City of St. Clair Shores Police and Fire Retirement System v. Unilever PLC

Background

Lead Plaintiff Teamsters Local 456 Annuity Fund and Plaintiff City of St. Clair Shores Police and Fire Retirement System brought a proposed class action against Unilever PLC, Alan Jope, Ritva Sotamaa, and Graeme Pitkethly. The complaint asserted securities-fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as a control-person-liability claim under Section 20(a).

Unilever owned Ben & Jerry’s through a wholly owned subsidiary. Ben & Jerry’s had an independent board responsible for overseeing its social mission, while Unilever retained primary responsibility for financial and operational decisions. In July 2020, the Ben & Jerry’s board adopted a resolution to stop sales in areas it considered Palestinian territories. The resolution was not immediately announced or implemented, and Unilever and the board continued to debate whether and how to carry it out.

Plaintiffs alleged that Unilever’s public filings between September 2, 2020, and July 21, 2021, were misleading because they repeated or referred to earlier risk disclosures without revealing the resolution or its possible consequences. On July 19, 2021, Ben & Jerry’s announced that it would stop distribution in the Israeli-occupied territories while continuing sales in Israel, while Unilever issued a statement reaffirming continued sales in Israel. Unilever later sold its Ben & Jerry’s business interests in Israel to the local licensee in June 2022.

Legal standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. For a securities-fraud claim, a plaintiff must adequately allege a materially false statement or omission, the required wrongful state of mind, a connection to the purchase or sale of a security, reliance, economic loss, and loss causation. Under the Private Securities Litigation Reform Act, the required state of mind, known as scienter, must be pleaded with particularity and supported by a strong inference.

Court’s analysis

The court held that the complaint did not adequately plead scienter as to any individual defendant. Although the court accepted plaintiffs’ allegation that the individual defendants knew about the resolution, knowledge of the resolution alone did not show that they knew their public statements were inaccurate or acted recklessly.

The court reasoned that the Ben & Jerry’s board lacked operational control to implement the resolution on its own. Unilever’s appointed chief executive initially did not implement it, and the complaint described continuing disagreement and uncertainty about whether and how the resolution would be carried out. The court concluded that the defendants had no reason to believe that the resolution would be implemented contrary to Unilever’s wishes and that the most compelling inference was that Unilever delayed an announcement while considering what to do, rather than deliberately concealing information it knew would harm investors.

The court also stated, as an independent and alternative reason, that Unilever had no duty to disclose the resolution. The challenged risk disclosures were general and did not make affirmative statements about sales in Israel, while the possible change in business strategy was still speculative and under debate.

Because no individual defendant was alleged to have the required state of mind, the court also found that the complaint did not adequately plead corporate scienter as to Unilever. The Section 20(a) claim failed because it required an underlying Exchange Act violation, and the court dismissed the primary Section 10(b) claim.

Disposition

Judge Lorna G. Schofield granted Defendants’ motion to dismiss. The opinion also states that the Section 10(b) and Section 20(a) claims were dismissed. Defendants’ letter motion for oral argument was denied as moot. The clerk was directed to close the motions at Dkts. 30 and 37. The opinion does not state whether the dismissal was with or without prejudice.