Court filing
Amended class action complaint — Tran v. Beyond Meat, Inc.
Filed July 1, 2020 in Tran v. Beyond Meat; one of 4 filings from this case.
Record facts
| Court | U.S. District Court for the Central District of California |
|---|---|
| Filed | 2020-07-01 |
U.S. District Court for the Central District of California · No. 2:20-cv-00963-MWF-AFM · Doc. 54 · 2020-07-01 · Docket on CourtListener
Full text
Case No. 2:20-cv-00963-MWF
AMENDED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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KAPLAN FOX & KILSHEIMER LLP
Justin B. Farar (SBN 211556)
jfarar@kaplanfox.com
12400 Wilshire Boulevard, Suite 460
Los Angeles, CA 90025
Telephone: (310) 614-7260
Facsimile: (310) 575.8697
Liaison Counsel for Lead Plaintiff and the
Proposed Class
[Additional Counsel Appear on Signature Page]
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
LARRY TRAN, Individually and on
behalf of all others similarly situated,
Plaintiff,
vs.
BEYOND MEAT, INC., ETHAN
BROWN, and MARK J. NELSON,
Defendants.
Case No. 2:20-cv-00963-MWF
CLASS ACTION
AMENDED CLASS ACTION
COMPLAINT FOR VIOLATIONS
OF THE FEDERAL SECURITIES
LAWS
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TABLE OF CONTENTS
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I.
NATURE OF THE ACTION .......................................................................... 1
II.
JURISDICTION AND VENUE...................................................................... 7
III.
PARTIES ......................................................................................................... 8
A.
Plaintiffs ................................................................................................ 8
B.
Defendants ............................................................................................ 9
C.
Significant Non-Parties ....................................................................... 11
IV.
SUBSTANTIVE ALLEGATIONS ............................................................... 12
A.
Beyond Meat and Its Business ............................................................ 12
B.
DLF Contracts With Beyond Meat to Be its Exclusive Co-
Manufacturer ....................................................................................... 13
C.
The 2016 Safety Audit and Expansion of the Exclusive Supply
Agreement ........................................................................................... 15
D.
Beyond Meat Executes a Scheme to Replace DLF as Co-
Manufacturer ....................................................................................... 17
1.
Beyond Meat Covertly Negotiates with CLW to Replace
DLF as the Company’s Co-Manufacturer ................................ 17
2.
Beyond Meat Executes a Scheme to Justify Terminating
the Amended ESA .................................................................... 20
E.
DLF Sues Beyond Meat For the Company’s Actions
Surrounding the Termination of the ESA ........................................... 21
F.
Beyond Meat Conceals the Risks of the DLF Litigation to
Avoid Compromising its IPO and “Unicorn” Status .......................... 22
G.
The Market Learns of Beyond Meat’s Real Risk of Liability in
the DLF Litigation .............................................................................. 24
V.
DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
STATEMENTS AND OMISSIONS ............................................................. 25
A.
The May 2, 2019 False and Misleading Statements ........................... 26
B.
The June 12, 2019 False and Misleading Statements ......................... 28
C.
The July 29, 2019 False and Misleading Statements .......................... 30
D.
The November 12, 2019 False and Misleading Statements ............... 32
E.
The Truth is Revealed ......................................................................... 34
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TABLE OF CONTENTS (cont.’d)
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VI.
ADDITIONAL SCIENTER ALLEGATIONS ............................................. 35
A.
The Fraud Impacted Beyond Meat’s Core Operations ....................... 36
B.
The Individual Defendants Controlled the Contents of the
Company’s Public Statements during the Class Period ...................... 37
VII. PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET ............... 38
VIII. LOSS CAUSATION ..................................................................................... 39
A.
Corrective Disclosure .......................................................................... 40
B.
Materialization of the Risk .................................................................. 40
IX.
CLASS ACTION ALLEGATIONS ............................................................. 42
X.
CLAIMS FOR RELIEF ................................................................................ 44
XI.
PRAYER FOR RELIEF ................................................................................ 48
XII. JURY TRIAL DEMANDED ........................................................................ 48
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1.
Lead Plaintiff Block Investments Corporation (“Block”) and named
plaintiffs Jie Ling Guo and Neeraj Tulsian (together, “Plaintiffs”) together and on
behalf of all others similarly situated, by and through their attorneys, bring this
securities class action under Section 10(b) and 20(a) of the Securities Exchange
Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder on
behalf of all other persons and entities that purchased or otherwise acquired the
securities of Defendant Beyond Meat, Inc. (“Beyond Meat” or the “Company”),
between May 2, 2019 and January 27, 2020, inclusive (the “Class Period”), and
were damaged thereby (the “Class”).
2.
Plaintiffs allege the following based upon information and belief,
except as to those allegations concerning Plaintiffs, which are alleged upon
personal knowledge. Plaintiffs’ information and belief is based upon, among other
things, their counsels’ investigation, which includes without limitation, review and
analysis of filings with the United States Securities and Exchange Commission
(“SEC”), all public court filings regarding the litigation between Savage River Inc.,
d/b/a Beyond Meat and Don Lee Farms, press releases, news articles, analyst
reports, and information readily available on the Internet. Plaintiffs believe that
additional evidentiary support will exist for the allegations set forth herein after a
reasonable opportunity for discovery.
I.
NATURE OF THE ACTION
3.
From the moment Beyond Meat went public in May 2019, Defendants
materially misrepresented to investors that a pending lawsuit against the Company
brought by its former co-manufacturer, Don Lee Farms (“DLF”), lacked validity,
and that its risks from the lawsuit were not extraordinary.1 In reality, however,
1 The lawsuit referred to is the matter filed in the California Superior Court,
County of Los Angeles, Don Lee Farms v. Savage River, Inc. d/b/a Beyond Meat,
Case No. BC662838 (the “DLF Litigation”). All individual pleadings cited herein
are from the DLF Litigation, unless otherwise specified.
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Defendants knew or recklessly disregarded that their risk of liability was a near-
certainty. Defendants’ fraudulent actions ensured that Beyond Meat’s May 2019
Initial Public Offering (“IPO”) went off without a hitch, becoming the largest-
popping U.S. IPO in nearly two decades, and artificially inflated Beyond Meat’s
stock price throughout the Class Period.
4.
Unbeknownst to investors, however, years before the IPO, Defendants
executed a scheme to get out of an exclusive supply agreement it had with DLF
before the end of the contract term – a scheme that would ultimately form the basis
of DLF’s legal claims against the Company.
5.
Beyond Meat is a food company that manufactures and sells plant-
based meat products using protein from peas referred to as “extrudate.” Beyond
Meat does not perform all of the steps in the manufacturing process for its
products. Rather, the Company produces the extrudate and other pea protein-based
raw ingredients and contracts with a co-manufacturer who processes the
ingredients into finished products and packages them for distribution and sale by
the Company.
6.
In 2014, Beyond Meat and DLF entered into a contract whereby, DLF
became Beyond Meat’s exclusive co-manufacturer. In its role as exclusive co-
manufacturer, DLF significantly contributed to Beyond Meat’s rise. Prior to
entering its relationship with DLF, Beyond Meat did not know how to mass-
produce its product and had essentially been making the products by hand. DLF
was responsible for engineering the process to scale production of Beyond Meat’s
plant-based meat products, allowing the Company to grow.
7.
DLF also developed the “Batch Making Protocols” for producing
several of the Company’s products, including the “Beyond Burger” – Beyond
Meat’s most popular product. DLF’s Batch Making Protocols detailed the method
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and process for mass-producing the Beyond Burger, including critical components
like ingredient amounts, mixing times, and equipment layouts.
8.
However, in late January 2016, prior to DLF completing development
of the Beyond Burger, Beyond Meat’s relationship with DLF was deteriorating, in
part, because DLF had lost confidence in Beyond Meat’s food safety protocols
after discovering foreign objects in the raw materials provided by Beyond Meat on
multiple occasions.
9.
At that time, maintaining the Company’s relationship with DLF was
critical, as DLF was still perfecting the Beyond Burger. Accordingly, Beyond
Meat conducted an independent food safety audit of the Company’s facility in an
attempt to address DLF’s concerns.
10.
Thereafter, Beyond Meat provided DLF with an independent safety
audit report that identified no food safety concerns. DLF has since alleged that
Beyond Meat executives deleted significant portions of the safety audit report,
concealing the consultant’s findings of contamination.
11.
Satisfied by the purported clean audit, on April 11, 2016, DLF agreed
to amend the exclusive supply agreement, extending the contract with Beyond
Meat through April 11, 2019. The amendment also more than doubled Beyond
Meat’s minimum required purchases under the agreement to 4,000,000 pounds of
product in the first year, escalating to 6,000,000 pounds in the third year.
12.
One month later, in May 2016, Beyond Meat launched the Beyond
Burger, which sold out almost immediately and became the Company’s flagship
product. Since its launch, the Beyond Burger has continued to be the Company’s
most successful product, accounting for approximately 60% of the Company’s
revenue leading up to its IPO.2
2 Beyond Meat, Inc. Annual Report (Form 10-K) (Mar. 19, 2020) at 2.
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13.
With the Beyond Burger launched and DLF’s Batch Making Protocol
for its new core product in hand, Defendants no longer had to rely on DLF and
began to shop for a less costly replacement co-manufacturer.
14.
To that end, Defendants secretly arranged a test with CLW Food to
potentially replace DLF as the Company’s co-manufacturer. The test was
scheduled for February 3, 2017. However, before the test could take place, DLF
was alerted to Defendants’ plans when a Beyond Meat employee accidently copied
DLF on an email chain discussing CLW.
15.
Defendant Brown mitigated the error by representing to DLF that the
Company would pull the test at CLW in the hope that the two companies could put
the matter behind them. However, despite Brown’s assurances to the contrary,
Beyond Meat continued to covertly negotiate with CLW.
16.
Beyond Meat’s former Vice President of Operations and Supply
Chain testified that by late March 2017, he had been negotiating with CLW for a
while, including discussing price, capabilities and quantities, and had taken a tour
of CLW’s facility.
17.
Beyond Meat was looking for an alternative to DLF in part, because
of the excessive minimum purchases required under the parties’ agreement, which
Beyond Meat executives believed were too costly. Rather than attempt to
renegotiate the terms with DLF, Beyond Meat decided to find a way out of the
contract.
18.
