PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 21-1885

_____________

MICHAEL PERRONE; TOM TARANTINO; ROCHELLE 

ROSEN, as participants in and on behalf of the Johnson & 

Johnson Savings Plan, and on behalf of a class of all others 

who are similarly situated,

 Appellants

v.

JOHNSON & JOHNSON; PETER FASOLO; DOMINIC J. 

CARUSO; JOHN DOES 1-20 

__________

On Appeal from the United States District Court

For the District of New Jersey

(D.C. Nos. 3-19-cv-00923 and 3-19-cv-01115)

District Judge: Honorable Freda L. Wolfson 

_______________

Argued

January 20, 2022

Before: JORDAN, RESTREPO and SMITH, Circuit Judges

(Filed: September 7, 2022)
2

_______________ 

Kyle G. Bates

James A. Bloom

Todd Schneider

Schneider Wallace Cottrell Konecky

2000 Powell Street – Suite 1400

Emeryville, CA 94608

Samuel E. Bonderoff [ARGUED]

Jacob H. Zamansky

Zamansky

50 Broadway – 32nd Floor

New York, NY 10004

Todd S. Collins

Ellen T. Noteware

Berger Montague

1818 Market Street – Suite 3600

Philadelphia, PA 19103

Joseph J. DePalma

Lite DePalma Greenberg & Afanador

570 Broad Street – Suite 1201

Newark, NJ 07201

 Counsel for Appellants
3

Mark B. Blocker [ARGUED]

Christopher Y. Lee

Abigail Molitor

Kristen R. Seeger

Sidley Austin

One South Dearborn Street

Chicago, IL 60603

Keith J. Miller

Robinson Miller

110 Edison Place 

19th Floor, Suite 302

Newark, NJ 07102

 Counsel for Appellee

_______________

OPINION OF THE COURT

_______________

JORDAN, Circuit Judge.

Johnson & Johnson (“J&J”) offers an Employee Stock 

Ownership Plan (“ESOP”) as an investment option within its 

retirement savings plans. The ESOP invests solely in J&J 

stock, which declined in price following a news report 

accusing J&J of concealing that its popular baby powder was 

contaminated with asbestos. J&J denied both that its product 

was contaminated and that it had concealed anything about the 

product. What’s important here, however, is the stock market 

ramifications of the allegation. The Plaintiffs, J&J employees 

who participated in the ESOP, allege that the ESOP’s 

administrators, who are senior officers of J&J, violated their 

fiduciary duties by failing to protect the ESOP’s beneficiaries 
4

from a stock price drop. According to the Plaintiffs, those 

fiduciaries, being corporate insiders, should have seen the price 

drop coming because of the baby powder controversy. 

Specifically, the Plaintiffs allege that the corporate-insider 

fiduciaries violated the duty of prudence imposed on them by 

the Employee Retirement Income Security Act (“ERISA”), 29 

U.S.C. §§ 1002-1003.

In Fifth Third Bancorp v. Dudenhoeffer, the Supreme 

Court held that a plaintiff seeking to bring such a claim must 

plausibly allege “an alternative action that the defendant could 

have taken that would have been consistent with the securities 

laws,” and, further, “that a prudent fiduciary in the same 

circumstances would not have viewed [the proposed 

alternative action] as more likely to harm the fund than to help 

it.” 573 U.S. 409, 428 (2014). The Plaintiffs here propose two 

alternative actions that they say the Defendants should have 

taken before the stock price dropped. First, they say that the 

Defendants could have used their corporate powers to make 

public disclosures that would have corrected J&J’s artificially 

high stock price earlier rather than later. Second, they say that 

the fiduciaries could have stopped investing in J&J stock and

simply held onto all ESOP contributions as cash.

The District Court rejected those alternative actions as 

failing the Dudenhoeffer test, and we agree. A reasonable 

fiduciary in the Defendants’ circumstances could readily view 

corrective disclosures or cash holdings as being likely to do 

more harm than good to the ESOP, particularly given the 

uncertainty about J&J’s future liabilities and the future

movement of its stock price. We will therefore affirm the 

dismissal of the Plaintiffs’ complaint.
5

I. BACKGROUND1

A. Baby Powder, Talc, and Asbestos

J&J sells hundreds of products in a variety of categories, 

but perhaps none is better known than Johnson’s Baby Powder. 

