Pomerantz Achieves $90 Million Class Action Settlement in Altria and JUUL Litigation

POMERANTZ MONITOR | JANUARY FEBRUARY 2022

By Michael J. Wernke

In a significant victory for investors, Pomerantz, as lead counsel for the class, has achieved a $90 million settlement in a securities fraud class action against Altria Group, Inc. (“Altria”), JUUL Labs, Inc. (“JUUL”), and certain current and former officers of the two companies. Judge David J. Novak of the United States District Court of the Eastern District of Virginia granted preliminary approval of the settlement on December 16, 2021 and set the final approval hearing for March 31, 2022.

Altria is one of the world’s largest manufacturers of tobacco products, such as Marlboro cigarettes. JUUL is a leading manufacturer of e-cigarettes. On December 20, 2018, Altria announced that it paid $12.8 billion to acquire a 35% interest in JUUL. Pomerantz brought the action on behalf of investors that acquired Altria shares following the investment. The complaint alleges that Altria, JUUL and the officers violated section 10(b) of the Securities Exchange Act as well as section 20(a), the “control person” provision, by misleading regulators, the public, and investors regarding JUUL’s illegal marketing practices that targeted underage consumers.

Specifically, our complaint alleges that when Altria made its investment in JUUL, underage usage of e-cigarettes had increased to epidemic proportions, with JUUL being the preferred brand of teens. Regulators, as well as the public at large, were concerned that e-cigarette companies such as JUUL may have purposefully targeted underage users, as Altria and the rest of “Big Tobacco” had done with traditional cigarettes in decades past. However, when the massive investment was announced, both Altria and JUUL reassured investors that JUUL’s “intent was never to have youth use JUUL products” and that both companies were committed to solving the youth vaping epidemic. JUUL repeatedly stated “[w]e have never marketed to youth and never will.”

The truth was much different – and unsettling. JUUL’s co-founders had carefully studied the marketing tactics previously employed by Big Tobacco to target underage consumers in the hopes they would create lifelong customers for JUUL’s products. They designed and created a technologically advanced product that appealed to the modern underage consumer and delivered highly addictive and dangerous levels of nicotine. In addition to a sleek design that resembled a USB drive that youth could hide in plain sight, JUUL made its products powerfully addictive and enticing, offering an array of kid-friendly flavor options for their JUULpods, including mango, crème brûlée and mint. Lured in by these flavors, youth users experienced JUUL’s nicotine delivery system (in the form of JUULpods), which, by design reduced the harsh effects of traditional combustible tobacco products, minimized the “throat hit” associated with traditional cigarette use, and released nicotine more effectively, making the nicotine impact more potent and likely to cause addiction. During its investment due diligence process, Altria quickly recognized JUUL’s scheme to entice adolescents, because JUUL was mimicking the marketing gimmicks that Altria and the rest of Big Tobacco were caught doing years before. Altria, however, turned a blind eye to JUUL’s improper practices. Altria was desperate to acquire JUUL, regardless of the risks, because Altria was unable to meaningfully compete with JUUL in the burgeoning and lucrative market for e-cigarettes.

When JUUL’s and Altria’s scheme was discovered, and regulators began to act, Altria’s investors (who now owned 35% of JUUL) paid the price. The risks of regulatory scrutiny and extensive litigation from the defendants’ intentional and illegal scheme began to materialize, resulting in Altria taking three separate write-downs of its JUUL investment until it was valued at only $1.6 billion, or 12.5% of its original $12.8 billion investment. As the market learned the truth concealed by the defendants’ fraud, Altria’s stock lost one-third of its value.

The settlement was achieved after approximately two years of hard-fought litigation. The defendants filed four motions to dismiss the complaint, which the court denied in their entirety in March 2021. The court’s opinion was particularly significant because it upheld claims against JUUL in addition to Altria, even though all claims were based on the plaintiffs’ purchases of Altria securities (not JUUL securities). Normally, courts hold that a plaintiff that purchased shares in Company A (Altria) lacks standing to pursue 10(b) claims against a distinct Company B (JUUL) for statements that Company B made about itself. This crucial “standing issue” is one in which there had heretofore been a wide gap in case law.

The court, persuaded by Pomerantz’s arguments on the standing issue, stated that JUUL “can face liability for its own statements that Altria investors may have relied upon.” The court found the alleged statements material, holding that “[p]laintiffs have alleged an abundance of facts showing that JUUL targeted youth and sufficient facts that Altria and JUUL knew of this marketing scheme and the risks that it posed to JUUL and Altria. However, they chose not to inform investors about these risks,” which disclosure “would have altered the ‘total mix’ of information available that a reasonable investor would have considered.” Altria is the first case to present a fact pattern that had previously only been suggested as viable in dicta by circuit courts. In securing this precedent-setting decision, Pomerantz has forged a new inroad for investors’ rights.

Discovery was wide-ranging. It involved analyzing approximately 30 million pages of documents concerning a diverse range of highly complex issues and dozens of depositions. Settlement was only achieved as discovery was ending and the parties were preparing for summary judgment briefing.

Pomerantz’s perseverance resulted in one of the largest recoveries ever achieved in a securities class action in Virginia and in the Fourth Circuit, and which is approximately seven times the median settlement value of all federal securities class actions between 2018 and 2020.