After ensuring that CLW was ready to take over as co-manufacturer –
Beyond Meat set in motion its plan to change its co-manufacturer, in violation of
the Company’s exclusive supply agreement with DLF. On April 12, 2017, Beyond
Meat sent DLF a Notice of Breach alleging multiple material breaches of the
exclusive supply agreement related to purported food safety concerns, including
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discovering Salmonella at DLF’s facility, allegations DLF claims were just a
pretext to end the relationship.
19.
On May 23, 2017, Beyond Meat sent a Notice of Termination to DLF
stating that, due to DLF’s failure to cure the alleged breaches, the Company was
terminating the exclusive supply agreement.
20.
On May 25, 2017, DLF filed a lawsuit against the Company alleging
breach of contract, misappropriation of trade secrets, and fraud, among other
claims.
21.
In November 2018, Beyond Meat announced that the Company
planned to go public. In the weeks leading up to the Company’s May 2, 2019 IPO,
there was significant excitement about the Company. Despite never having turned
a profit, Beyond Meat was dubbed a “unicorn” startup, as a private company with a
valuation of over $1 billion.3
22.
Not wanting to damage the positivity in the market surrounding the
Company heading into the IPO, Beyond Meat concealed the truth about the DLF
Litigation from investors in the Registration Statement dated May 1, 2019, filed
with the SEC in connection with the Company’s IPO (the “Registration
Statement”). In the Registration Statement, Beyond Meat affirmatively denied
each of the claims made against the Company by DLF and provided only general
risk disclosures related to the DLF Litigation. These representations served to
assuage investors’ concerns that DLF was likely to be awarded damages in the
DLF Litigation or be able to lay claim to any portion of Beyond Meat’s intellectual
property, including the Beyond Burger.
3 Edward Helmore, Beyond Meat Preps for IPO as Rivals Take Bite Out of Food
Industry, THE GUARDIAN (April 28, 2019),
https://www.theguardian.com/business/2019/apr/28/beyond-meat-wall-street-
debut-public.
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23.
On May 2, 2019, the Company completed its Initial Public Offering,
issuing 11,068,750 shares of common stock at an offering price of $25.00 per share
generating approximately $276,718,750 in gross proceeds. By the close of the
market, Beyond Meat shares had soared to $65.75, for a gain of 163%, and it had
become the biggest-popping U.S. IPO in nearly two decades.4
24.
Throughout the Class Period, Defendants continued to deny the merits
of DLF’s claims and conceal from investors that Beyond Meat’s risk of being held
liable in the DLF Litigation was closer to a near certainty rather than the mere
possibility represented by the Company. Because of the Company’s forceful
denials of liability, the market was unable to decipher the Company’s true risks of
liability. Nevertheless, it was only a matter of time before the market discovered
DLF’s claims were valid and the risks materialized.
25.
On January 27, 2020, after the close of the markets, DLF issued a
press release announcing that the judge in the DLF Litigation issued a Right to
Attach Order, and by doing so, ruled that DLF “proved the probable validity of its
claim that Beyond Meat breached its manufacturing agreement with Don Lee
Farms.”5
26.
DLF’s press release also revealed that based on discovery produced in
the DLF Litigation, the court granted its motion to amend its complaint to name
4 Mike Murphy, Beyond Meat Soars 163% in Biggest-Popping U.S. IPO Since
2000, MarketWatch (May 5, 2019), https://www.marketwatch.com/story/beyond-
meat-soars-163-in-biggest-popping-us-ipo-since-2000-2019-05-
02#:~:text=Beyond%20Meat's%20BYND%2C%20%2D2.52%25,raise%20at%20l
east%20%24240%20million.
5 Press Release, Don Lee Farms, Judge Rules Don Lee Farms Likely to Obtain
Judgment. Beyond Meat’s CFO and Others Named Individually for Fraud,
Business Wire (Jan. 27, 2020),
https://www.businesswire.com/news/home/20200127005705/en/Judge-Rules-Don-
Lee-Farms-Obtain-
Judgment.#:~:text=Judge%20Rules%20Don%20Lee%20Farms%20Likely%20to%
20Obtain%20a%20Judgment,Others%20Named%20Individually%20for%20Fraud
.&text=LOS%20ANGELES%2D%2D(BUSINESS%20WIRE,agreement%20with
%20Don%20Lee%20Farms.
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Defendant Nelson and Beyond Meat’s Senior Quality Assurance Manager Jessica
Quetsch and Director of Operations Anthony Miller in connection with its fraud
claim, alleging that these individuals coordinated to intentionally doctor and omit
material information from the 2016 safety audit report that Beyond Meat provided
to DLF – the very report that induced DLF to extend its contract with Beyond
Meat.6
27.
Following these revelations, for the first time, the market appreciated
that DLF’s claims were legitimate and that Defendants had no basis for their
blanket denial of culpability for the actions alleged in the DLF Litigation. The
market also appreciated that Beyond Meat’s warnings did not reflect the true level
of risk the Company faced with respect to the DLF Litigation and it was likely to
be subjected to significant penalties. Indeed, even analysts at J.P. Morgan noted
that this news “surely is an additional risk to the stock price.”7
28.
On this news, Beyond Meat’s stock price dropped $4.63, or over
3.7%, to close at $120.12 per share on January 28, 2020.
29.
As a direct and proximate result of Defendants’ fraud, Beyond Meat
investors lost hundreds of millions of dollars.
II.
JURISDICTION AND VENUE
30.
The claims asserted herein arise pursuant to Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934 (the “Exchange Act”) (15 U.S.C. §§ 78j(b)
and 78t(a)), and SEC Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).
31.
This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. 1331, Section 27 of the Exchange Act (15 U.S.C. § 78aa).
6 Id.
7 Ken Goldman, “Beyond Meat: Downgrading to Neutral as 65% Stock
Appreciation this Month Renders Risk/Reward More Balanced”, J.P. Morgan, Jan.
28, 2020 at p. 1, available from Investext, accessed June 30, 2020.
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32.
Venue is proper in this Judicial District pursuant to 28 U.S.C.
§ 1391(b), Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Many of the acts
and transactions, including the preparation and dissemination of materially false
and misleading statements, occurred in substantial part in this District.
Additionally, Beyond Meat’s headquarters is located in this District.
33.
In connection with the acts, transactions, and conduct alleged herein,
Defendants directly and indirectly used the means and instrumentalities of
interstate commerce, including the United States mail, interstate communications,
and the facilities of a national securities exchange.
III.
PARTIES
A.
Plaintiffs
34.
Lead Plaintiff Block Investment Corporation, as set forth in the
certification submitted with its motion for appointment as lead plaintiff,
incorporated by reference herein, purchased Beyond Meat securities during the
Class Period and suffered damages as a result of the federal securities law
violations and false or misleading statements or material omissions alleged herein.
35.
Named Plaintiff Jie Ling Guo, as set forth in her Private Securities
Litigation Reform Act (“PSLRA”) certification attached hereto as Exhibit A,
purchased Beyond Meat securities during the Class Period and suffered damages as
a result of the federal securities law violations and false or misleading statements
or material omissions alleged herein.
36.
Named Plaintiff Neeraj Tulsian, as set forth in his PSLRA
certification attached hereto as Exhibit B, purchased Beyond Meat securities
during the Class Period and suffered damages as a result of the federal securities
law violations and false or misleading statements or material omissions alleged
herein.
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B.
Defendants
37.
Defendant Beyond Meat is food company that produces and sells a
range of plant-based meat products. Beyond Meat is a Delaware corporation with
its principal executive offices located at 119 Standard Street, El Segundo, CA
90245. Beyond Meat’s common stock trades in an efficient market on the
NASDAQ under the ticker symbol “BYND.”
38.
Defendant Ethan Brown (“Brown”) served as Beyond Meat’s Chief
Executive Officer and President during the Class Period, and also served on the
Company’s Board of Directors.
39.
Defendant Mark J. Nelson (“Nelson”) served as Beyond Meat’s Chief
Financial Officer, Treasurer, and Secretary during the Class Period.
40.
Defendants Brown and Nelson are sometimes referred to herein as the
“Individual Defendants.” Each of the Individual Defendants:
(a)
had intimate knowledge of every aspect of Beyond Meat’s
business, including its relationships with its co-manufacturers;
(b)
directly participated in the management of the Company,
including being involved in negotiating and terminating the Company’s contracts
with its co-manufacturers;
(c)
were directly involved in the day-to-day operations of the
Company at the highest levels;
(d)
were privy to confidential proprietary information concerning
the Company and its business and operations, including trade secrets used for the
production of its plant-based meat products;
(e)
were directly or indirectly involved in drafting, producing,
reviewing and disseminating the false and misleading statements and information
alleged herein;
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(f)
were aware of or recklessly disregarded that Beyond Meat had
wrongfully terminated its exclusive supply agreement with DLF and was likely to
be held liable for breach of contract in the DLF Litigation;
(g)
were aware of or recklessly disregarded that Beyond Meat had
misappropriated DLF’s trade secrets in violation of the non-disclosure agreement
contained in the exclusive supply agreement, and thus, was likely to be held liable
for such conduct in the DLF Litigation;
(h)
were aware of or recklessly disregarded that Beyond Meat
altered the 2016 safety audit report to remove negative information before
providing it to DLF, that DLF relied on the report in its decision to enter into the
amendment to the Exclusive Supply Agreement, and thus, was likely to be held
liable for fraud or negligent misrepresentation in the DLF Litigation;
(i)
were aware of or recklessly disregarded the fact that false or
misleading statements were being issued concerning the Company; and
(j)
approved or ratified these statements in violation of the federal
securities laws.
41.
As a result, the Individual Defendants are liable for the false or
misleading statements and omissions pleaded herein.
42.
In addition, the Individual Defendants, by reason of their status as
senior executive officers and/or directors, were “controlling persons” within the
meaning of Section 20(a) of the Exchange Act, and had the power and influence to
cause, and did cause, directly or indirectly, the Company to engage in the unlawful
conduct complained of herein.
43.
Defendant Beyond Meat and the Individual Defendants are
collectively referred to as “Defendants.”
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C.
Significant Non-Parties
44.
Non-party Don Lee Farms is the trade name of Goodman Food
Products, Inc., a California corporation, headquartered in Inglewood, California.
DLF is a producer of fresh and frozen foods and has been making plant-based
proteins since 2005. DLF’s products are sold at major retailers including Costco
Wholesale, Whole Foods Markets, Trader Joe’s, Kroeger, Publix, and Albertsons.