Since 1894, J&J has sold and marketed its baby powder for 

many uses. The main ingredient in the baby powder is talc, an

underground mineral that is extracted by mining. The problem 

with mining talc, however, is that talc deposits can be located 

dangerously close to a different and notorious mineral: 

asbestos. Asbestos is a carcinogen linked to ovarian cancer and 

mesothelioma, among other serious ailments. Some

governmental and non-governmental organizations have 

suggested that talc may be contaminated with asbestos and 

have warned of a link between talc usage and ovarian cancer. 

The Plaintiffs assert that, for decades, J&J has known 

that Johnson’s Baby Powder might contain asbestos. 

According to the Plaintiffs, J&J has repeatedly suppressed

unfavorable research about asbestos in talc, disregarded 

internal company concerns about asbestos in its baby powder, 

1 The following background section is taken from the 

allegations in the Plaintiffs’ amended class action complaint. 

When reviewing a district court’s decision on a motion to 

dismiss, we accept all well-pleaded allegations as true and 

draw all reasonable inferences in favor of the non-moving 

party. Geness v. Admin. Off. of Pa. Cts., 974 F.3d 263, 269 (3d 

Cir. 2020).
6

and undermined efforts to regulate asbestos in talc products

generally. 

Over the years, thousands of plaintiffs have filed 

products liability lawsuits alleging that J&J’s talc products 

caused cancer. Those plaintiffs have had mixed success. J&J 

has always denied liability and publicly affirmed that its

products are asbestos-free and safe for everyday use. In its

Form 10-Ks for fiscal years 2012 through 2016, it professed its 

“commit[ment] to investing in research and development with 

the aim of delivering high quality and innovative products,” 

and it asserted that it had “substantial defenses” to talc-related

products liability claims. (App. at 65-77.) In December 2016, 

J&J proclaimed on its website that it continued to use talc in its 

baby powder “because decades of science have reaffirmed its 

safety.” (App. at 74.) In late 2017, J&J spokespeople told the 

press that its talc products “are, and always have been, free of 

asbestos, based on decades of monitoring, testing[,] and 

regulation,” and that Johnson’s Baby Powder “does not contain 

asbestos or cause mesothelioma or ovarian cancer[.]” (App. at 

77.) As recently as January 2019, J&J touted its talc as being 

“carefully selected, processed[,] and tested to ensure that [it] is 

asbestos free, as confirmed by regular testing conducted since 

the 1970s.” (App. at 78.)

Market pressure on J&J increased on December 14, 

2018, when Reuters published an investigative report titled 

J&J Knew For Decades That Asbestos Lurked In Its Baby 

Powder. The article asserted that J&J knew but concealed that

the talc in its baby powder likely contained asbestos. It also 

accused J&J of attempting to influence government regulation 

and scientific research on the issue. The article was picked up 

by other news sources and received wide distribution. J&J’s 
7

stock price “declined more than 10% following the Reuters 

report[.]” (App. at 52.)2 

B. The Products Liability Action and the 

Securities Fraud Action

The accusations about J&J’s baby powder led to two 

significant lawsuits that, like this one, are pending in the U.S. 

District Court for the District of New Jersey. The first, which 

we will call the “Products Liability Action,” is actually fiftyfour different actions centralized from at least twenty-three 

district courts under the federal rules permitting multi-district 

litigation. 28 U.S.C. § 1407; In re Johnson & Johnson Talcum 

Powder Prod. Mktg., Sales Pracs. & Prod. Liab. Litig., 220 F. 

Supp. 3d 1356, 1357 (J.P.M.L. 2016). All of those cases 

involve claims that asbestos in J&J’s talc products caused 

personal injuries. Id. The MDL proceeded to discovery after 

J&J filed an answer to the amended master complaint in April 

2017. 

