Sandys v. Willard

Background

Thomas Sandys and Maria Lorca were Altria Group, Inc. shareholders who brought separate shareholder derivative actions on Altria’s behalf. Sandys sued Howard A. Willard III, William F. Gifford Jr., Kevin C. Crosthwaite Jr., Juul Labs, Inc., Kevin Burns, Nicholas Pritzker, and Riaz Valani. Lorca sued Gifford, Willard, Crosthwaite, Juul, Burns, Pritzker, Valani, and other defendants identified in her complaint.

The complaints concerned Altria’s December 2018 investment of $12.8 billion in JUUL for a 35 percent stake. The plaintiffs alleged that Altria’s officers breached fiduciary duties by entering the investment despite JUUL’s financial and legal risks. They also alleged that JUUL-related defendants aided and abetted those breaches. Lorca additionally alleged corporate waste, unjust enrichment, and improper statements concerning the investment. The court did not decide whether any of these allegations were legally or factually valid.

Motions

The plaintiffs asked the court to consolidate the two cases under Federal Rule of Civil Procedure 42(a) and appoint their proposed co-lead counsel. The Altria defendants asked the court to transfer both cases to the Richmond Division of the United States District Court for the Eastern District of Virginia or, alternatively, stay the litigation. Juul and Burns joined the transfer motion.

Consolidation

The court granted the plaintiffs’ motion to consolidate. It found substantial overlap because both cases asserted fiduciary-duty claims against the Altria defendants and aiding-and-abetting claims against the JUUL defendants. Both cases challenged the JUUL investment and relied on similar allegations concerning risks, anticompetitive conduct, and marketing to young people. The answering parties agreed that consolidation was proper.

Transfer

The court granted the motion to transfer under 28 U.S.C. § 1404(a), which permits transfer for the convenience of the parties and witnesses and in the interest of justice when the case could have been brought in the proposed district.

First, the court concluded that the consolidated case could have been brought in the Eastern District of Virginia. Altria’s management considered, made, and implemented the JUUL investment decision from Altria’s headquarters in Richmond, Virginia. Willard and Gifford worked there and participated in the decision. The court also concluded that the aiding-and-abetting claims against Pritzker and Valani could have been brought there, noting that those defendants had appeared but had not objected to transfer on personal-jurisdiction grounds. Juul and Burns consented to the Virginia court’s exercise of personal jurisdiction by joining the transfer motion.

Second, the court found that the convenience and interest-of-justice factors favored Virginia. It gave the plaintiffs’ choice of California less weight because these were shareholder derivative actions brought on behalf of Altria, neither plaintiff alleged a connection with California, and the relevant decision-making occurred primarily in Virginia. The court also found that more than a dozen Altria personnel involved in the investment decision lived or worked in Virginia, making Virginia a more convenient location for potential depositions and testimony and potentially reducing litigation costs.

The court considered the related derivative action pending in Virginia and found it possible that the transferred cases could be consolidated with that action. It also found that the Eastern District of Virginia would be more familiar with the Virginia corporate law that appeared to govern the consolidated case. Finally, although both California and Virginia had interests in the dispute, the court found Virginia’s interest stronger because Altria was incorporated and headquartered there and the challenged decisions occurred at its Richmond headquarters.

Other Rulings and Disposition

Because it granted transfer, the court did not decide the defendants’ alternative motion to stay. It denied that motion without prejudice. The court also declined to decide who should serve as lead counsel because it would no longer retain jurisdiction over the cases, and it denied the plaintiffs’ lead-counsel request without prejudice.

The court directed the clerk to consolidate the two actions and transfer them to the United States District Court for the Eastern District of Virginia’s Richmond Division. The order resolved venue and case-management issues and did not reach the merits of the plaintiffs’ fiduciary-duty, aiding-and-abetting, corporate-waste, or unjust-enrichment claims.