DLF was Beyond Meat’s exclusive co-manufacturer of its plant-based meats from
December 2014 to May 2017.
45.
Non-party Don Ephgrave (“Ephgrave”) was Beyond Meat’s Vice
President of Operations and Supply Chain from 2016 to 2017. Ephgrave was
responsible for managing Beyond Meats relationships with its co-manufacturers.
Ephgrave also negotiated Beyond Meat’s agreements with ProPortion Foods, LLC/
CLW Foods, LLC to provide co-manufacturing services for Beyond Meat.
46.
Non-party ProPortion Foods, LLC (“ProPortion”) is a California
corporation, headquartered in Round Rock, Texas. ProPortion served as one of
Beyond Meat’s co-manufacturers after the Company terminated its exclusive
supply agreement with DLF.
47.
Non-party CLW Foods, LLC (“CLW”) is a California corporation,
headquartered in Hanford, California.8 CLW served as one of Beyond Meat’s co-
manufacturers after the Company terminated the exclusive supply agreement with
DLF.
8 Though they are incorporated as separate entities, Ephgrave testified that
ProPortion and CLW are alter egos of each other and have the same owner. See
Compendium of Evidence in Support of Don Lee Farms’ Opposition to ProPortion
Foods, LLC’s Motion for Summary Judgment or, In the Alternative for Summary
Adjudication dated May 3, 2019 (the “Compendium of Evidence”) at COE0091
(Excerpts from the Deposition Testimony of Don Ephgrave, Mar. 12, 2018).
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IV.
SUBSTANTIVE ALLEGATIONS
A.
Beyond Meat and Its Business
48.
Beyond Meat is a food company that manufactures and sells plant-
based meat products. It has products in three core plant-based platforms that align
with the largest meat categories globally: beef, pork, and poultry.
49.
Instead of animal protein, the Company’s products are produced using
protein from peas, referred to by the Company as “extrudate.” Beyond Meat
produces the extrudate and other pea protein-based raw ingredients at the
Company’s facility in Columbia, Missouri. The Company then delivers the raw
ingredients to a co-manufacturer, who processes them into finished products and
packages them for distribution and sale by the Company.
50.
As of December 31, 2019, Beyond Meat’s products were available in
approximately 77,000 retail stores, restaurants and foodservice outlets in more than
65 countries, including major retailers such as Whole Foods Market and Costco
Wholesale. Beyond Meat’s products are also included on the menu of several fast-
casual restaurants, including KFC, Dunkin, Subway, Carl’s Jr. and Del Taco.
Additionally, the Company announced that McDonalds would be testing a Beyond
Meat product in selected restaurants.
51.
Launched in May 2016, Beyond Meat’s flagship product is the
Beyond Burger, which the Company claims to be the “world’s first 100% plant-
based burger” and is “designed to look, cook and taste like a traditional beef
burger.”9
52.
Since its launch, the Beyond Burger has been critical to Beyond
Meat’s growth and success. From 2017 through 2019, the Beyond Burger
accounted for over 60% of the Company’s gross revenues.10
9 Beyond Meat, Inc. Annual Report (Form 10-K) (Mar. 19, 2020) at 2.
10 Id.
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B.
DLF Contracts With Beyond Meat to Be its Exclusive Co-
Manufacturer
53.
On September 12, 2014, Beyond Meat and DLF entered into a Mutual
Confidentiality Agreement (the “NDA”) while exploring a potential business
relationship. Per the terms of the NDA, Beyond Meat could not disclose any
confidential information that it received from DLF without prior written consent.
The NDA was executed by Defendant Brown on behalf of Beyond Meat.11
54.
On December 2, 2014, Beyond Meat entered into the Exclusive
Supply Agreement (“ESA”) with DLF, through which DLF became the
Company’s exclusive co-manufacturer through December 2, 2017.12
55.
Under the terms of the ESA, Beyond Meat agreed to supply extrudate
to DLF and DLF agreed to process the extrudate into finished food products.
Beyond Meat agreed to “purchase one hundred percent (100%) of its Products
needs” from DLF.13
56.
The ESA required Beyond Meat to purchase a minimum amount of
finished product from DLF in each order throughout the course of each year of the
contract term. Specifically, Beyond Meat was required to purchase at least
400,000 pounds of products during the first year of the agreement and at least
2,000,000 pounds of products during the second and third years, with no individual
order less than 40,000 pounds.14
57.
The NDA was incorporated into the ESA and amended to extend its
protections through the terms of the ESA. Section 3.3 of the NDA was also
11 See Compendium of Evidence at COE0052-61 (Mutual Confidentiality
Agreement between Beyond Meat and DLF, Sept. 12, 2014).
12 Compendium of Evidence at COE0016, COE0022 (Exclusive Supply Agreement
between Beyond Meat and DLF, Dec. 2, 2014).
13 Id. at COE0013.
14 Id. at COE0026.
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amended to ensure that Beyond Meat could only use DLF’s confidential
information “for any purpose consistent with the goals and provisions of” the
business relationship between Beyond Meat and DLF, and that any intellectual
property developed by DLF during the term of the ESA “shall be solely owned and
may be used only by [DLF] for its own purposes or for its financial gain or other
advantage.”15
58.
The ESA was executed by Defendant Brown on behalf of Beyond
Meat.
59.
In its role as co-manufacturer, DLF was responsible for scaling up
Beyond Meat’s operations. Beyond Meat’s Vice President of Operations and
Supply Chain, Don Ephgrave (“Ephgrave”) testified that prior to entering into the
ESA with DLF, Beyond Meat did not know how to mass-produce its product.16
60.
Ephgrave further testified that the process DLF created was “totally
different” from what the Company was doing before, which Ephgrave stated was
“making 50-pound batches in the mom-and-pop facility in California or the facility
in Columbia” by hand.17
61.
According to DLF, it spent months developing and refining the
processes for turning the raw ingredients provided by Beyond Meat into finished
products that could be produced in large volumes. These processes for creating
Beyond Meat’s products were documented in what were called “Batch Making
Protocols.”18
15 Id. at COE0012, COE0027.
16 Compendium of Evidence at COE0096-98 (Excerpts from the Deposition
Testimony of Don Ephgrave, Mar. 12, 2018).
17 Id. at COE0101-102.
18 Don Lee Farm’s Opposition to ProPortion Foods, LLC’s Motion for Summary
Judgment (the “DLF Opposition”), May 3, 2019 at 8.
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62.
The Batch Making Protocols described how much of each ingredient
would be used during each step of the manufacturing process and how to
manipulate each ingredient during the process, including mixing times.19
63.
According to DLF, it also engineered the process for manufacturing
the Company’s products at scale by selecting the layout, product flow, room
design, and equipment selection for implementing its Batch Making Protocols.20
64.
During the ESA, DLF created Batching Making Protocols for
producing Beyond Meat’s flagship Beyond Burger, a raw plant-based burger patty,
as well as for the Company’s Beast Burger, a pre-cooked, plant-based burger patty,
among others.
C.
The 2016 Safety Audit and Expansion of the Exclusive Supply
Agreement
65.
DLF claims that in 2016, Beyond Meat and DLF were considering
expanding their relationship to include additional products and extending the ESA,
but DLF raised concerns about Beyond Meat’s food safety protocols.21
66.
Specifically, on January 27, 2016, DLF’s Quality Assurance Manager,
Gerber Alvarado (“Alvarado”) emailed Beyond Meat’s Senior Quality Assurance
Manager Jessica Quetsch (“Quetsch”), notifying her that DLF discovered a foreign
object (a blue plastic scoop) in Beyond Meat’s shipments of raw materials.22
67.
This was not the first time DLF received tainted ingredients from
Beyond Meat. DLF CEO Donald Goodman forwarded the email to Defendant
Brown stating: “Are you aware of how many foreign objects we have found? We
need to halt operations until satisfactory corrective action has been put in place.”
19 Id.
20 Id. at 4, 8.
21 Id. at 7.
22 Compendium of Evidence at COE0062-63 (Email from Gerber Alvarado to
Jessica Quetsch, Fwd: QC 01-27-16 beyond meat blue scoop, Jan. 27, 2016).
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Defendant Brown assured Goodman that Beyond Meat would try to resolve this
issue.23
68.
Maintaining the relationship with DLF was critical to Beyond Meat
because at the time, DLF was still perfecting the Beyond Burger. Therefore, in an
effort to assuage DLF’s concerns, Beyond Meat hired a third-party food safety
consultant to conduct an inspection of the Company’s production facility in
Columbia, Missouri (the “2016 Safety Audit”).24
69.
Upon completion of the 2016 Safety Audit (and prior to DLF agreeing
to amend the ESA on April 11, 2016), Beyond Meat delivered a report with the
consultant’s findings to DLF (the “Safety Audit Report”) that reported no safety
violations at Beyond Meat’s facility.25
70.
Satisfied with the purported results of the 2016 Safety Audit, DLF
agreed to amend the ESA to extend and expand DLF’s and Beyond Meat’s
relationship. In furtherance of this expanded relationship, DLF planned to move
its production from its California facility to a facility in Mansfield, Texas to
support the higher production volume required by the amendment.
71.
Among other things, the amended ESA: (i) extended the term of the
parties’ relationship until at least April 2019; (ii) increased the minimum required
to be purchased by Beyond Meat to four million, five million, and six million
pounds of product, respectively, during the first three years; and (iii) removed
Beyond Meat’s right to produce any products internally, except for pilot
productions, and gave DLF the right of first refusal to expand its operations in the
23 Compendium of Evidence at COE0062 (Email from Donald Goodman to Ethan
Brown, Re: QC 01-27-16 beyond meat blue scoop, Jan. 27, 2016).
24 DLF Opposition at 7.
25 Id.
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event the Company’s production requirements exceeded the capabilities of DLF’s
new Texas facility.26
72.
DLF alleges that it relied on the Safety Audit Report’s conclusion that
there were no food-safety concerns present at Beyond Meat’s facility when it
agreed to the amended ESA.27
73.
Following the parties’ agreement to the amended ESA, DLF
continued to develop methods and processes for creating Beyond Meat’s products,
including the Beyond Burger – a process that DLF alleges took several months to
finalize, with “numerous changes being discussed on a near-daily basis.”28
74.