The second case, the “Securities Fraud Action,” is a 

putative class action alleging that J&J and its senior executive 

officers violated federal securities disclosure laws, based on 

many of the same facts described above. Hall v. Johnson & 

Johnson, 2019 WL 7207491, at *1-8 (D.N.J. Dec. 27, 2019). 

J&J moved to dismiss it, but the District Court denied that 

motion in part in December 2019. Id. at *30.

2 The complaint does not provide any timeframe to give 

clarity to that assertion.
8

C. The ERISA Plans

Also in 2019, the Plaintiffs here filed their proposed 

class action.

3

 Rather than bring a products liability or 

securities fraud claim, they assert that the Defendants are liable 

for a third type of legal violation: a breach of fiduciary duties

under ERISA.

J&J sponsors several defined contribution plans into 

which its employees can invest a portion of their salaries for 

retirement.4 Those defined contribution plans include the 

Johnson & Johnson Savings Plan (the “Savings Plan”), the 

Johnson & Johnson Savings Plan for Union Represented 

Employees, and the Johnson & Johnson Retirement Savings 

Plan (collectively, the “Plans”). The Plans are all governed by 

the provisions of ERISA. 29 U.S.C. §§ 1002-1003. The Plans’ 

fiduciaries – the individual Defendants here – constitute J&J’s 

3 Plaintiff Michael Perrone filed a complaint on 

January 22, 2019. Plaintiffs Tom Tarantino and Rochelle 

Rosen filed a complaint on January 25, 2019. The two 

complaints asserted substantively identical claims, and they 

were consolidated on June 20, 2019.

4 A defined contribution plan, as defined by ERISA, is

“a pension plan which provides for an individual account for 

each participant and for benefits based solely upon the amount 

contributed to the participant’s account, and any income, 

expenses, gains and losses, and any forfeitures of accounts of 

other participants which may be allocated to such participant's 

account.” 29 U.S.C. § 1002(34).
9

Pension and Benefits Committee, which has general authority 

over the management and administration of the Plans. 

Each of the Plans includes an investment option

allowing employees to place their contributions in an ESOP, 

which invests exclusively in J&J stock. The ESOP 

additionally includes a small cash buffer, which provides the 

cash necessary for daily liquidity. The Plaintiffs here were 

participants in the Savings Plan and invested in J&J stock 

through the ESOP.5 In particular, they participated in the 

Savings Plan during the proposed Class Period, namely,

between April 11, 2017 (when discovery commenced in the 

Products Liability Action) and December 14, 2018 (when the 

Reuters report allegedly drove down the J&J stock price). 

D. The District Court’s Decisions

The Plaintiffs’ consolidated class action complaint

alleged that the members of the Pension and Benefits 

Committee breached their fiduciary duties by not acting 

prudently in the administration of the Plans. More specifically, 

according to the Plaintiffs, those fiduciaries knew or should 

have known that J&J was concealing the truth about its 

dangerous talc products and that J&J’s stock price was 

therefore overvalued, yet they continued holding and 

purchasing J&J stock. The Plaintiffs asserted that the

Defendants should have instead protected the ESOP 

5 The Plaintiffs were participants in the Savings Plan, 

but they purport to bring this class action on behalf of 

participants in all Plans. 
10

participants from the inevitable stock price decline by issuing 

corrective public disclosures. 

The Defendants moved to dismiss, and the District 

Court granted their motion. Applying the Dudenhoeffer 

standard, the Court held that the Plaintiffs had not adequately 

pleaded a viable alternative action that the individual 

Defendants, as ERISA fiduciaries, could have taken, because 

they could only have issued corrective disclosures in their 

corporate capacities and not in their ERISA-fiduciary 

capacities. It also concluded that the Plaintiffs failed to allege 

particularized facts to support their argument that earlier 

disclosure of the potential asbestos liabilities would have been 

less harmful to the ESOP and its participants than the later 

disclosure that occurred. The Court accordingly dismissed the 

ERISA claims, but it did so without prejudice, allowing the 

Plaintiffs an opportunity to allege other actions that the 

individual Defendants could have taken. 

