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Southern District Of New York Dismisses Putative Class Action Against Beverage Manufacturer For Failure To Adequately Allege Misrepresentations
12/13/2022On December 5, 2022, Judge Denise Cote of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against an alcoholic beverage manufacturer and certain of its executives. Siegel v. Boston Beer Co., Inc., 2022 WL 17417111 (S.D.N.Y. Dec. 5, 2022). Plaintiff alleged that the company made misleading statements related to the performance of the company’s products in the hard seltzer market as the pandemic subsided and consumers returned to bars and restaurants. The Court assessed three categories of alleged misstatements and held that none was actionable.
First, the Court assessed April 2021 statements in the company’s SEC filing, press release, and earnings call regarding the company’s growth prospects. Id. at *4. The Court concluded that most of the statements—containing language such as “the Company believes,” “[w]e still think the category is going to grow significantly,” and “[w]e are optimistic”—were non-actionable because they were either statements of opinion or forward-looking statements accompanied by meaningful cautionary language. Id. at *5–7.
The Court further concluded that, although several April 2021 statements “arguably contain[ed] embedded factual representations”—including that the hard-seltzer category was “fast-growing” and how many weeks of inventory the company “believe[d]” distributors had on hand—plaintiff nevertheless failed to adequately allege that those statements were false or misleading. Id. at *7. Plaintiff had argued that the market was slowing at the time and that inventory levels were inflated by alleged “channel stuffing,” but the Court explained that plaintiff made only “conclusory characterizations” regarding growth rates and that the “channel stuffing” allegation did not suggest that the company’s statement regarding inventory levels was false. Id. at *7–8. Finally, the Court rejected plaintiff’s argument that the company omitted material information regarding alleged flaws in its demand forecasting system, concluding that plaintiff failed to allege either an independent duty to disclose such information or that disclosure was necessary to prevent a challenged statement from being misleading. Id. at *8.
Second, the Court assessed statements allegedly made by the chairman of the company’s Board of Directors at a beverage forum in May 2021, including that “I think our best guesses now are somewhere between 60 and 90 percent [growth]” and “I think this is the year for acceptance of hard seltzer on-premise.” Id. at *9. The Court emphasized that the challenged statements were “quintessential statements of opinion about the future,” in the context of a panel discussion in which the chairman was asked “to make predictions about the hard seltzer market as the country emerged from the pandemic and consumers returned to bars.” Id. at *10. The Court therefore held that these statements were generally non-actionable because plaintiff failed to allege that the statements contained inaccurate factual information or that they were made with knowledge of their falsity. Id. The Court further noted that one challenged statement—that the company’s product had “been gaining share for, like, a year and a half”—was potentially actionable because plaintiff alleged that there had been no change in market share during an 18-month period. However, the Court rejected this allegation after determining that the data relied on by plaintiff related to a broader period and that another source relied on by plaintiff showed that the product’s market share had indeed been growing during the period in question. Id.
Third, the Court assessed a statement by the company’s CEO in a June 2021 industry publication. The CEO was quoted as stating that the company was “still confident in [its hard seltzer product’s] ability to grow significantly despite the recent segment slowdown” and that the product “is the only established player that’s growing at high double digits, growing at double the segment.” Id. The Court held that the statement regarding the company’s “confidence” was “an expression of general corporate optimism and is not actionable.” Id. The Court further held that plaintiff failed to adequately allege that the statement regarding the product’s growth rate was false. Although plaintiff pointed to a subsequent statement by the CEO referencing a “low double-digit growth rate,” the Court concluded that the subsequent statement related to the hard seltzer category and not specifically to the company’s product, which was the subject of the challenged statement. Id. at *10–11.
Finally, the Court rejected plaintiff’s request for leave to amend, concluding that amendment would be futile because plaintiff had not identified how further amendment would cure the deficiencies the Court identified. Id. at *11.
