On October 8, 2020, Judge Michael W. Fitzgerald of the United
States District Court for the Central District of California
dismissed a putative class action asserting claims under the
Securities Exchange Act of 1934 against a food company and certain
of its executives. Larry Tran v. Beyond Meat, Inc., et
al., No. 20-CV-00963-MWF-AFM, slip op. (C.D. Cal. Oct. 8,
2020). Plaintiffs alleged that the company made misleading
statements in public filings falsely suggesting that litigation
brought against the company by a supplier, after the company had
terminated a manufacturing agreement with that supplier, was
meritless. The Court held that plaintiffs failed to
adequately allege an actionable misstatement or omission.
Plaintiffs contended that the company made two allegedly false
statements in its SEC filings: (i) first, its denial of
the supplier's claims; and (ii) second, that the company
believed it was justified in terminating the manufacturing
agreement, did not misappropriate the supplier's trade
secrets, and was not liable for the fraud or negligent
misrepresentation alleged by the supplier. Slip op. at
11.
The Court held that the challenged statements were statements of
opinion and that plaintiffs had not made the required showing to
allege any facts calling into question the basis of the
opinions. Id. at 11-12. In particular, the
Court emphasized that plaintiffs' allegations were largely
drawn from the “unproven allegations” from the
supplier's litigation, and that plaintiffs did not even have
access to the agreement on which the supplier's complaint was
based. Id. at 12-13. The Court rejected
plaintiffs' argument that the underlying evidence was in the
company's possession, explaining that “the Court cannot
just accept at face value [the supplier's] characterization
of the underlying evidence supposedly implicating [the
company].” Id. at 13. The Court further
noted that, even if plaintiffs' allegations were deemed to
have a factual basis, they would fail for the independent reason
that plaintiffs must point to information “in the
issuer's possession at the time” in order to plead
falsity under an omissions theory. Id. at 14.
In addition, the Court observed that it was “far from clear
that a more-detailed disclosure of the risks posed by the
[supplier's] litigation was required.”
Id. at 14. The Court noted that, under Ninth Circuit
precedent, a “complaint must specify the reason or reasons
why the statements made by the [company] were misleading or untrue,
not simply incomplete.” Id. at 14 (citing
Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006
(9th Cir. 2002)). The Court emphasized that while the company
stated that it did not believe it was liable in the
supplier's litigation, it also “offered no assurances
that it would not be found
liable.” Beyond Meat, slip op. at 15.
Indeed, the company stated that it “cannot assure you that
[the supplier] will not prevail in all or some of [its]
claims,” and further that, if found liable, the company could
be required to pay damages and potentially lose some portion of
ownership over its intellectual property. Id.
The Court concluded that these statements gave investors
“sufficient notice of the potential risks” of the
supplier's litigation, and that plaintiffs failed to
demonstrate that those statements were “inconsistent with the
true state of affairs.” Id.
While noting that the Court was uncertain that further amendment
could “rescue” plaintiffs' claims, the Court
nevertheless granted plaintiffs one “final opportunity”
to amend. Id. at 18.
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