In June 2020, the Plaintiffs filed an amended class 

action complaint that largely duplicated the prior one. They 

reiterated their theory that the ERISA fiduciaries should have 

issued corrective disclosures, but they added reasons for why 

the Defendants could have issued disclosures in their capacities 

as ERISA fiduciaries. The Plaintiffs also presented another 

alternative: they said that the fiduciaries should have protected 

the ESOP participants from the J&J stock price decline by 

directing new contributions to the ESOP’s cash buffer instead 

of buying overvalued J&J stock. 

The Defendants again moved to dismiss, and the 

District Court granted their motion. It was still unpersuaded 

by the Plaintiffs’ corrective-disclosure theory, concluding, as
11

before, that the Defendants could only have issued corrective 

disclosures in their corporate capacities. It also rejected both 

the corrective-disclosure theory and the cash-buffer theory on 

the ground that it was not clear either alternative action would 

have avoided doing more harm than good to the ESOP. The 

Plaintiffs have timely appealed.

II. DISCUSSION6

ERISA requires fiduciaries to “discharge [their] duties 

with respect to a plan ... with the care, skill, prudence, and 

diligence under the circumstances then prevailing that a 

prudent man acting in a like capacity and familiar with such 

matters would use in the conduct of an enterprise of a like 

character and with like aims.” 29 U.S.C. § 1104(a)(1)(B). 

Congress has encouraged ESOPs as a means for employees to 

invest in the employer’s securities. 29 U.S.C. § 1107(d)(6); 

Dudenhoeffer, 573 U.S. at 416. Due to the unique purpose and 

composition of ESOPs, ERISA exempts ESOPs from some 

obligations that are part of the general duty of prudence. For 

example, plan fiduciaries need not diversify assets in an ESOP. 

29 U.S.C. § 1104(a)(2). Based on those exemptions, we and 

other circuit courts had at one time concluded that the

fiduciaries of an ESOP should be afforded a presumption of 

prudence. Moench v. Robertson, 62 F.3d 553, 571 (3d Cir. 

1995).

6 The District Court had jurisdiction under 28 U.S.C. 

§ 1331 and 29 U.S.C. § 1132(e)(1). We have appellate 

jurisdiction pursuant to 28 U.S.C. § 1291. 
12

In Dudenhoeffer, however, the Supreme Court 

definitively rejected that presumption. 573 U.S. at 415-25. It 

acknowledged the need for balance between “ensuring fair and 

prompt enforcement of rights under a plan” and “encourag[ing] 

... the creation of [ESOPs].” Id. at 424 (quotation omitted). 

But it concluded that the presumption applied by the courts of 

appeals was “[not] an appropriate way to weed out meritless 

lawsuits or to provide the requisite ‘balancing[,]’” because it 

made 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.” Id. at 425. Instead, it held 

that the better way to “divide the plausible sheep from the 

meritless goats” was through “careful, context-sensitive 

scrutiny of a complaint’s allegations.” Id.

The Dudenhoeffer Court provided some detail about 

how that is to be done. Id. at 425-30. It called Rule 12(b)(6) 

an “important mechanism for weeding out meritless claims” 

and again emphasized that “the appropriate inquiry will 

necessarily be context specific.” Id. at 425. Addressing

allegations that the ESOP fiduciaries “behaved imprudently by 

failing to act on the basis of nonpublic information that was 

available to them because they were [corporate] insiders[,]” the 

Court prescribed new pleading requirements to be applied in 

that context:

To state a claim for 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 
13

circumstances would not have viewed as more 

likely to harm the fund than to help it.

Id. at 427-28 (emphasis omitted).

The Dudenhoeffer Court then presented a few 

“additional considerations[.]” Id. at 428-30. When a

complaint alleges that the fiduciaries should have used their 

inside information to refrain from making additional stock 

purchases, the court should consider whether that action would 

conflict with the requirements and objectives of insider trading 

laws. Id. at 429. Similarly, when the complaint alleges that 

the fiduciaries should have publicly disclosed the inside 

information, the court should consider whether that action 

would conflict with the substance and objectives of corporate 

disclosure requirements imposed by the federal securities laws. 

