectives.” At the same time, . . . when an

action does not so conflict, it might fall within an ESOP fiduciary's

duty—even if the securities laws do not require it. The question in

that conflict-free zone is whether a prudent fiduciary would think

the action more likely to help than to harm the fund.

Id. (citations omitted). First, Justice Kagan’s analysis, while persuasive, is not binding on this

Court. See Germanio v. Goodyear Tire & Rubber Co., 732 F. Supp. 1297, 1300 (D.N.J. 1990)

(“This court is bound by precedents, not concurrences”). More critically, my decision does not

conflict with Justice Kagan’s view of Dudenhoeffer’s holding. Here, Defendants have not argued,

nor have I found, that as a matter of law, Plaintiffs cannot allege a breach of the duty of prudence

against Individual Defendants for failing to act on insider information. Indeed, in my prior

decision, I expressly noted “[a]lthough I find that the current alternate course of action alleged by

Plaintiffs, issuing a corrective disclosure in the form of a public filing with the SEC is not an

adequate alternative, this Opinion does not foreclose the possibility that Plaintiffs may be able to

allege a different, viable alternative.” Prior Opinion at 39. Neither this Opinion nor my Prior

Opinion are intended to foreclose the possibility that Plaintiffs may allege a duty of prudence based

on insider information; rather, the alleged alternative identified here – issuing a corrective

disclosure in a regular SEC filing – is inconsistent with ERISA’s functional approach to fiduciary

liability because it would have required Defendants to take an action which could only have been

taken outside of their fiduciary capacity. Accordingly, I find, as I did on the prior motion to

dismiss, 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, is not a viable alternative action

because it is not one which could be taken in a fiduciary capacity, but only in a corporate one.

ii. The Cash Buffer Theory

Plaintiffs allege that

Defendants could have used their fiduciary oversight authority to

direct new ESOP investments during the Class Period to be used to

increase the ESOP’s cash buffer rather than to buy inflated Johnson

& Johnson stock. Per the Plan, “The ESOP component of the Plan

is designed to invest primarily in Employer Shares.” (2008 Savings

Plan, Art. I, Preamble (emphasis added).) Taking this action would

have enabled Plan participants to avoid the harm of purchasing

artificially inflated Johnson & Johnson stock during the period of

the Company’s misrepresentations about its talc products.

Am Compl. ¶134

In order to understand Plaintiffs’ allegations some understanding of the Plans’ funding

mechanisms is necessary. The Plans at issue are “unitized” stock funds, which invest primarily,

but not exclusively, in J&J common stock. Am. Compl. ¶ 22. As explained in the Prospectus, “a

small amount of cash or cash equivalents is held in the Fund to provide daily liquidity.” Miller

Cert., Ex. 2, November 2018 Johnson & Johnson Savings Plan Prospectus and Investment Fund

Information, p. 2. When participants invest in the Plans, they purchase units in the relevant fund

and each unit represents a combination of stock and cash. See Miller Cert, Ex. 1, p. 25 (“instead

of directly owning shares of J&J common stock, you own a portion of the Fund. The J&J Common

Stock Fund and J&J Stock Contributions Fund are made up of shares of J&J common stock as

well as a small amount of cash necessary to provide daily liquidity.”). As alleged, it appears that

the Plans’ fiduciaries would have had the ability and authority to increase the Plans’ cash buffer

rather than its stock holdings, and Defendants do not challenge the viability of that course of action.

Rather, the parties debate whether a prudent fiduciary could have concluded that increasing the

cash buffer would have done more harm than good.