Beyond Meat officially launched the Beyond Burger in May 2016.
The Beyond Burger was an instant success, in some cases, selling out within an
hour of hitting the shelves.
D.
Beyond Meat Executes a Scheme to Replace DLF as Co-
Manufacturer
1.
Beyond Meat Covertly Negotiates with CLW to Replace
DLF as the Company’s Co-Manufacturer
75.
In or around January 2017, after the launch of the Beyond Burger and
more than two years before the amended ESA was set to expire, Beyond Meat
executives, who believed the ESA with DLF was too costly, covertly scheduled a
test with CLW29 to see if it was capable of replacing DLF as the Company’s co-
manufacturer.30
26 Compendium of Evidence at COE0029-45 (Amendment to Exclusive Supply
Agreement).
27 Second Amended Complaint, March 11, 2019 at 15.
28 DLF’s Opposition at 7-8.
29 As discussed supra at FN7, Ephgrave testified that CLW and ProPortion are in
effect the same company.
30 Compendium of Evidence at COE0068 (Email from Ephgrave to Brown, cc’ing
Goodman, Re: Hockey All Star Game, Feb. 1, 2017).
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76.
Brian Levy, a Partner at ProPortion, who is also connected to CLW,31
submitted a sworn declaration in the DLF Litigation admitting that ProPortion’s
relationship with Beyond Meat began no later than January 2017.32
77.
On February 1, 2017, the Company’s plan to replace DLF was
exposed when Ephgrave accidently included Goodman on an email discussing the
Company’s scheduled test with CLW. Ephgrave’s email stated: “We are testing
this Friday at CLW. If all goes wetland [sic], it meets everyone’s expectations, I
don’t see why we could not be up and running within two to three weeks.”33
78.
Within hours, Goodman notified Defendant Brown that DLF’s
lawyers believed Beyond Meat’s test violated the amended ESA and to cease
sharing information with other suppliers.34
79.
The next day, on February 2, 2017, Defendant Brown attempted to
mitigate Ephgrave’s mistake by alleging that while DLF and Beyond Meat have
“different views of the contract,” including “whether or not [Beyond Meat] can
produce our core product (fresh beef) elsewhere until [DLF is] ready,” Brown
would be pulling the test at CLW for “the health of our relationship.” Brown
further offered to meet with Goodman personally to put this matter behind them,
characterizing his offer as “very sincere and a reflection on what [he] hope[s] is a
mutual respect for one another.”35
31 Compendium of Evidence at COE0182-183 (California Secretary of State
Corporate Filing for CLW Foods.).
32 DLF’s Opposition at 19-20 (citing Levy Declaration in Support of ProPortion’s
MSJ at ¶ 4).
33 Compendium of Evidence at COE0068 (Email from Ephgrave to Brown, cc’ing
Goodman, Re: Hockey All Star Game, Feb. 1, 2017).
34 Compendium of Evidence at COE0071 (Email from Brown to Goodman, Re:
Beyond Meat, Feb. 2, 2017).
35 Id.
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80.
Despite Brown’s assurances to DLF, the Company continued to move
forward with CLW and began surreptitiously negotiating an agreement to replace
DLF as its co-manufacturer.
81.
Ephgrave testified that by late March 2017, he had “already been
talking to [CLW] for a while,” had engaged in negotiations, including discussing
price capabilities and quantities, and had taken a tour of CLW’s facility.36
Ephgrave further testified that, on or around April 12, 2017, he directed Sergio
Jimenez-Marquez, Beyond Meat’s Senior Director of Process Engineering, to send
CLW design drawings for how to set up their facility to produce the Company’s
products.37
82.
Ephgrave also testified that (like Beyond Meat before it contracted
with DLF), CLW had no prior experience mass-producing plant-based meat
products and that CLW would need Beyond Meat’s know-how to “jump start”
them.38
83.
According to Ephgrave, one of the reasons Beyond Meat was
exploring new co-manufacturers was because the Company considered the
required minimum purchases under the amended ESA excessive. Ephgrave
testified that after Defendant Nelson briefly left the Company in March 2017,
“that’s when a few things started bubbling up in terms of like the minimums.”39
Ephgrave alerted Defendant Brown that the Company’s inventory of product on
hand had ballooned to an estimated 1.2 million pounds because, under the ESA,
36 Compendium of Evidence at COE0105-106 (Excerpts from the Deposition
Testimony of Don Ephgrave, Mar. 12, 2018).
37 Id. at COE0095.
38 Id. at COE0094-95.
39 Id. at COE0106-107.
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Beyond Meat was required to accept whatever DLF produced and he “just kept
applying pressure to Ethan [Brown]” with respect to the minimums.40
2.
Beyond Meat Executes a Scheme to Justify Terminating the
Amended ESA
84.
After discovering that Beyond Meat had approached CLW and
ProPortion about becoming co-manufacturers for the Company, DLF alleges that
Beyond Meat invented false food safety concerns at DLF’s new Texas facility as a
pretext for terminating the amended ESA.41
85.
On April 12, 2017, Beyond Meat sent DLF a Notice of Breach
alleging multiple material breaches of the amended ESA related to food safety
concerns, including: (i) wood fragments in the raw ingredients and finished
product at DLF’s Mansfield facility, (ii) unsanitary conditions at DLF’s Mansfield
facility, including insects and the presence of Listeria and Salmonella bacteria, and
(iii) complaints of other foreign objects appearing in finished product.42 Per the
terms of the amended ESA, DLF was given 30 days to cure the breaches.
86.
Beyond Meat alleges that on May 3, 2017, it discovered that another
lot of finished product produced at DLF’s Mansfield facility had tested positive for
Salmonella. Beyond Meat further alleges that on May 8, 2017, an inspection of
DLF’s Mansfield facility by a third-party consultant conduct revealed that the
facility was contaminated with Salmonella.43
40 Id.
41 DLF’s Opposition at 4-5.
42 Beyond Meat’s Cross Complaint, July 27, 2017 at 8-11.
43 Id. at 11.
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87.
On May 23, 2017, Beyond Meat sent a Notice of Termination to DLF
stating that, due to DLF’s failure to cure the alleged breaches, the Company was
terminating the amended ESA.44
88.
DLF alleges that Beyond Meat shared DLF’s trade secrets (i.e. its
Batch Making Protocols) with CLW and ProPortion in violation of the NDA.45
Indeed, just weeks after Beyond Meat terminated the ESA, CLW and ProPortion
were producing Beyond Meat’s products, including the Beyond Burger, despite
having no experience mass-producing plant-based protein products.
89.
In fact, DLF discovered its Batch Making Protocol for the Beyond
Burger in the ProPortion files that were produced in discovery, buried in over
2,000 pages of what ProPortion represented were “Invoices and Purchase Orders”
and that ProPortion’s protocol for the Beyond Burger was nearly identical to its
own.46
E.
DLF Sues Beyond Meat For the Company’s Actions Surrounding
the Termination of the ESA
90.
On May 25, 2017, DLF commenced the DLF Litigation, filing a
complaint against Beyond Meat in the Superior Court of the State of California for
the County of Los Angles, asserting claims for, inter alia, breach of contract,
misappropriation of trade secrets, and unfair competition, seeking monetary
damages and injunctive relief.
91.
The DLF Litigation stemmed from Beyond Meat’s termination of the
ESA and DLF’s belief that the Company had shared DLF’s methods and processes
44 See Compendium of Evidence at COE0077-81 (Letter from Mitchell A. Kamin,
Counsel for Beyond Meat, to Gerald M. Chizever, Counsel for DLF, Re: Notice of
Termination, May 23, 2017).
45 Id. at 10.
46 Id.
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to create Beyond Meat’s products with its replacement co-manufacturers (e.g.
CLW and ProPortion) in violation of the NDA.
92.
On July 27, 2017, Beyond Meat filed a cross-complaint against DLF
alleging, inter alia, that DLF had breached the amended ESA by failing to produce
a saleable product stemming from customer complaints regarding foreign objects
found in products and the presence of Salmonella at DLF’s Texas facility.
93.
In October 2018, DLF filed an amended complaint adding ProPortion
as a defendant asserting, inter alia, claims arising from ProPortion’s alleged use of
DLF’s trade secrets to produce Beyond Meat’s products.
94.
On February 25, 2019, ProPortion moved for summary judgment
against DLF, claiming there was no genuine issue of material fact because there is
no evidence that ProPortion received DLF’s trade secrets and there no evidence
that ProPortion was aware of the ESA. This motion was denied.
95.
On March 11, 2019, DLF filed a second amended complaint, adding
claims of fraud and negligent misrepresentation against Beyond Meat. DLF’s new
claims alleged that the Safety Audit Report identified various food safety concerns
at Beyond Meat’s facility, but that prior to providing the Safety Audit Report to
DLF, the Company deleted significant portions of it to conceal these findings.47
F.
Beyond Meat Conceals the Risks of the DLF Litigation to Avoid
Compromising its IPO and “Unicorn” Status
96.
Throughout the Class Period, and beginning with the Company’s
Registration Statement, Beyond Meat concealed the risks presented by the DLF
Litigation.
97.
Leading up to the IPO, Beyond Meat was dubbed a “unicorn” - a
private company with a valuation of over $1 billion.48
47 DLF Opposition at 7.
48 Edward Helmore, Beyond Meat Preps For IPO as Rivals Take Bite Out of Food
Industry, THE GUARDIAN (April 28, 2019),
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98.
Indeed, investor excitement surrounding the IPO reached a fever
pitch. As a result, the Company steadily increased that number of shares it planned
to sell and the initial offering price. By the time of the IPO, Beyond Meat had
raised its offering price over 25% from initial projected offering price and
increased the offering by over 1 million shares.
99.
Disclosing the true facts surrounding the Company’s decision to
terminate the ESA with DLF and its continued use of DLF’s Batch Making
Protocols with a cheaper co-manufacturer in violation of the NDA, would have
quelled investor demand and market positivity surrounding the IPO because the
probable risk of liability in the DLF Litigation would have been acutely apparent.
100. Instead, in the Registration Statement, Beyond Meat affirmatively
proclaimed the Company’s innocence with respect to each of the claims alleged in
the DLF Litigation and provided only boilerplate risk disclosures that merely
warned investors that the Company “could” be required to pay DLF damages.
These disclosures were inadequate to warn investors of Beyond Meat’s actual risk
of liability and did not reflect Defendants’ knowledge of the events related to the
DLF Litigation.