Id. Finally, in the case of disclosure as an alleged alternative 

action, the court should also consider whether a prudent 

fiduciary could have concluded that disclosing the negative 

information – either expressly by public disclosure or 

implicitly by stopping purchases – “would do more harm than 

good to the fund by causing a drop in the stock price and a 

concomitant drop in the value of the stock already held by the 

fund.” Id. at 429-30. The Supreme Court has twice reaffirmed 

Dudenhoeffer’s guidance. Amgen Inc. v. Harris, 577 U.S. 308, 

310-11 (2016) (per curiam); Ret. Plans Comm. of IBM v. 

Jander, 140 S. Ct. 592, 594-95 (2020) (per curiam).

The Plaintiffs here allege two alternative actions that, 

according to them, meet the Dudenhoeffer standard. The first 

is that the Defendants could have corrected the price inflation 

by “caus[ing] truthful or corrective disclosures to be made 

much earlier to cure the Company’s misrepresentations and 
14

material omissions[.]” (App. at 83.) According to the 

Plaintiffs, “the disclosure would be that [J&J has] known about 

[its] talc product having asbestos in it for quite some time [and 

that it is] aware of scientific studies that asbestos has been 

linked to cancer[.]” (Oral Arg. at 2:53-3:09.) The Plaintiffs 

also would have had the Defendants admit on J&J’s behalf that 

its companies’ talc products were not “completely, 100 percent 

safe.” (Oral Arg. at 3:18-3:22.) The second alternative the 

Plaintiffs propose is that the “Defendants could have ... 

direct[ed] new ESOP investments ... to be used to increase the 

ESOP’s cash buffer rather than to buy inflated Johnson & 

Johnson stock.” (App. at 92.) As discussed below, however, 

neither suggested alternative action satisfies Dudenhoeffer,

because a prudent fiduciary in the Defendants’ position could 

have concluded that either action would harm more than help 

the ESOP.7

7 The Plaintiffs argue that it is “frankly[] baffling” that

some of the claims in the Securities Fraud Action can survive 

a motion to dismiss while an ERISA claim based on the same 

facts cannot. (Opening Br. at 39-40.) But there is nothing 

incongruous about a set of facts satisfying one pleading 

standard (e.g., under the Private Securities Litigation Reform 

Act) but not another (e.g., under Dudenhoeffer). See Saumer 

v. Cliffs Nat. Res., Inc., 853 F.3d 855, 865 n.2 (6th Cir. 2017)

(“[A]lleged securities law violations do not necessarily trigger 

a valid ERISA claim.” (quoting Jander v. Int’l Bus. Mach. 

Corp., 205 F. Supp. 3d 538, 546 (S.D.N.Y. 2016))). Indeed, 

we commend Chief Judge Freda L. Wolfson – who is presiding 

over the Products Liability Action, the Securities Fraud Action, 

and this ERISA case – for her skillful management of all three.
15

A. Corrective Disclosures

The Plaintiffs first propose that the Defendants should 

have taken the alternative action of making public disclosures 

to correct the stock’s artificial inflation. We will assume 

without deciding that the corrective disclosures the Plaintiffs 

suggest are ones that would satisfy Dudenhoeffer’s first prong 

– i.e., that they would constitute a viable alternative action that 

Defendants “could have taken that would have been consistent 

with the securities laws[.]” Dudenhoeffer, 573 U.S. at 428.

Nevertheless, we agree with the District Court that the 

Plaintiffs’ proposed alternative action still fails at 

Dudenhoeffer’s second prong.

8

A plaintiff must plausibly allege that “a prudent 

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

the alternative action ‘would do more harm than good.’” 

Amgen, 577 U.S. at 311 (quoting Dudenhoeffer, 573 U.S. at 

411). As the Fifth Circuit has summarized, that standard places 

on the plaintiff “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.” Whitley v. BP, P.L.C., 838 F.3d 

523, 529 (5th Cir. 2016). That is a high bar to clear, even at 

the pleadings stage, especially when guesswork is involved, as 

it is when estimating the effect of earlier versus later public 

disclosure of information which is itself fluid.