Defendants argue that Plaintiffs’ cash buffer theory must be rejected, because a prudent

fiduciary could have concluded that diverting new contributions would have done more harm than

good. Def. Br. at 17- 20. First, Defendants contend that they would have been required to issue a

public disclosure explaining why the fund was no longer investing in J&J stock, and such a

disclosure would have caused the Company’s stock prices to drop, negatively impacting the Plans’

funds. Id. at 18. Alternatively, Defendants argue that even if they were not expressly required to

disclose the precise reason for increasing the cash buffer, i.e., the alleged asbestos in J&J’s talc-

products, increasing the Plans’ cash buffers would have caused market speculation and a resulting

decline in stock price. Id. Finally, Defendants assert that even absent a decrease in the Company’s

stock price, increasing the cash buffer could have harmed the fund by creating an “investment

drag,” and other courts have rejected similar arguments based on the possibility that increasing an

ESOP plan’s cash reserves “reduces the return of the stock portion of the fund and hurts current

investors.” Id. at 18-19.

In response, Plaintiffs argue that increasing the Plans’ cash holdings would not have

required disclosure, either under the federal securities laws or under ERSA. Pl. Br. at 18-19.

Plaintiffs maintain that, unlike when an ESOP freezes trading activity entirely, “redirecting cash-

and-stock purchases into cash-only purchases, while keeping the ESOP open for continued trading

activity” does not require disclosure. Id. at 19. Plaintiffs also challenge Defendants’ position on

“investment drag,” noting that “[o]nly two district courts have embraced this theory; neither is

controlling authority here.” Id. Further, Plaintiffs emphasize that “[t]he probability of ‘investment

drag’ is minimal; the amount of harm caused to the ESOP if the stock price goes up temporarily is

also minimal, because . . . the ESOP ‘would still closely track Johnson & Johnson stock, because

the enormous size of the ESOP’s stock holdings would dwarf any increase in cash holdings that

would occur.’” Id. at 20 (quoting Am. Compl. ¶ 135.) Finally, Plaintiffs remark that if the cash

buffer alternative is not viable, then no action would satisfy the more-harm-than-good test, and

ESOP fiduciaries are essentially immune from liability. Id.

I find that increasing the fund’s cash buffer would have triggered a disclosure under both

ERISA and the federal securities laws. ERISA contains a number of reporting and disclosure

requirements. See 29 U.S.C. § 1021 (“Duty of Disclosure and reporting”). Relevant here, ERISA

requires that plan administrators provide notice of blackout periods where plan participants’ rights,

such as the right “to direct or diversify assets credited to their accounts” will be either temporarily

suspended, limited, or restricted for more than three consecutive business days. 29 U.S.C.

§1021(i)(7)(A). Moreover, the blackout notice is required to provide “the reasons for the blackout

period.” 29 U.S.C. § 1021(i)(1)(2)(A)(i). Further complicating matters, the federal securities laws

seemingly would have prevented Defendants from making a limited disclosure to only the ERISA

plan participants. Indeed, under the securities regulations, “[w]henever an issuer, or any person

acting on its behalf, discloses any material nonpublic information regarding that issuer or its

securities” the issuer is also required to simultaneously make a disclosure to the public at large.

17 C.F.R. § 243.100(a)(1); see also Jones v. Midland Funding, LLC, No. 08-802, 2009 WL

3053724, at *1 n.1 (D. Conn. Sept. 22, 2009) (explaining that if a “company makes selective

disclosure of material nonpublic information, it must disclose the same information publicly.”).

Failing to make a public disclosure could have exposed Defendants to liability under Section 10(b)

and Rule 10b-5.4 Accordingly, if 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 Company’s stock was artificially inflated and/or that J&J’s

talc based products contain asbestos. In essence, increasing the cash buffer – like issuing a

corrective disclosure – would have required the Company to reveal the alleged truth about the talc

in its products.

iii. “More Harm Than Good”

4 Dudenhoeffer expressly requires courts to “consider the extent to which an ERISA-based

obligation either to refrain on the basis of inside information from making a planned trade or to

disclose inside information to the public could conflict with the complex insider trading and

corporate disclosure requirements imposed by the federal securities laws or with the objectives of

those laws.” 573 U.S. at 429.