101. On May 2, 2019, Beyond Meat conducted its IPO, issuing 11,068,750
shares of common stock at an offering price of $25.00 per share, generating
approximately $276,718,750 in gross proceeds.
102. By the close of the market on May 2, 2019, Beyond Meat shares had
soared to $65.75, for a gain of 163% and it became the biggest-popping U.S. IPO
in nearly two decades.
103. Defendants’ forceful rejection of the claims alleged in the DLF
Litigation and tepid warnings had their intended effect – investors and analysts
https://www.theguardian.com/business/2019/apr/28/beyond-meat-wall-street-
debut-public.
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bought into the hype surrounding the Company’s IPO, unencumbered by the
ongoing DLF Litigation and unable to decipher its true risk to the Company.
104. Following the IPO, Beyond Meat continued to keep investors in the
dark by consistently denying the merits of the claims alleged in the DLF Litigation
and by providing the same general risk disclosures to investors in all of the
Company’s Class Period Form 10-Q filings with the SEC.
G.
The Market Learns of Beyond Meat’s Real Risk of Liability in the
DLF Litigation
105. On January 24, 2020, the court in the DLF Litigation granted DLF’s
application for a Writ of Attachment, finding that it was more likely than not that
DLF would prevail on a portion of its breach of contract claim against Beyond
Meat. Specifically, the court issued a Right to Attach Order with respect to DLF’s
claims that Beyond Meat failed to pay money owed under the ESA for product
produced and delivered pursuant to the ESA.
106. On January 27, 2020, after the close of the markets, DLF issued a
press release announcing the judge’s decision and explaining to the market that, by
granting DLF’s motion, the judge ruled that DLF had “proved the probable validity
of its claim that Beyond Meat breached its manufacturing agreement with Don Lee
Farms.”49
107. DLF also disclosed that the court granted its motion to name
Defendant Nelson, Senior Quality Assurance Manager Jessica Quetsch and
Director of Operations Anthony Miller in its fraud claim related to the 2016 Safety
49 Press Release, Don Lee Farms, Judge Rules Don Lee Farms Likely to Obtain
Judgment. Beyond Meat’s CFO and Others Named Individually for Fraud,
Business Wire (Jan. 27, 2020),
https://www.businesswire.com/news/home/20200127005705/en/Judge-Rules-Don-
Lee-Farms-Obtain-
Judgment.#:~:text=Judge%20Rules%20Don%20Lee%20Farms%20Likely%20to%
20Obtain%20a%20Judgment,Others%20Named%20Individually%20for%20Fraud
.&text=LOS%20ANGELES%2D%2D(BUSINESS%20WIRE,agreement%20with
%20Don%20Lee%20Farms.
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Audit Report.50 As a result of discovery produced in the DLF Litigation, including
the deposition of Quetsch, DLF claimed it has reason to believe that Defendant
Nelson, Quetsch, and Miller “coordinated to modify the [Safety Audit] report by,
among other things, deleting significant provisions of it to conceal certain findings
about Beyond Meat’s manufacturing facility from Don Lee Farms.”51 The court
agreed, allowing the amendment.
108. Because of Beyond Meat’s blanket and repeated denials of DLF’s
claims, this was the first time the market could appreciate the validity and risks
posed by the DLF Litigation.
109. On January 28, 2020, an analyst from J.P. Morgan admitted that “[t]he
press release reads poorly for BYND” and that this news about the litigation is
“surely is an additional risk to the stock price,” while declining to handicap the
ultimate outcome of the DLF Litigation.52
110. As a result, on January 28, 2020, Beyond Meat’s stock price fell $4.63
per share, or 3.71%, to close at $120.12 per share.
V.
DEFENDANTS’ MATERIALLY FALSE AND MISLEADING
STATEMENTS AND OMISSIONS
111. Throughout the Class Period, Defendants issued false and misleading
statements concerning the Company’s risk of liability from the DLF Litigation by
failing to disclose that the Company knew liability was a near-certainty because it
had manufactured a reason to terminate the ESA with DLF, shared DLF’s trade
secrets with its replacement co-manufacturers in violation of the NDA, and had
altered the 2016 Safety Audit Report to induce DLF into entering into the amended
50 Id.
51 Motion to Amend at 6-7.
52 Ken Goldman, “Beyond Meat: Downgrading to Neutral as 65% Stock
Appreciation this Month Renders Risk/Reward More Balanced”, J.P. Morgan,
Jan. 28, 2020 at p. 1, available from Investext, accessed June 30, 2020.
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ESA to ensure that the process for manufacturing the Beyond Burger was perfected
before the relationship was terminated.
112. Defendants falsely assured the market that Beyond Meat was innocent
of all of the allegations asserted in the DLF Litigation and affirmatively denied
culpability for all of the claims. Additionally, Defendants understated the
Company’s true risks from the DLF Litigation by merely stating that the Company
“could” face liability, when Defendants knew that at least some of DLF’s claims
were meritorious.
113. As a result of the foregoing, Defendants’ statements about Beyond
Meat’s business, operations, and prospects were false and misleading, or lacked a
reasonable basis. These material misstatements had the cause and effect of
creating an unrealistically positive assessment of Beyond Meat’s likelihood of
success in the DLF Litigation in the market.
A.
The May 2, 2019 False and Misleading Statements
114. On or about May 2, 2019, Beyond Meat conducted the IPO. The
Registration Statement filed with the SEC in connection with IPO was signed by
the Individual Defendants.
115. The Company’s Registration Statement contained the following
statement regarding the DLF Litigation:
[O]n May 25, 2017, following our termination of our supply
agreement with Don Lee Farms, a co-manufacturer, Don Lee Farms
filed a lawsuit against us in California state court claiming that we
wrongfully
terminated
the
parties’
contract
and
that
we
misappropriated their trade secrets by sharing with subsequent co-
manufacturers the process for manufacturing our products – processes
which they claim to have developed…On March 11, 2019, Don Lee
Farms filed a second amended complaint to add claims for fraud and
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negligent misrepresentations against us…We believe we were justified
in terminating the supply agreement with Don Lee Farms, that we
did not misappropriate their alleged trade secrets, [and] that we are
not liable for the fraud or negligent misrepresentation alleged in the
proposed second amended complaint… (emphasis added).
116. The Company’s Offering Documents also provided the following risk
language with respect to the DLF Litigation:
[W]e cannot assure you that Don Lee Farms or ProPortion53 will not
prevail in all or some of their claims…For example, if Don Lee Farms
succeeds in the lawsuit we could be required to pay damages,
including but not limited to contract damages reasonably calculated at
what we would have paid Don Lee Farms to produce our products
through 2019, the end of the contract term, and Don Lee Farms could
also claim some ownership in the intellectual property associated with
the production of certain of our products or in the products
themselves, and thus claim a stake in the value we have derived and
will derive from the use of that intellectual property after we
terminated our supply agreement with Don Lee Farms.
117. The statements in ¶¶ 114-116 were false and misleading or omitted
material facts when made because: (i) Defendants failed to disclose that Beyond
Meat had deliberately manufactured circumstances that would allow the Company
to wrongfully terminate the ESA in order to contract with less expensive co-
manufacturers; (ii) Defendants failed to disclose that they shared DLF’s trade
secrets with ProPortion and/or CLW in violation of the NDA; (iii) Defendants
failed to disclose that they were continuing to use DLF’s trade secrets in the
53 On January 3, 2019, ProPortion filed a cross-complaint against Beyond Meat
asserting claims of total and partial equitable indemnity, contribution and
repayment.
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production of the Company’s products after the termination of the ESA; (iv)
Defendants failed to disclose that they had altered the 2016 Safety Audit Report
provided to DLF in order to induce DLF to enter into the amended ESA; (v)
Defendants concealed the actual known risks that the Company would likely be
subject to liability in the DLF Litigation; and (iv) as a result the Company’s public
statements were materially false and misleading at all relevant times.
B.
The June 12, 2019 False and Misleading Statements
118. On June 12, 2019, Beyond Meat filed its quarterly report on Form 10-
Q with the SEC for the quarter ended March 30, 2019 (the “Q1 2019 10-Q”). The
Q1 2019 10-Q contained Sarbanes-Oxley (“SOX”) certification signed by the
Individual Defendants attesting that “the information contained in the [Q1 2019
10-Q] fairly presents, in all material respects the financial condition and results of
operations of the Company for the periods presented therein.”
119. The Q1 2019 10-Q reiterated Beyond Meat’s position contained in the
Offering Documents with respect to the DLF Litigation, stating:
On May 25, 2017, Don Lee Farms, a division of Goodman Food
Products, Inc., filed a complaint against us in the Superior Court of
the State of California for the County of Los Angeles asserting claims
for breach of contract, misappropriation of trade secrets, unfair
competition under the California Business and Professions Code,
money owed and due, declaratory relief and injunctive relief, each
arising out of our decision to terminate an exclusive supply agreement
between us and Don Lee Farms. We deny all of these claims…On
March 11, 2019, Don Lee Farms filed a second amended complaint to
add claims for fraud and negligent misrepresentation against us. On
May 30, 2019, the judge denied our motion to dismiss the fraud a
negligent
misrepresentation
claims,
allowing
the
claims
to
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proceed…We believe we were justified in terminating the supply
agreement with Don Lee Farms, that we did not misappropriate
their alleged trade secrets, [and] that we are not liable for the fraud
or negligent misrepresentation alleged in the proposed second
amended complaint… (emphasis added).
120. The Q1 2019 10-Q also reiterated the generic risk disclosures
contained in the Offering Documents, which framed Beyond Meat’s risk of
liability in the DLF Litigation as merely a possibility. Specifically, the Q1 2019
10-Q once again stated:
[W]e cannot assure you that Don Lee Farms or ProPortion will not
prevail in all or some of their claims…For example, if Don Lee Farms
succeeds in the lawsuit we could be required to pay damages,
including but not limited to contract damages reasonably calculated at
what we would have paid Don Lee Farms to produce our products
through 2019, the end of the contract term, and Don Lee Farms could
also claim some ownership in the intellectual property associated with
the production of certain of our products or in the products
themselves, and thus claim a stake in the value we have derived and
will derive from the use of that intellectual property after we
terminated our supply agreement with Don Lee Farms.
