Settlement May Be in Sight Between Altria, Juul, and Investors
In an unopposed settlement proposal brought before a Virginia federal court on Dec. 16, investors moved for initial approval from the court for a $90 million settlement deal with Altria Group Inc. The settlement would resolve litigation over alleged claims that tobacco company Altria and e-cigarette maker Juul knowingly marketed to youth and failed to disclose this to investors.
Plaintiffs for the securities class action include any person or entity who purchased or acquired Altria securities between October 25th, 2018, and April 1st, 2020. The lead plaintiffs, Donald and Sarah Sherbondy and Construction Laborers Pension Trust of Greater St. Louis, claim the class includes tens of thousands of people.
Leading up to the settlement, investors allege that during and after Altria’s acquisition of a 35% stake in Juul, the companies deliberately marketed their production to youth, yet maintained they were only targeting adult smokers with their products to shareholders. In their memorandum, investors maintain Juul utilized the earlier marketing campaigns of Big Tobacco, including marketing strategies, advertisements, and product designs, to design their own campaign to appeal to underage consumers. The e-cigarette company, investors wrote, utilized a high-tech design meant to appeal to teenagers, maximized nicotine delivery while minimizing harshness, and sold vaping pods in “fruity, kid-friendly flavors” such as Bruule and Mango.
Meanwhile, investors were assured the company was only interested in adult smokers. Juul continued to claim the youth customers were unintended, and that they were committed to solving the youth vaping epidemic.
Shortly after Altria’s $12.8 billion investment in Juul, federal probes and investigations began a series of stock drops, said investors. Altria acquired the Juul stake in December of 2018; by April of 2019, the Food and Drug Administration began an investigation into children and young adults suffering seizures after vaping. In August, a reported Federal Trade Commission probe investigated Juul’s marketing practices using influencers and other tactics to attract minors. A month later, talk of a ban on flavored vaping products—one of Juul’s major market shares—caused another drop, and in the fall a merger between Phillip Morris International and Altria was called off “due to scrutiny of the vaping industry.”
Investors claim the string of price drops produced by these events was the consequence of Juul and Altria’s “campaign of deceit, through sophisticated mass media and social media communication, advertisements and otherwise, about the purpose and dangers of Juul products.”
Altria and Juul responded by saying investors ought to have been aware of the risks, since the widespread usage of vaping products was widely known at the time, as was the popularity of Juul products among underage users.
U.S. District Judge David J. Novak dismissed the companies’ arguments and bid to dismiss the claim, saying “the problem of youth usage differs from Juul’s direct efforts to target youths,” and that the two issues “pose different risks to the value of Juul and, resultingly, the value of Altria.”
The case is Klein v. Altria Group Inc. et al., case number 3:20-cv-00075, in the US District Court for the Eastern District of Virginia. Click here to reference the motion and order.