Plaintiffs allege that Dudenhoeffer’s “more harm than good” standard is satisfied here,

because by the outset of the class period the disclosure of the truth about J&J’s talc products was

inevitable in light of the increasing number of lawsuits filed against J&J, and the discovery process

attendant to such proceedings. Am. Compl. ¶¶13, 114. In light of this inevitability, Plaintiffs

allege that corrective disclosure would not have done more harm than good to the Plans or their

participants. They assert that

[g]iven the overwhelming evidence and research showing that later

disclosure of the truth and correction of artificial inflation increases

the risk of a harsher price correction, as well as a slower-than-

necessary price recovery . . . Defendants should have recognized

that earlier disclosure was by far the less harmful option than the

one that they did choose – namely, waiting for the truth to come out

on its own.

Am. Compl. ¶114. In that regard, Plaintiffs rely on empirical studies and research regarding the

reputational and financial impact of misrepresentations on a company’s stock and market value.

Id. at ¶¶ 110-12, 114-117

Because disclosure would have been required, I find that a prudent fiduciary could have

concluded that the disclosure would have resulted in a drop of the Company’s stock price and thus

would have done “more harm than good.” Amgen, 136 S. Ct. at 759 (explaining that under

Dudenhoeffer, a court should “assess whether the complaint in its current form ‘has plausibly

alleged’ that a prudent fiduciary in the same position ‘could not have concluded’ that the

alternative action ‘would do more harm than good.’ ” (quoting Dudenhoeffer, 573 U.S. at 409,

410–11)).

As I noted in my Prior Opinion, “[a] public admission of alleged decades long asbestos

contamination, in the face of J&J’s prior statements to the contrary, would certainly have led to

significant reputational harm and a corresponding decrease in the Company’s value, regardless of

the timing of such a disclosure.” Prior Opinion at 38. As such I found Plaintiffs’ arguments

pertaining to the “more harm than good” analysis unavailing. Id. Plaintiffs rely on those same

arguments now, and I, once again, find them unpersuasive

Courts both within and outside of this circuit have held, at the motion to dismiss phase, that

it does not satisfy Dudenhoeffer when plaintiffs allege increasing an ESOP plan’s cash buffer or

freezing an ESOP fund’s investments in the company’s stock as an alternative action. See e.g.,

Singh v. RadioShack Corp., 882 F.3d 137, 149 (5th Cir. 2018) (dismissing plaintiffs’ claims

because, inter alia, “a prudent fiduciary in the [defendants’ position could have thought that

freezing RadioShack stock would signal to the market that insider fiduciaries viewed the

employer's stock as a bad investment,” causing the Fund's existing holdings of RadioShack stock

to decline in value.”); In re Allergan ERISA Litig., No. 17-1554, 2018 WL 8415676, at *6 (D.N.J.

July 2, 2018)5(finding that plaintiff’s proffered alternatives of freezing ESOP fund or holding

contributions “in cash or some other short-term investment” did not satisfy Dudenhoeffer).

In Allergan, the plaintiffs, participants in Allergan’s ESOP, alleged that the company’s

stock was overvalued as a result of misrepresentations regarding Allergan’s financial results and

price-fixing allegations regarding generic drugs. 17-1554, 2018 WL 8415676, at *6. In support

of their duty of prudence claim, plaintiffs alleged several alternate actions, including disclosing

the anti-trust violations so that the stock would trade at fair value, and holding ESOP contributions

in cash rather than investing in the company’s stock. Id. at *5-6. The court rejected both

alternatives, finding that a prudent fiduciary could not have concluded that publicly disclosing

5 Allergan was affirmed by the Third Circuit. See In re Allergan Erica Litig., 975 F.3d 348

(3d Cir. 2020). However, the Third Circuit did not examine the district court’s application of

Dudenhoeffer. Rather, the Third Circuit affirmed the district court’s opinion based on the district

court’s other independent basis for dismissal: that “the plaintiffs’ antitrust allegations fall far short

of plausibly suggesting the existence of a price-fixing conspiracy to begin with, as judged under

ordinary pleading standards.” Id. at 356.

negative information about the company would do more harm than good, because it would

“‘caus[e] a drop in the stock price and a concomitant drop in the value of the stock already held

by the fund.’” Id. at 5 (quoting Dudenhoeffer, 573 U.S. at 460). The court rejected plaintiff’s

arguments that earlier disclosure would have been better than later disclosure, noting that “courts

have consistently ruled against” such an argument. Id. at *5 (collecting cases). The court

emphasized that holding the investments in cash “suffer[ed] from the same infirmity as [p]laintiffs’

first proposal because ERISA mandates disclosure if plan fiduciaries halt new stock fund

purchases,” and thus, it would similarly result in a decrease of the Company’s stock price. Id. at

*6.