121. The statements in ¶¶ 118-120 were false and misleading or omitted
material facts when made because: (i) Defendants failed to disclose that Beyond
Meat had deliberately manufactured circumstances that would allow the Company
to wrongfully terminate the ESA in order to contract with less expensive co-
manufacturers; (ii) Defendants failed to disclose that they shared DLF’s trade
secrets with ProPortion and/or CLW in violation of the NDA; (iii) Defendants
failed to disclose that they were continuing to use DLF’s trade secrets in the
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production of the Company’s products after the termination of the ESA; (iv)
Defendants failed to disclose that they had altered the 2016 Safety Audit Report
provided to DLF in order to induce DLF to enter into the amended ESA; (v)
Defendants concealed the actual known risks that the Company would likely be
subject to liability in the DLF Litigation; and (iv) as a result the Company’s public
statements were materially false and misleading at all relevant times.
C.
The July 29, 2019 False and Misleading Statements
122. On July 29, 2019, Beyond Meat filed its quarterly report on Form 10-
Q with the SEC for the quarter ended June 29, 2019 (the “Q2 2019 10-Q”). The
Q2 2019 10-Q contained Sarbanes-Oxley (“SOX”) certification signed by the
Individual Defendants attesting that “the information contained in the [Q2 2019
10-Q] fairly presents, in all material respects the financial condition and results of
operations of the Company for the periods presented therein.”
123. The Q2 2019 10-Q once again proclaimed the Company’s innocence
with respect the DLF Litigation and stated the following:
On May 25, 2017, Don Lee Farms, a division of Goodman Food
Products, Inc., filed a complaint against us in the Superior Court of
the State of California for the County of Los Angeles asserting claims
for breach of contract, misappropriation of trade secrets, unfair
competition under the California Business and Professions Code,
money owed and due, declaratory relief and injunctive relief, each
arising out of our decision to terminate an exclusive supply agreement
between us and Don Lee Farms. We deny all of these claims…On
March 11, 2019, Don Lee Farms filed a second amended complaint to
add claims for fraud and negligent misrepresentation against us. On
May 30, 2019, the judge denied our motion to dismiss the fraud a
negligent misrepresentation claims, allowing the claims to proceed.
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On June 19, 2019, we filed an answer denying Don Lee Farms’
claims…We believe we were justified in terminating the supply
agreement with Don Lee Farms, that we did not misappropriate
their alleged trade secrets, [and] that we are not liable for the fraud
or negligent misrepresentation alleged in the proposed second
amended complaint… (emphasis added).
124. The Q2 2019 10-Q repeated the same generic risk disclosures that
only informed investors of the mere possibility that the Company could face
liability in the DLF Litigation. These disclosures were not tailored to Beyond
Meat’s actual known risks with respect to the DLF Litigation, given the
Company’s knowledge of its own conduct.
125. The Q2 2019 10-Q contained the following risk disclosures with
respect to the DLF Litigation:
[W]e cannot assure you that Don Lee Farms or ProPortion will not
prevail in all or some of their claims…For example, if Don Lee Farms
succeeds in the lawsuit we could be required to pay damages,
including but not limited to contract damages reasonably calculated at
what we would have paid Don Lee Farms to produce our products
through 2019, the end of the contract term, and Don Lee Farms could
also claim some ownership in the intellectual property associated with
the production of certain of our products or in the products
themselves, and thus claim a stake in the value we have derived and
will derive from the use of that intellectual property after we
terminated our supply agreement with Don Lee Farms.
126. The statements in ¶¶ 122-125 were false and misleading or omitted
material facts when made because: (i) Defendants failed to disclose that Beyond
Meat had deliberately manufactured circumstances that would allow the Company
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to wrongfully terminate the ESA in order to contract with less expensive co-
manufacturers; (ii) Defendants failed to disclose that they shared DLF’s trade
secrets with ProPortion and/or CLW in violation of the NDA; (iii) Defendants
failed to disclose that they were continuing to use DLF’s trade secrets in the
production of the Company’s products after the termination of the ESA; (iv)
Defendants failed to disclose that they had altered the 2016 Safety Audit Report
provided to DLF in order to induce DLF to enter into the amended ESA; (v)
Defendants concealed the actual known risks that the Company would likely be
subject to liability in the DLF Litigation; and (iv) as a result the Company’s public
statements were materially false and misleading at all relevant times.
D.
The November 12, 2019 False and Misleading Statements
127. On November 12, 2019, Beyond Meat filed its quarterly report on
Form 10-Q with the SEC for the quarter ended September 28, 2019 (the “Q3 2019
10-Q”). The Q3 2019 10-Q contained Sarbanes-Oxley (“SOX”) certification
signed by the Individual Defendants attesting that “the information contained in the
[Q3 2019 10-Q] fairly presents, in all material respects the financial condition and
results of operations of the Company for the periods presented therein.”
128. The Q3 2019 10-Q contained the following statement, echoing the
Company’s prior statements specifically denying culpability for each claim alleged
in the DLF Litigation:
On May 25, 2017, Don Lee Farms, a division of Goodman Food
Products, Inc., filed a complaint against us in the Superior Court of
the State of California for the County of Los Angeles asserting claims
for breach of contract, misappropriation of trade secrets, unfair
competition under the California Business and Professions Code,
money owed and due, declaratory relief and injunctive relief, each
arising out of our decision to terminate an exclusive supply agreement
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between us and Don Lee Farms. We deny all of these claims…On
March 11, 2019, Don Lee Farms filed a second amended complaint to
add claims for fraud and negligent misrepresentation against us. On
May 30, 2019, the judge denied our motion to dismiss the fraud a
negligent misrepresentation claims, allowing the claims to proceed.
On June 19, 2019, we filed an answer denying Don Lee Farms’
claims…We believe we were justified in terminating the supply
agreement with Don Lee Farms, that we did not misappropriate
their alleged trade secrets, [and] that we are not liable for the fraud
or negligent misrepresentation alleged in the proposed second
amended complaint… (emphasis added).
129. The Q3 2019 10-Q also contained the following generic risk
disclosures, which were similarly provided in the Company’s previous quarterly
filings:
[W]e cannot assure you that Don Lee Farms or ProPortion will not
prevail in all or some of their claims…For example, if Don Lee Farms
succeeds in the lawsuit we could be required to pay damages,
including but not limited to contract damages reasonably calculated at
what we would have paid Don Lee Farms to produce our products
through 2019, the end of the contract term, and Don Lee Farms could
also claim some ownership in the intellectual property associated with
the production of certain of our products or in the products
themselves, and thus claim a stake in the value we have derived and
will derive from the use of that intellectual property after we
terminated our supply agreement with Don Lee Farms.
130. The statements in ¶¶ 127-129 were false and misleading or omitted
material facts when made because: (i) Defendants failed to disclose that Beyond
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Meat had deliberately manufactured circumstances that would allow the Company
to wrongfully terminate the ESA in order to contract with less expensive co-
manufacturers; (ii) Defendants failed to disclose that they shared DLF’s trade
secrets with ProPortion and/or CLW in violation of the NDA; (iii) Defendants
failed to disclose that they were continuing to use DLF’s trade secrets in the
production of the Company’s products after the termination of the ESA; (iv)
Defendants failed to disclose that they had altered the 2016 Safety Audit Report
provided to DLF in order to induce DLF to enter into the amended ESA; (v)
Defendants concealed the actual known risks that the Company would likely be
subject to liability in the DLF Litigation; and (iv) as a result the Company’s public
statements were materially false and misleading at all relevant times.
E.
The Truth is Revealed
131. On January 27, 2020, after the close of the markets, DLF issued a
press release announcing that the judge in the DLF Litigation issued a Right to
Attach Order, and by doing so, ruled that DLF “proved the probable validity of its
claim that Beyond Meat breached its manufacturing agreement with Don Lee
Farms.”54
132. DLF also revealed that based on discovery produced in the DLF
Litigation, the court granted its request to name Defendant Nelson, Senior Quality
Assurance Manager Jessica Quetsch and Director of Operations Anthony Miller in
its fraud claim, alleging that these executives coordinated to intentionally doctor
and omit material information from the 2016 Safety Audit Report.
54 Press Release, Don Lee Farms, Judge Rules Don Lee Farms Likely to Obtain
Judgment. Beyond Meat’s CFO and Others Named Individually for Fraud,
Business Wire (Jan. 27, 2020),
https://www.businesswire.com/news/home/20200127005705/en/Judge-Rules-Don-
Lee-Farms-Obtain-
Judgment.#:~:text=Judge%20Rules%20Don%20Lee%20Farms%20Likely%20to%
20Obtain%20a%20Judgment,Others%20Named%20Individually%20for%20Fraud
.&text=LOS%20ANGELES%2D%2D(BUSINESS%20WIRE,agreement%20with
%20Don%20Lee%20Farms.
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133. On January 28, 2020, following the revelations that Beyond Meat was
likely to face liability in the DLF Litigation and that Defendant Nelson and other
Beyond Meat executives were added as defendants in connection with DLF’s fraud
claims related to the 2016 Safety Audit Report, Beyond Meat’s stock price fell
$4.63 per share, or 3.71%, to close at $120.12 per share.
VI.
ADDITIONAL SCIENTER ALLEGATIONS
134. As alleged herein, Defendants acted with scienter in that they knew,
or recklessly disregarded, that the public documents and statements they issued and
disseminated to the investing public in the name of the Company or in their own
name during the Class Period were materially false and misleading.
135. Defendants knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements and documents as primary
violations of the federal securities laws. Defendants, by virtue of their receipt of
information reflecting the true facts regarding the circumstances of the termination
of the ESA, the dissemination and use of DLF’s trade secrets in the production of
Beyond Meat’s products, and the doctoring of the Safety Audit Report in order to
conceal identified food safety issues at Beyond Meat’s facilities prior to providing
the 2016 Safety Audit Report to DLF, were active and culpable participants in the
fraudulent scheme alleged herein.
136. Defendants knew or recklessly disregarded the false and misleading
nature of the information that they caused to be disseminated to the investing
public. The fraudulent scheme described herein could not have been perpetrated
during the Class Period without the knowledge and complicity or, at least, the
reckless disregard of the personnel at the highest levels of the Company, including
the Individual Defendants.
