Court Dismisses Putative Securities Class Action Arising Out of Deadly Fire in London

Skadden, Arps, Slate, Meagher & Flom LLP

Howard v. Arconic Inc., No. 2:17-cv-1057 (W.D. Pa. June 21, 2019)

Judge Mark R. Hornak dismissed a putative securities class action against Arconic, Inc., a manufacturer of aluminum cladding, and certain of its officers and directors, for alleged violations of Section 11 of the Securities Act and Section 10(b) of the Securities Exchange Act.

One of Arconic’s products, an aluminum paneling system, formed the exterior part of the Grenfell Tower in London that was destroyed in a 2017 fire that resulted in 72 deaths and more than 70 injuries. In the wake of the tragedy, some new outlets reported that Arconic’s panels contributed to the fire’s rapid spread and that the panels should not have been used on buildings that tall. The plaintiffs filed suit, claiming that Arconic’s statements in SEC filings, brochures and presentations to investors violated securities laws by failing to disclose the alleged sale of Arconic’s products for unsafe uses. The plaintiffs further alleged that a U.K.-based sales employee for one of Arconic’s foreign subsidiaries had reason to know that Arconic’s product would be improperly used in the tower that caught fire.

The court dismissed both the Section 11 and Section 10(b) claims, explaining that three related and fundamental flaws pervaded both of the plaintiffs’ claims. First, the plaintiffs failed to adequately plead that the paneling system that was used in the Grenfell Tower had been sold for inappropriate end uses other than on that one tower. Given that pleading failure, the plaintiffs could not sustain a claim based on an alleged failure to disclose sales for inappropriate end uses. Second, the plaintiffs failed to adequately plead that any Arconic executive knew that its paneling system was being sold for improper purposes. Thus, the plaintiffs did not plead the required mental state for purposes of their Securities Exchange Act claim. Third, while the plaintiffs repeatedly pointed to Arconic’s alleged failure to inform investors that the aluminum paneling had been sold for use on the Grenfell Tower, the allegations in the complaint did not plausibly show that a failure to inform investors of a single sale to an end user who would use the product unsafely provided a basis for a securities — as opposed to a products liability — claim.

This summary can be found in the September 2019 issue of Inside the Courts.