Similarly, the Supreme Court noted in Dudenhoeffer, itself, that freezing purchases of an

ESOP fund’s stock could signal to the market “that insider fiduciaries viewed the employer’s stock

as a bad investment.” 573 U.S. at 430. Notably, like in Allergan, nearly every Circuit Court of

Appeals to have considered this issue, has found, that an alternative action does not satisfy

Dudenhoeffer, when it requires disclosure, either inadvertently or deliberately, of negative

information that would cause the company’s stock to drop. Dudenhoeffer. See e.g., Dormani v.

Target Corp., 970 F.3d 910, 915-16 (8th Cir. 2020) (finding that defendants, fiduciaries of an

ESOP plan, “could not have implemented a purchase freeze without inevitable disclosure” and

therefore, “a reasonably prudent fiduciary . . . could still believe disclosure was the more dangerous

of the two routes.”); Saumer v. Cliffs Nat. Res. Inc., 853 F.3d 855, 865 (6th Cir. 2017) (dismissing

plaintiff’s duty of prudence claim because “ceasing purchases might indicate to the market that

insider fiduciaries viewed the employer's stock as a bad investment . . and divulging negative

information might cause the stock to drop, hurting plan participants,” thus, a prudent fiduciary

could have concluded that it would do more harm than good); Whitley v. BP, P.L.C., 838 F.3d 523,

529 (5th Cir. 2016) (finding plaintiffs’ allegations did not satisfy Dudenhoeffer where plaintiff

alleged that plan’s fiduciaries knew that the company’s stock was “overpriced because BP had a

greater risk exposure to potential accidents than was known to the market,” because a prudent

fiduciary could have “very easily concluded” that plaintiff’s proposed alternative actions --

disclosure of the safety defects and freezing stock purchases would do more harm than good). The

sole outlier is the Second Circuit’s opinion in Jander, which I did not consider in analyzing

Plaintiffs’ allegations with respect to the “more harm than good analysis” in my Prior Opinion.

See Prior Opinion at 35 n. 11. Plaintiffs contend that this Court should consider Jander I and reach

the same result. Pl. Br. at 10 n.2; Pl. Br. at 17.

In Jander I, the Second Circuit reversed the district court’s dismissal of an ERISA stock

drop case against IBM, finding that the plaintiffs had alleged facts satisfying the Dudenhoeffer

standard. 910 F.3d at 631. There, the plaintiffs filed suit under ERISA after the sale of IBM’s

microelectronics unit revealed that the subsidiary was overvalued, alleging that in 2013, at the time

IBM was soliciting buyers for its microelectronics business, that division “was on track to incur

annual losses of $700 million.” Id. at 623. However, IBM did not publicly disclose those losses

and continued to value its microelectronics subdivision at $2 billion. Id. In 2014, IBM announced

the sale of its microelectronics business revealing “that IBM would pay $1.5 billion to

GlobalFoundries to take the business off IBM’s hands and supply it with semiconductors, and that

IBM would take a $4.7 billion pre-tax charge, reflecting in part an impairment in the stated value

of the microelectronics business.” Id. In light of those circumstances, plaintiffs alleged that the

defendants knew that IBM stock was artificially inflated and that rather than continuing to invest

in the company’s stock, they should have issued a “corrective disclosure of the microelectronics

division’s impairment, conducted alongside the regular SEC reporting process.” Id. at 628. The

Second Circuit found that plaintiff’s theory satisfied Dudenhoeffer for several reasons. Id. at 628-