137. Defendants, because of their positions with Beyond Meat, made or
controlled the contents of the Company’s public statements during the Class
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Period. The Individual Defendants were provided with or had access to the
information alleged herein to be false or misleading prior to or shortly after their
issuance and had the ability and opportunity to prevent their issuance or cause
them to be corrected. Because of their positions and access to material non-public
information, the Individual Defendants knew or recklessly disregarded that the
adverse facts specified herein had not be disclosed to or were being concealed from
the public and that the positive representations that were being made were
materially false and misleading. As a result, the Individual Defendants are
responsible for the accuracy of Beyond Meat’s corporate statements and are
therefore responsible for the representations contained therein.
A.
The Fraud Impacted Beyond Meat’s Core Operations
138. Defendants’ false and misleading statements and omissions concern
Beyond Meat’s core operations. All of Beyond Meat’s revenue is derived from the
manufacture and sale of its plant-based meat products.
139. From 2014 until the termination of the ESA in May 2017, DLF was
Beyond Meat’s exclusive co-manufacturer. As the Company’s exclusive co-
manufacturer, DLF was responsible for producing all of Beyond Meat’s products,
including being involved in the development and launch of the Beyond Burger in
2016.
140. The Beyond Burger is Beyond Meat’s flagship product. It accounted
for approximately 48%, 70%, and 64% of the Company’s gross revenues in 2017,
2018, and 2019, respectively.55 In March 2020, Beyond Meat acknowledged the
importance of the Beyond Burger to its revenues, stating: “[w]e believe that sales
of the Beyond Burger will continue constitute a significant portion of our revenues,
income and cash flow for the foreseeable future.”56
55 Beyond Meat, Inc. Annual Report (Form 10-K) (Mar. 19, 2020) at 2.
56 Id.
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141. Defendants also represented that “[r]esearch, development, and
innovation are core elements of our business strategy, and we believe they
represent a critical competitive advantage for us.”57
142. Additionally, in a February 2, 2017 email exchange with Goodman,
Defendant Brown characterized fresh beef, i.e. the Beyond Burger, as the
Company’s “core product.”58
143. Accordingly, the importance and exclusive nature of DLF’s role in
producing Beyond Meat’s plant-based meat products, as well as its role in the
development of new products, including the flagship Beyond Burger, raises a
strong inference of scienter that the Individual Defendants knew or recklessly
disregarded that their statements affirmatively proclaiming the Company’s
innocence in the DLF Litigation and their associated general risk disclosures, were
materially false and misleading or omitted material facts.
B.
The Individual Defendants Controlled the Contents of the
Company’s Public Statements during the Class Period
144. Because of their high-level positions, each Individual Defendant was
provided with, or had access to, copies of the documents alleged herein to be false
or misleading prior to, or shortly after, their issuance, and had the ability and
opportunity to prevent their issuance or cause them to be corrected. Because of
their position and access to both public and non-public information concerning the
Company, the Individual Defendants knew or recklessly disregarded that the
adverse facts alleged herein had not been disclosed to, and were being concealed
from the public, and that the representations that were being made to investors
about the conduct alleged in the DLF Litigation and the Company’s risk of
liability, were false, misleading, or omitted material facts.
57 Id.
58 Compendium of Evidence at COE0071 (Email from Brown to Goodman, Re:
Beyond Meat, Feb. 2, 2017).
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145. The Individual Defendants were responsible for the accuracy of
Beyond Meat’s corporate statements, and each is therefore responsible and liable
for the representations contained therein or omitted therefrom. Beyond Meat
knowingly or recklessly made the materially false and misleading statements and
omissions of material fact alleged herein based on the fact that the Individual
Defendants knew or recklessly disregarded that the Company’s statements were
materially false or misleading or omitted material facts at the time such statements
were made. Each of the Individual Defendants was among the most senior
executives of the Company throughout the Class Period and a member of the
Company’s management, and their knowledge may be imputed to the Company.
146. Statements made by Beyond Meat and the Individual Defendants
during the Class Period suggest that they had access to the disputed information.
All of the Defendants’ material misrepresentations or omissions alleged herein
explicitly pertain to the likelihood the Company would be subject to liability for
the conduct alleged in the DLF Litigation, and could not have been made with any
reasonable basis in fact, as the Individual Defendants either personally signed the
Company’s co-manufacturing agreements and was involved in the selection of the
Company’s co-manufacturer, in the case of Brown, or had access to facts
demonstrating that Beyond Meat engaged in conduct that increased the Company’s
risk of liability in the DLF Litigation beyond what it had been telling the market.
VII. PRESUMPTION OF RELIANCE: FRAUD ON THE MARKET
147. At all relevant times, the market for Beyond Meat securities was an
efficient market for the following reasons among others: (1) the securities were
listed and actively traded on the NASDAQ, a highly efficient market; (2) as an
issuer of securities, Beyond Meat filed periodic public reports on Forms 10-K and
10-Q with the SEC; (3) Beyond Meat regularly issued press releases that were
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carried on national news wires, were publicly available and entered the public
marketplace.
148. As a result, the market for the securities promptly digested current
info regarding Beyond Meat from all publicly available sources and reflected such
information in Beyond Meat’s stock price.
149. Under these circumstances, all purchasers of Beyond Meat securities
during the Class Period suffered similar injury through their purchases at
artificially inflated prices and a presumption of reliance applies.
150. Further, to the extent that Defendants concealed or improperly failed
to disclose material facts with regard to the Company, Plaintiff is entitled to a
presumption of reliance in accordance with Affiliated Ute Citizens of Utah v.
United States, 406 U.S. 128, 153 (1972).
VIII. LOSS CAUSATION
151. During the Class Period, Beyond Meat securities were artificially
inflated due to Defendants’ misleading public statements and omissions. Because
investors were unaware that Defendants’ representations identified herein were
false and misleading (and that Defendants failed to disclose the Company’s
conduct elevated the Company’s risk of liability in the DLF Litigation beyond a
mere possibility), they paid an artificially inflated price for their purchase of
Beyond Meat securities.
152. When
the
false
and
misleading
nature
of
Defendants’
misrepresentations were disclosed and became apparent to the market, the price of
Beyond Meat common stock fell as the prior artificial inflation came out.
153. As a result of their purchases of Beyond Meat securities during the
Class Period, Plaintiffs and other Class members suffered economic loss, i.e.,
damages under the federal securities laws.
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A.
Corrective Disclosure
154. The truth behind Defendants’ various false statements and material
omissions was revealed to the market on January 27, 2020, causing Plaintiffs and
the Class to suffer significant losses. The DLF Press Release revealed new
material information showing it is likely that Beyond Meat breached the ESA with
DLF, that Defendant Nelson and other Beyond Meat executives may be liable for
fraud for altering the 2016 Safety Audit Report, and that Beyond Meat will likely
face liability in the DLF Litigation. This revelation also called into question the
Company’s risk of liability arising from all DLF’s claims, as the Company’s
blanket denial of culpability was discredited.
155. The decline in the price of Beyond Meat securities and the resulting
losses are directly attributable to the disclosure of information and materialization
of the risks that were misrepresented or concealed by Defendants. Had investors
known of the material adverse information concealed by Defendants, or been
aware of the truth behind their material misstatements, they would not have
purchased Beyond Meat securities at artificially inflated prices.
156. The decline in the price of Beyond Meat stock after the facts
contained in the DLF Press Release were disclosed were a direct result of the
nature and extend of Defendants’ fraudulent misrepresentations being revealed to
investors.
B.
Materialization of the Risk
157. Alternatively, loss causation (i.e. a causal connection between
Defendants’ misrepresentation and the loss) can be demonstrated by showing the
market’s reaction to the materialization of risks that were concealed by
Defendants’ fraudulent statements.
158. Investors were misled by Defendants’ false statements that Beyond
Meat did not wrongfully terminate the ESA, did not misappropriate DLF’s trade
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secrets and did not purposefully or negligently alter the 2016 Safety Audit Report.
Defendants’ false statements served to conceal the true level of risk that Beyond
Meat related to the DLF Litigation.
159. It was foreseeable that Beyond Meat’s scheme to create a pretext to
terminate the ESA with DLF in order to contract with a less costly co-
manufacturer, while continuing to utilize DLF’s proprietary processes and methods
of production in violation of the NDA, would likely lead to negative financial
consequences for Beyond Meat, including civil liability and the possible loss of
claim to intellectual property going forward. Nevertheless, Defendants concealed
the true likelihood of these consequences from investors through their explicit
denials and boilerplate warnings.
160. The value of Plaintiffs’ and the Class’s investments in Beyond Meat
were negatively impacted when the concealed risks materialized when the court in
the DLF Litigation found that DLF was likely to obtain a judgment with respect to
its breach of contract claims and it was revealed that discovery produced in the
DLF Litigation implicated Defendant Nelson and other Beyond Meat executives in
a coordinated effort to doctor the 2016 Safety Audit Report.
161. After the January 27, 2020 post-market disclosures, Beyond Meat’s
common stock fell $4.63 per share, or more than 3.7% to close at $120.12 on
January 28, 2020.
162. Defendants’ repeated denials of culpability made throughout the Class
Period related to the DLF Litigation combined with Defendants’ efforts to conceal
all evidence submitted in the DLF Litigation from the public, clouded investors’
ability to independently evaluate the Company’s true risk of liability. After the
January 27, 2020 disclosure, for the first time, the market appreciated that DLF’s
claims were legitimate and that the risks presented by the DLF Litigation were far
more significant than the Company had represented.
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163. The timing and the significance of the price decline in Beyond Meat
securities on January 27, 2020 negates any inference that the loss suffered by
Plaintiffs and the other Class members was caused by changed market conditions,
macroeconomic or industry factors or Company-specific facts unrelated to
Defendants’ misstatements. The economic loss, i.e. damages suffered by Plaintiffs
and other Class members was a direct result of Defendants’ misstatements and
omissions and the subsequent significant decline in value of Beyond Meat’s
securities when the truth about Defendants’ misrepresentations was revealed.
IX.
CLASS ACTION ALLEGATIONS
164. This is a class action pursuant to Federal Rules of Civil Procedure
23(a) and 23(b)(3) on behalf of a Class of all persons who purchased Beyond Meat
securities on the open market on a U.S. stock exchange during the Class Period and
were damaged thereby.
165. Excluded from the Class are: (1) Beyond Meat, and its officers,
directors, employees, affiliates, legal representative, predecessors, successors and
assigns, and any entity in which any of them have a controlling interest or are a
parent; and (2) Defendants, their immediate families, employees, affiliates, legal
representative, heirs, predecessors, successors and assigns, and any entity in which
any of them has a controlling interest.