8 We therefore need not address the Defendants’ 

additional argument that they cannot be held liable in their 

ERISA-fiduciary capacities for an action that they could only 

have taken in their corporate-insider capacities. 
16

Under Dudenhoeffer, the plaintiff must do more than 

allege a general economic theory for why earlier disclosure 

would have been preferable. Dormani v. Target Corp., 970 

F.3d 910, 915 (8th Cir. 2020) (“[A]llegations based on general 

economic principles are too generic to meet the requisite 

pleading standard.” (cleaned up)); Wilson v. Craver, 994 F.3d 

1085, 1093 (9th Cir. 2021) (“[I]f all that is required to plead a 

duty-of-prudence claim is recitation of generic economic 

principles that apply in every ERISA action, every claim, 

regardless of merit, would go forward.”). Instead, “where 

general economic principles are alleged, the complaint must 

also include context-specific allegations explaining why an 

earlier disclosure was so clearly beneficial[.]” Wilson, 994 

F.3d at 1093. “Because the content of the duty of prudence 

turns on the circumstances prevailing at the time the fiduciary 

acts, the appropriate inquiry will necessarily be context 

specific.” Hughes v. Nw. Univ., 142 S. Ct. 737, 742 (2022)

(cleaned up).

Furthermore, the plaintiff must plausibly allege that the 

circumstances do not justify a prudent fiduciary’s preference

to await the results of a thorough investigation into the matter 

before making public disclosure. See, e.g., Wilson, 994 F.3d at 

1095 (allegations insufficient because they did not allege that 

a “prudent fiduciary could not have concluded that deferring a 

disclosure until after the completion of investigations into the 

nature of the alleged fraud ... would cause more harm than 

good”); Allen v. Wells Fargo & Co., 967 F.3d 767, 774-75 (8th 

Cir. 2020) (“[A] prudent fiduciary – even one who knows 

disclosure is inevitable and that earlier disclosure may 

ameliorate some harm to the company’s stock price and 

reputation – could readily conclude that it would do more harm 
17

than good to disclose information about Wells Fargo’s sales 

practices prior to the completion of the government’s 

investigation.”), cert. denied, 141 S. Ct. 2594 (2021); Martone 

v. Robb, 902 F.3d 519, 527 (5th Cir. 2018) (“[A]n unusuallytimed disclosure [of fraud] risks ‘spooking the market,’ 

creating the potential for an outsized stock drop.”). Where it is 

“uncertain” whether earlier disclosure would be superior to 

potential later disclosure, a reasonably prudent fiduciary could 

still believe that early disclosure is “the more dangerous of the 

two routes.” Dormani, 970 F.3d at 915. 

Only one post-Dudenhoeffer decision from our sister 

circuits has held that a plaintiff plausibly alleged that corrective 

disclosures were so clearly beneficial that no prudent 

corporate-insider fiduciary could have concluded that earlier 

corrective disclosures would have done more harm than good.9 

In Jander v. Retirement Plans Committee of IBM, 910 F.3d 

620, 623 (2d Cir. 2018), IBM had sought to sell its 

microelectronics business, which was having financial trouble 

9 Numerous other courts have concluded that “a prudent 

fiduciary could readily conclude that disclosure would do more 

harm than good ‘by causing a drop in the stock price and a 

concomitant drop in the value of the stock already held by the 

fund.’” Allen v. Wells Fargo & Co., 967 F.3d 767, 773 (8th 

Cir. 2020); see also Wilson v. Craver, 994 F.3d 1085, 1095 (9th 

Cir. 2021); Dormani v. Target Corp., 970 F.3d 910, 915 (8th 

Cir. 2020); Singh v. RadioShack Corp., 882 F.3d 137, 149 (5th 

Cir. 2018); Martone v. Robb, 902 F.3d 519, 525-27 (5th Cir. 

2018); Saumer, 853 F.3d at 864; Whitley v. BP, P.L.C., 838 

F.3d 523, 529 (5th Cir. 2016); Rinehart v. Lehman Bros.

Holdings Inc., 817 F.3d 56, 68 (2d Cir. 2016).
18

and was on track to incur annual losses of $700 million. 

