California Judge Likely to Dimiss Investors’ Class-Action Lawsuit Against Beyond Meat

A judge in Los Angeles is poised to dismiss investors’ class-action lawsuit against plant-based meat maker Beyond Meat for good.

The class-action lawsuit by investors of plant-based leader Beyond Meat is heading towards dismissal for the second time in three months.

In a hearing discussing the vegan firm’s motion to dismiss, a judge in Los Angeles has indicated that a reworked complaint – filed by the plaintiffs a month after the original suit was tossed in August – is likely to be thrown out, for good this time.

The case, first brought to court in May 2023, alleged that Beyond Meat misled investors about its manufacturing capacities, which led to artificially inflated stock prices that dropped by 92% when production hit a snag in 2022.

Complaint accused Beyond Meat of misleading investors

The original lawsuit was led by the Saskatchewan Healthcare Employees’ Pension Plan, which claimed that Beyond Meat misrepresented the success of its collaborations with major quick-service restaurant chains, including McDonald’s, KFC, Pizza Hut and Taco Bell.

According to the complaint, the company told investors and customers that it would “ensure manufacturability” via extensive testing, and assured that it had commercial-scale production capacities to meet the demand of these fast-food giants.

But the firm instead suffered from “widespread scaling issues, particularly misalignment and delayed decision-making, which led to corresponding production delays”, the plaintiffs claimed, suggesting that these issues were made worse by Beyond Meat’s “disjointed production lines”.

The plaintiffs said the “truth began to emerge” about the company’s alleged instability in October 2021, when it announced it was reducing its Q3 net revenue outlook by 25%, with expenses and inventories continuing to rise. They argued that Beyond Meat’s 2019 IPO had left things unstable, with stock prices falling from $234.90 in July 2019 to $14.11 in October 2022.

Naming CEO Ethan Brown and former CFOs Mark Nelson and Phillip Hardin as defendants, the complaint claimed the firm “made materially false and misleading statements and omissions, and engaged in a scheme to deceive the market”, adding that “these misleading statements and omissions artificially inflated the price of Beyond Meat stock and operated as a fraud or deceit” on shareholders.

In December 2023, the plant-based meat producer urged Judge Michael W Fitzgerald of the US District Court for the Central District of California to throw out the case, arguing that the plaintiffs’ complaint “does not support a claim for securities fraud”.

And in August, the judge sided with Beyond Meat and dismissed the case, noting that many of the alleged misstatements were non-actionable as opinions or optimistic forward-looking statements, which don’t amount to securities fraud.

He said that investors would need to be more specific about what Brown knew at the time he allegedly hyped up the foodservice partnerships, leaving the door open for them to amend their complaint and refile.

Judge signals dismissal in welcome decision for Beyond Meat

A month after the August decision, Saskatchewan Healthcare Employees’ Pension Plan returned with a reworked complaint, claiming that Beyond Meat hid from investors the risks of its “reckless gamble” to scale up production.

Counsel for the investor class highlighted the claim that the business failed to disclose the issues it faced when trying to mass-produce plant-based chicken and pepperoni for KFC and Pizza Hut, respectively at a Pennsylvania factory in 2021. “I think [investors] would want to know about the disaster that was happening, especially at the Pennsylvania plant,” the lawyer for the plaintiffs told the judge, as quoted by legal news outlet Law360.

Beyond Meat, for its part, countered by outlining its repeated statements to shareholders that it could be difficult to disrupt the fast-food market, arguing that it was “forthright” in its risk disclosures. “What plaintiffs have done with their ability to amend is add next to nothing,” the company’s counsel said.

Fitzgerald hinted at a decision in Beyond Meat’s favour when he said the amended complaint – while containing facts that make “perfect sense” – still doesn’t meet the pleading standard for securities fraud. He ended the hearing by stating that he wouldn’t want to see another complaint unless the investors could bring new facts after a likely dismissal ruling, according to Law360.

The development ends an 18-month saga for Beyond Meat, and comes shortly after it settled a separate class-action lawsuit with consumers for $7.5M. The complaint alleged that the firm had overstated its products’ nutritional benefits, since the protein digestibility of its meat analogues was lower than that of conventional meat.

The El Segundo-based company had also settled a suit in April 2022, brought by investors in light of two disputes with former co-manufacturer Don Lee Farms. Those cases were settled months later.

If Judge Fitzgerald does end up throwing this latest suit, it would be an especially welcome decision for Beyond Meat, which is looking to turn the tide on several years of turmoil, with faltering sales and multiple staff cuts. In its latest quarter, it recorded a growth in revenue for the first time since 2022, posting a 7.6% hike in annual sales to reach $81M in what Brown termed a “pivotal quarter” in the company’s history.

“Turbulence, much of it generated by a concerted campaign supported by incumbent animal protein and pharmaceutical industries, destabilised the slipstream within which we travelled, and we fell from considerable heights,” he told investors.

“We responded by letting iron sharpen iron. We chose to get stronger, including moving our products along the continuum from relative to absolute health benefits, most notably in our Beyond IV platform and its broad endorsements from leading health institutions, and we got leaner and more focused.”