166. The members of the Class are so numerous that joinder of all
members is impracticable. Throughout the Class Period, Beyond Meat common
stock traded on the NASDAY under the ticker symbol “BYND.” While the exact
number of Class members is unknown to Plaintiffs at this time and can only be
ascertained through appropriate discovery, Plaintiffs believe there are thousands of
Class members located throughout the United States. Record owners and other
members of the Class may be identified from records maintained by Beyond Meat
or its transfer agent and may be notified of this action by mail or other appropriate
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means, using a form of notice similar to that customarily used in securities class
actions.
167. Common questions of law and fact exist as to all members of the
Class and predominate over any questions solely affecting any individual members
of the Class. The questions of law and fact common to the Class include: (1)
whether Defendants violated the Exchange Act; (2) whether Defendants issued
false or misleading statements; and (3) the extent to which members of the Class
have sustained damages and the proper measure of any such damages.
168. Plaintiffs’ claims are typical of the claims of other Class members, as
all members of the Class were similarly affected by Defendants’ wrongful conduct
in violation of federal securities laws as complained of herein.
169. Plaintiffs will fairly and adequately protect the interests of the
members of the Class and has retained counsel that is competent and experienced
in class and securities litigation. Plaintiffs have no interest that is in conflict with,
or otherwise antagonistic to the interests of other Class members.
170. As class action is superior to all other available methods for the fair
and efficient adjudication of this controversy since joinder of all members is
impracticable. Furthermore, as the damages suffered by individual Class members
may be relatively small, the expense and burden of individual litigation make it
impossible for members of the Class to individually redress the wrongs done to
them.
171. There will be no difficulty in management of this action as a class
action.
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X.
CLAIMS FOR RELIEF
CAUSES OF ACTION
COUNT I
VIOLATIONS OF SECTION 10(B) OF THE EXCHANGE ACT AND RULE
10B-5 PROMULGATED THEREUNDER AGAINST ALL DEFENDANTS
172. Plaintiffs repeat and reallege each and every allegation contained
above as if fully set forth herein.
173. During the Class Period, Defendants disseminated or approved the
false statements specified above, which they knew were, or disregarded with
deliberate recklessness, misleading because they contained misrepresentations and
failed to disclose material facts necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading.
174. During the Class Period, Defendants carried out a plan, scheme or
course of conduct which intended to and, throughout the Class Period, did:
(i) deceive the investing public, including Plaintiffs and other Class members, as
alleged herein; and (ii) caused Plaintiffs and other Class members to purchase
Beyond Meat common stock at artificially inflated prices.
175. In furtherance of this unlawful plan, scheme or course of conduct,
Defendants: (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material facts or omitted to state material facts necessary to
make the statements not misleading; and (iii) engaged in acts, practices, and a
course of business, which operated as a fraud and deceit upon the purchasers of the
Company’s securities in an effort to maintain artificially high market prices for
Beyond Meat securities in violation of Section 10(b) of the Exchange Act and Rule
10b-5.
176. Defendants employed devices, schemes and artifices to defraud, while
in possession of material adverse non-public information and engaged in acts
practices and a course of conduct as alleged herein, which included the making of,
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or participation in the making of, untrue statements of material facts or omitting to
state material facts necessary in order to make the statements about Beyond Meat
and its business operations and future prospects in light of the circumstances under
which they were made, not misleading, as set forth more particularly herein, and
engaged in a course of business which operated as a fraud and deceit upon the
purchasers of the Company’s securities during the Class Period.
177. Each of the Individual Defendants’ primary liability and control
person liability arises from the following facts: (i) the Individual Defendants were
high-level executives or directors at the Company during the Class period and
members of the Company’s management team or had control thereof; (ii) the
Individual Defendants, by virtue of their responsibilities as a senior officer or
director of the Company, were privy to and participated in the creation,
development, and reporting of the Company’s periodic disclosures to investors;
(iii) the Individual Defendants were advised of and had access to other members of
the Company’s management team and internal information about Beyond Meat,
including financial information and information about the Company’s contractual
relationships and manufacturing process; (iv) the Individual Defendants were
aware of the Company’s dissemination of information to the investing public
which they knew or recklessly disregarded was materially false or misleading.
178. Defendants had actual knowledge of the misrepresentations or
omissions of material facts as set forth herein, or acted with reckless disregard for
the truth in that they failed to ascertain and disclose such facts, even though such
facts were available to them. Defendants’ material misrepresentations or
omissions were done knowingly or recklessly and for the purpose and effect of
concealing material problems with Beyond Meat’s business from the investing
public and supporting the artificially inflated price of its common stock. As
demonstrated by the allegations above, Defendants, if they did not have actual
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knowledge of the misrepresentations or omissions alleged, were reckless in failing
to obtain such knowledge by deliberately refraining from taking those steps
necessary to discover whether those statements were false or misleading.
179. As a result of the dissemination of the materially false or misleading
information or failure to disclose material facts, as set forth above, the market price
of Beyond Meat’s securities was artificially inflated during the Class Period. In
ignorance of the fact that the market price of the Company’s securities was
artificially inflated, and relying directly or indirectly on the false and misleading
statements made by Defendants, or upon the integrity of the market in which the
securities trade, or in the absence of material adverse information that was known
to or recklessly disregarded by Defendants, but not disclosed in public statements
by Defendants during the Class Period, Plaintiffs and other members of the Class
acquired Beyond Meat securities at artificially high prices and were damaged
thereby.
180. At the time of Defendants’ misrepresentations or omissions, Plaintiffs
and other members of the Class were ignorant of their falsity, and believed them to
be true. Had Plaintiffs and other members of the Class and the marketplace known
the truth regarding Beyond Meat, which was not disclosed by Defendants,
Plaintiffs and other members of the Class would not have purchased Beyond Meat
securities, or, would not have done do at the artificially inflated prices which they
paid.
181. As a direct and proximate result of the Defendants’ wrongful conduct,
Plaintiffs and other members of the Class suffered damages in connection with
their respective purchases and sales of Beyond Meat securities during the Class
Period.
182. By virtue of the foregoing, Defendants violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
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COUNT II
VIOLATIONS OF SECTION 20(a) OF THE EXCHANGE ACT AGAINST
THE INDIVIDUAL DEFENDANTS
183. Plaintiffs repeat and reallege each and every allegation contained
above as if set forth fully herein.
184. The Individual Defendants acted as controlling persons of Beyond
Meat within the meaning of Section 20(a) of the Exchange Act as alleged herein.
By virtue of their high-level positions, and their ownership and contractual rights,
participation in or awareness of the Company’s operations or intimate knowledge
of the false statements filed by the Company with the SEC and disseminated to the
investing public, the Individual Defendants had the power to, and did, directly or
indirectly, influence or control the decision-making of the Company, including the
content and dissemination of the various statements that Plaintiffs contend are false
and misleading. The Individual Defendants were provided with or had unlimited
access to copies of the Company’s reports, press releases, public filings and other
statements alleged by Plaintiffs to be false and misleading prior to or shortly after
these statements were issued and had the ability to prevent the issuance of these
statements or cause the statements to be corrected.
185. Additionally, the Individual Defendants had direct and supervisory
involvement in the day-to-day operations of the Company and, therefore, are
presumed to have had the power to control or influence the conduct giving rise to
the securities violations as alleged herein, and exercised the same.
186. As set forth above, Defendants violated Sections 10(b) and Rule 10b-
5 by their acts or omissions as alleged in this Complaint. By virtue of their
positions as controlling persons, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act.
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187. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiffs and other members of the Class suffered damages in connection with
their purchases of securities during the Class Period.
188. By virtue of the forgoing, the Individual Defendants violated
Section 20(a) of the Exchange Act.
XI.
PRAYER FOR RELIEF
A.
Determining that this action is a proper class action and certifying
Plaintiffs as class representatives under Rule 23 of the Federal Rules of Civil
Procedure;
B.
Awarding damages in favor of Plaintiffs and other Class Members
against Defendants, jointly and severally, for all damages sustained as a result of
Defendants’ violations of the Securities Exchange Act of 1934, in an amount to be
proven at trial, including interest thereon;
C.
Awarding Plaintiffs and the Class their reasonable costs and expenses
incurred in this action including counsel fees and expert fees; and
D.
Awarding such other and further relief as the Court may deem just and
proper.
XII. JURY TRIAL DEMANDED
Plaintiffs hereby demand a trial by jury.
Respectfully submitted,
DATED: July 1, 2020
KAPLAN FOX & KILSHEIMER LLP
By: /s/ Justin B. Farar
Justin B. Farar
Justin B. Farar (SBN 211556)
Email: jfarar@kaplanfox.com
12400 Wilshire Boulevard, Suite 460
Los Angeles, CA 90025
Telephone: 310.614.7260
Facsimile: 310.575.8697
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KAPLAN FOX & KILSHEIMER LLP
Laurence D. King (SBN 206423)
Email: lking@kaplanfox.com
Mario M. Choi (SBN 243409)
Email: mchoi@kaplanfox.com
1999 Harrison Street, Suite 1560
Oakland, California 94612
Telephone: 415.772.4700
Facsimile: 415.772.4707
Counsel for Block Investments Corporation and
Liaison Counsel for the Proposed Class
BERNSTEIN LIEBHARD LLP
Stanley D. Bernstein (pro hac vice to be filed)
Email: bernstein@bernlieb.com
Stephanie M. Beige (pro hac vice to be filed)
Email: beige@bernlieb.com
Peter J. Harrington (pro hac vice to be filed)
Email: pharrington@bernlieb.com
10 East 40th Street
New York, NY 10016
Tel: (212) 779-1414
Fax: (212) 779-3218
Counsel for Plaintiffs and the Proposed Class
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PROOF OF SERVICE VIA ELECTRONIC POSTING PURSUANT TO
CENTRAL DISTRICT OF CALIFORNIA LOCAL RULES
AND ECF GENERAL ORDER NO. 10-07
I HEREBY CERTIFY that, on July 1, 2020, I electronically filed the
foregoing with the Clerk of Court using the CM/ECF system, which will send a
notice of electronic filing to all registered users. I certify under penalty of perjury
under the laws of the United States of America that the foregoing is true and
correct.
Executed on July 1, 2020.
/s/ Justin B. Farar
Justin B. Farar
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