Nevertheless, IBM did not disclose those problems and instead 

publicly valued the business at $2 billion. Id. at 623. Once it 

found a buyer, however, IBM finally disclosed that it would 

pay $1.5 billion to have the buyer take the business off its 

hands and that it would also incur “a $4.7 billion pre-tax 

charge, reflecting in part an impairment in the stated value” of 

the business being sold. Id. IBM’s stock price steeply 

declined, and participants in its ESOP brought a lawsuit 

alleging that the plan’s corporate-insider fiduciaries knew 

about the undisclosed problems with the microelectronics 

business but imprudently continued to invest in shares of IBM 

stock, the price of which reflected the market’s lack of 

knowledge of microelectronics’ troubles. Id. The plaintiffs 

alleged that the corporate-insider fiduciaries should have made 

an early corrective disclosure. Id. at 628.

The Second Circuit held that the plaintiffs had met 

Dudenhoeffer’s standard for a duty-of-prudence claim based 

on inside information. Id. In the court’s view, it was 

“particularly important” that the defendants allegedly knew 

that disclosure of the financial problems was inevitable. Id. at 

630. Unlike in the “normal case,” where a prudent fiduciary 

might compare the benefits of disclosure versus nondisclosure, a prudent fiduciary in the Jander defendants’ 

circumstances could only compare earlier disclosure versus 

later disclosure, because once IBM knew its sale of its 

microelectronics business was inevitable, “non-disclosure of 

IBM’s troubles was no longer a realistic option[.]” Id. at 630-

31. Thus, the court concluded that “a stock-drop following 

early disclosure would be no more harmful than the inevitable 

stock drop that would occur following a later disclosure.” Id.

at 631.
19

The Plaintiffs ask that we follow Jander, but their

complaint relies too much on general economic theory and too 

little on specific allegations that would establish that no 

prudent fiduciary in the Defendants’ circumstances would 

believe that making corrective disclosures would do more 

harm than good. They allege that “[if the] Defendants had 

caused corrective public disclosure near the very beginning of 

J&J’s misrepresentations and material omissions ... almost all 

of the artificial inflation of J&J’s stock price that occurred 

could have been avoided, and virtually no Plan participants 

who purchased inflated shares of the Fund would have been 

harmed. But as the concealment went on, more and more Plan 

participants made purchases at artificially high prices, [and] the 

harm to Plan participants steadily increased.” (App. at 84.) 

They also allege that the Defendants’ failure to make corrective 

disclosures “ma[de] the eventual collapse worse” and that their 

“prolonged misrepresentation” caused increasingly greater 

“reputational damage” to J&J. (App. at 84-85.) While 

couched in “context specific” terms of the J&J ESOP,

Dudenhoeffer, 573 U.S. at 425, all of that is in actuality just a 

recitation of general economic theory and cannot by itself 

support a duty-of-prudence claim consistent with the 

Dudenhoeffer standard. Dormani, 970 F.3d at 915.

Perhaps recognizing the insufficiency of their 

generalized allegations, the Plaintiffs argue that they have also 

made specific factual allegations “to support the contention 

that the disclosure of the dangers posed by [J&J’s] talc 

products was inevitable,” just like in Jander. (Opening Br. at 

36.) Their theory of inevitability is as follows: “[A]s the 

lawsuits against J&J over illness caused by its talc products 

proliferated, and the possibility of those lawsuits surviving 
20

motions to dismiss and reaching discovery increased, [it 

became] more and more likely that fact discovery in one or 

more of those cases would lead to the disclosure of J&J’s 

internal memos about its longstanding knowledge of asbestos 

in its talc.” (Opening Br. at 36.) 

But that theory has a fatal shortcoming. Even if 

disclosure of some unfavorable documents was likely once 

discovery commenced in products liability litigation, it is to 

this day uncertain whether J&J should be liable in tort for 

dangers relating to its talc products. The products liability 

actions are, after all, ongoing. It would make no sense for us 

to resolve the question of tort liability, still undetermined in 

that case, in this collateral ERISA litigation.