631. It noted that under plaintiff’s theory of the case “the defendants allegedly knew that

disclosure of the truth regarding IBM’s microelectronics business was inevitable, because IBM

was likely to sell the business and would be unable to hide its overvaluation from the public at that

point.” Id. at 630. In the court’s view, the allegation that the impending sale rendered disclosure

inevitable was “particularly important” and “tip[pped] the scales toward plausibility” because

when the stock drop is inevitable, “it is far more plausible that a prudent fiduciary would prefer to

limit the effects of the stock’s artificial inflation on the ESOP's beneficiaries through prompt

disclosure.” Id. Accordingly, the Second Circuit rejected the argument that a prudent fiduciary

could have concluded that an earlier disclosure would have caused more harm than good. Id. at

629.

I do not find Jander’s reasoning persuasive, here, and absent guidance from the Third

Circuit, I rely on Allergan, and the decisions from the other Circuit Courts, which have rejected

similar conclusory allegations that early disclosure would have mitigated harm to an ESOP plan.

As I explained in my Prior Opinion,

it is not readily apparent that an earlier disclosure of the

alleged asbestos in J&J’s talc products would have caused

less damage than a later disclosure. According to the

Complaint, following the publication of the Reuters Article,

J&J’s stock price decreased 10%. . . . There is no indication

that such a drop would have been avoided by disclosing the

alleged existence of the asbestos earlier. In fact, a public

admission of alleged decades long asbestos contamination,

in the face of J&J’s prior statements to the contrary, would

certainly have led to significant reputational harm and a

corresponding decrease in the Company’s value, regardless

of the timing of such a disclosure. More importantly,

Plaintiffs have not alleged any particularized facts in support

of their contention that an earlier disclosure would have

minimized the stock price-drop, and instead make

generalized allegations that the longer that J&J’s

concealment of the truth went on” the greater the harm to the

Plans.

Prior Opinion at 36-37 (internal quotation marks and citations omitted). Like before, Plaintiffs

allege that “Defendants knew -- or should have known -- that disclosure of the asbestos in J&J’s

talc products was going to happen one way or another.” Am. Compl. ¶114. Relying on general

economic theories and empirical research, Plaintiffs assert that earlier disclosure of the truth would

have resulted in quicker rebound of the J&J’s stock price and decreased the long-term reputational

harm to the Company, and therefore, would not have done more harm than good. Id. at ¶¶110-

117. Plaintiffs’ allegations on this point are nearly identical to the prior version of their complaint,

and Jander – the sole decision of its kind-- does not change my reasoning. Plaintiffs rely on

generalized allegations that the longer a fraud goes on the more harm to the company’s reputation

and its stock price. I do not find these types of general allegations, although accepted by the Jander

court, to be sufficient, in light of the weight of authority going the other way. Rather, I find,

consistent with Allergan, and the decisions of the other Circuit Courts that Plaintiffs’ generalized

assertions regarding the lingering reputational damage to J&J would have been mitigated by an

earlier disclosure insufficiently particularized to satisfy Dudenhoeffer. Allen, 967 F.3d 767, 774

(8th Cir. 2020) (“we find Appellants’ allegation based on general economic principles -- that the

longer a fraud is concealed, the greater the harm to the greater the harm to the company's reputation

and stock price -- is too generic to meet the requisite pleading standard”); Dormani, 970 F.3d at

915 (affirming district court’s dismissal of plaintiffs’ duty of prudence claims where plaintiffs

alleged “some drop in stock price was inevitable and the earlier the fiduciaries disclosed Target’s

Canadian problems and the earlier the drop took place, the less time the Plan would spend

purchasing artificially inflated Target stock. As we and nearly every other circuit court to confront

this type of argument have held, this chain of reasoning is uncertain.”); In re Allergan ERISA Litig.,

No. 17-1554, 2018 WL 8415676, at *5 (“courts have consistently ruled against plaintiffs’

argument that earlier disclosure would have been better than later or nondisclosure” (collecting

cases)).

