Pomerantz Achieves $74 Million Settlement for Arconic Investors

POMERANTZ MONITOR | MAY JUNE 2023

By The Editors

On May 2, 2023, Chief U.S. District Court Judge Mark R. Hornak of the Western District of Pennsylvania granted preliminary approval to a $74 million settlement on behalf of defrauded investors in Howard v. Arconic et al., No. 2:17-cv-01057 (W.D. Pa.), a securities class action in which Pomerantz is Co-Lead Counsel. A final approval hearing is scheduled for August 9, 2023. Arconic, Inc. is an American industrial company specializing in lightweight metals engineering and manufacturing. The company’s Reynobond insulation panels consist of two sheets of thin aluminum bonded to a thermoplastic core. The panels can be constructed with a Fire-Resistant (“FR”) core, or a less expensive but combustible Polyethylene (“PE”) core. Due to their combustible nature, Reynobond PE panels are known to be unsuitable for use in any structures measuring ten meters or higher. In multiple instances, Arconic had explicitly warned against using Reynobond PE for buildings taller than ten meters, including in marketing brochures on their website, which stated that “as soon as the building is higher than the firefighters’ ladders, it has to be conceived with incombustible material.”

On June 14, 2017, a devastating fire broke out in the Grenfell Tower block of flats in London, United Kingdom, resulting in the deaths of 72 people and injuries to more than 70 other tenants. In the wake of the tragedy, numerous investigations were conducted, ultimately revealing that, while an electrical fault within a refrigerator located on the fourth floor instigated the blaze, Arconic’s Reynobond PE panels, which covered the outside of the building, likely acted as an accelerant, contributing to the rapid spread of the flames to the floors above.

Considering this revelation, questions about why the panels were present in the tower’s infrastructure were raised, with many fire safety experts agreeing that the decision was “disturbing” and “shocking.” In an effort to distance itself from liability, Arconic argued that it “had known that the panels would be used at Grenfell Tower but that it was not its role to decide what was or was not compliant with local building regulations.” Despite these claims, less than two weeks after the fire, Arconic announced that it would discontinue global sales of Reynbond PE for use in high-rise buildings.

In August 2017, Pomerantz filed a securities class action against Arconic alleging that its stock price was artificially inflated by the company’s misstatements about the safety of its Reynobond PE insulating panels. In June 2019, Chief Judge Hornak granted defendants’ motion to dismiss the case while allowing plaintiffs to provide an amended complaint, citing the need for more concrete evidence demonstrating that Arconic and its executives had sufficient knowledge to conclude that the insulation panels they were selling posed a significant safety risk. In response, Pomerantz filed a Second Amended Complaint in July 2021, which did just that.

The second amended complaint cited numerous instances in which Arconic sold Reynobond PE panels for use in other high-rise towers in the UK and across the globe. In the UK alone, the amended complaint cited at least ten additional buildings that had been constructed or refurbished using Reynobond PE panels. Additionally, despite claims to the contrary, multiple witnesses with firsthand knowledge of Arconic’s business practices testified that the company kept exhaustive records of its Reynbond PE sales, which included the building specifications for each project. Thus, in selling flammable panels for these structures, Arconic ignored its own safety recommendations and created a serious risk to public safety.

Notably, despite the United States’ near universal ban of combustible Reynobond for buildings taller than twelve meters (40 feet), plaintiffs found that Arconic had sold these panels for use in the construction of numerous structures measuring twelve meters or higher throughout the country, including: a terminal at the Dallas/Fort Worth airport (around 26 meters); Ohio’s Cleveland Browns stadium (52 meters); and a clinic at the University of Texas Southwestern Medical Center (20 meters). The complaint also pointed to at least eighteen other instances in which deadly fires had spread through exterior wall assemblies, most of which involved high-rise buildings. The new allegations included in the second amended complaint convinced Chief Judge Hornak to not only change his mind on many of the claims he had previously dismissed, but also to make new law in plaintiffs favor on several significant issues, including the element of scienter, i.e., intent to deceive investors.

Pomerantz Partner Emma Gilmore, who leads Pomerantz’s litigation of the case, stated, “We are gratified that the court found that the amplified allegations in the second amended complaint transform the context in which defendants’ alleged misrepresentations were made. The court’s decision sets important new precedents in favor of investors.”

The $74 million settlement represents approximately 22% of recoverable damages for defrauded Arconic shareholders, an amount far exceeding the 1.8% median recovery for all securities class action settlements in 2022.