Nor has J&J admitted that its talc products contain 

asbestos. By contrast, in the events leading up to Jander, IBM 

allegedly did take steps suggesting that the prior public 

valuations of its microelectronics businesses were overinflated, 

although it took those steps somewhat later than the allegedly 

prudent time to disclose. 910 F.3d at 623, 630. Here, because 

J&J has not and likely will not make the disclosure proposed 

by the Plaintiffs, it can hardly be said that all prudent 

fiduciaries would have concluded in 2017 that such disclosure 

was “inevitable.” Id. at 630. And while the Plaintiffs say that 

“internal documents showing the perpetration of [a] massive 

coverup and misrepresentation” (App. at 86) were sure to come 

out, J&J has already prevailed in some products liability trials, 

demonstrating that there is no consensus that J&J ever had any

talc-related issues to cover up. Furthermore, early disclosures 

to the press, necessarily shorn of context, could cause the stock 

market to overreact, misunderstanding the legal significance of 

the information and believing that J&J would be subject to 
21

more legal liability than it really would be. Thus, a reasonably 

prudent fiduciary in the Defendants’ circumstances could 

conclude that corrective disclosures would do more harm than 

good to the ESOP.

B. Redirection of Contributions to the Cash 

Buffer

The Plaintiffs also assert that, instead of using new 

ESOP contributions to purchase J&J stock at artificially 

inflated prices, the Defendants should have taken the 

alternative action of redirecting contributions into the ESOP’s 

cash buffer. A cash buffer is a common component of an 

ERISA retirement savings plan. E.g., George v. Kraft Foods 

Glob., Inc., 641 F.3d 786, 793 (7th Cir. 2011). It “allows

participants to quickly sell their interests in the funds” without 

having to wait for the sale of stock to obtain cash and “allows

the [p]lan to save transaction costs by ‘netting’ participant 

transactions” – that is, matching one participant’s sale with 

another’s purchase – avoiding brokerage commissions being 

charged to the plan each time a request to buy or sell stock is 

made. Id. The Plaintiffs suggest that a prudent fiduciary would 

additionally use the cash buffer as a hedging instrument. But 

that is not a fair conclusion.

The option of redirecting funds to an ESOP’s cash 

buffer “leaves a fiduciary ‘between a rock and a hard place’ 

and likely to be sued for imprudence either way if he guesses 

wrong about where the stock is headed.” Dormani, 970 F.3d 

at 915 n.4 (quoting Dudenhoeffer, 573 U.S. at 424). If 

fiduciaries increase the cash buffer and then the stock price 

rises, plan participants might assert a duty-of-prudence claim 

against them for allowing the cash buffer to generate 
22

“investment drag.” George, 641 F.3d at 793. On the other 

hand, under the Plaintiffs’ theory, if the fiduciaries hold the 

cash buffer steady or reduce it and then the stock price drops, 

plan participants might assert a duty-of-prudence claim for not

increasing the cash buffer to mitigate losses.

While there may be circumstances in which a 

reasonably prudent fiduciary would find it advantageous to 

increase the cash buffer rather than buy the company’s stock, 

the Plaintiffs have not adequately pleaded that those 

circumstances exist here. As discussed already, it was a guess

that J&J’s stock price would drop significantly, and there was 

even less certainty about the timing and degree of such a drop. 

A prudent fiduciary in the Defendants’ position reasonably 

could have anticipated that J&J’s stock price was not bound to 

tumble, or could have believed that any price drop would be 

outweighed by gains accrued prior to the drop or by a rapid 

rebound. It is simply too much of a stretch to say that a prudent 

fiduciary in the Defendants’ position “could not have 

concluded” that redirecting contributions to the ESOP’s cash 

buffer “would do more harm than good.” Amgen, 577 U.S. at 

311.10

III. CONCLUSION

For the foregoing reasons, the Plaintiffs have failed to 

meet the high standard for pleading a claim under ERISA for 

10 We need not address the Defendants’ arguments that 

redirecting ESOP contributions to the cash buffer would have

required, or otherwise resulted in, public disclosure. 
23

breach of the duty of prudence based on inside information.

11

 

We will therefore affirm.

11 Nothing in this opinion should be construed as 

providing any comment on the merits of the Products Liability 

Action or the Securities Fraud Action.