Notably, Plaintiffs have not tied their economic theories to context-specific allegations

which quantify the hypothetical economic effect of making an earlier disclosure as it applies to

J&J’s stock, and I find that they must do so in order to satisfy the pleading standard. In so finding,

I am not imposing a heightened pleading standard; however, Plaintiffs must do more than make

assertions based on general economic studies regarding the market’s response to fraud. Such a

“one-size” fits all approach cannot apply in every case and absent further factual allegations, the

generalized theory is particularly suspect, here, with respect to J&J, a multi-national, multi-billion

entity with divisions which traverse various economic sectors. Such an entity, compared toa

smaller company, or one which operates only in a single economic sphere, may be more likely to

weather stock price changes in response to negative information. Even in Jander I, the Second

Circuit recognized that broad economic theories regarding the benefits of early disclosure, like

those asserted here, are not a panacea for pleading a breach of the duty of prudence in all cases.

See 910 F.3d at 630 (explaining that when assessing the import of these type of theories “[c]ourts

would also have to assess whether the circumstances would nevertheless have made immediate

disclosure particularly dangerous, such that the generalized economic analyses put forward here

would not apply. . . . While these economic analyses will usually not be enough on their own to

plead a duty-of-prudence violation, they may be considered as part of the overall picture.”).

Indeed, in crafting the Dudenhoeffer standard, the Supreme Court aimed to provide a framework

which allows for “careful, context-sensitive scrutiny of a complaint’s allegations.” 573 U.S. at

425. Therefore, I will grant Plaintiffs one last opportunity to amend their complaint and

incorporate context-specific allegations regarding J&J, which could demonstrate that increasing

the Plans’ cash buffer would not have done more harm than good. Accordingly, Plaintiffs’

Complaint is dismissed, because Plaintiffs have failed to allege that a prudent fiduciary could not

have viewed the alternative action as doing “more harm than good.”6

B. CONCLUSION

For the reasons set forth above, Defendants’ Motion to Dismiss is GRANTED and

Plaintiffs’ Complaint is dismissed without prejudice. Plaintiffs have failed to plausibly allege an

alternative action that a prudent fiduciary in the same circumstances would not have viewed as

more likely to harm the fund than to help it. However, I will permit Plaintiffs the opportunity to

re-plead their allegations with respect to more harm than good within 30 days from the date of the

accompanying Order.

Date: February 26, 2021

/s/ Freda L. Wolfson

Hon. Freda L. Wolfson

U.S. Chief District Judge

6 I am cognizant of Plaintiffs’ position regarding the high bar for pleading a breach of the

duty of prudence in this context. The Dudenhoeffer standard was intended to replace the

presumption of prudence which the Supreme Court criticized as “mak[ing] it impossible for a

plaintiff to state a duty-of-prudence claim, no matter how meritorious, unless the employer is in

very bad economic circumstances,” with a more tenable one intended to “readily divide the

plausible sheep from the meritless goats.” 573 U.S. at 425. However, this purportedly more

reasonable standard, nonetheless, calls for “careful, context-sensitive scrutiny of a complaint's

allegations.” Id. In fact, courts have described Dudenhoeffer’s pleading standard as “tough,”

“exacting,” “a significant burden,” and “incredibly difficult to satisfy.” See e.g., Whitley, 838 F.3d

at 529 (“the significant burden of proposing an alternative course of action so clearly beneficial

that a prudent fiduciary could not conclude that it would be more likely to harm the fund than to

help it.”); Dormani v. Target Corp., No. 17-4049, 2018 WL 3014126, at *4 (D. Minn. June 15,

2018) (“The Dudenhoeffer standard is “very tough,” “highly exacting,” and “incredibly difficult

to satisfy.”); Price v. Strianese, No. 17-652, 2017 WL 4466614, at *5 (S.D.N.Y. Oct. 4, 2017)

(“This is a highly exacting standard that is incredibly difficult to satisfy.”). I have engaged in

such an analysis, here, and Plaintiffs’ claims do not pass muster under the Supreme Court’s

precedent.