Carter v. Griffin

• Decision Date: 09 November 2021
• Docket Number: 20-2281-DDC-JPO
• Court: U.S. District Court — District of Kansas
• Parties: JUSTIN CARTER, derivatively and on behalf of MGP INGREDIENTS, INC., Plaintiff, v. AUGUSTUS C. GRIFFIN, et al., Defendants, and MGP INGREDIENTS, INC., Nominal Defendant.

JUSTIN CARTER, derivatively and on behalf of MGP INGREDIENTS, INC., Plaintiff,
v.
AUGUSTUS C. GRIFFIN, et al., Defendants,

and MGP INGREDIENTS, INC., Nominal Defendant.

No. 20-2281-DDC-JPO

United States District Court, D. Kansas

November 9, 2021

MEMORANDUM AND ORDER

Daniel D. Crabtree, United States District Judge.

This Order stems from defendants' Motion to Dismiss (Doc. 15). For reasons explained below, the court grants the motion in part and denies it in part. Specifically, the court grants the Motion to Dismiss plaintiff's federal claims. The court denies the motion, however, as it applies to plaintiff's state law claims. Also, the court stays the case pending the Kansas Supreme Court's review of Herington v. City of Wichita, 479 P.3d 482 (Kan.Ct.App. 2020).

I. Background

A. Procedural History

Plaintiff Justin Carter initiated this action in June 2020. See Doc. 1 (Compl.). After securing several extensions of time, see Docs. 11, 13, defendants filed the pending Motion to Dismiss (Doc. 15) in April 2021. Their motion is supported by a Memorandum in Support of Motion to Dismiss (Doc. 16). Plaintiff filed a responsive brief, titled Plaintiffs' Partial

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Opposition to Defendants' Motion to Dismiss the Federal Claims and Stay the State Claims (Doc. 17). And defendants then filed a Reply Brief in Support of Motion to Dismiss (Doc. 18). Seeing that the matter is fully briefed, the court now will rule defendants' Motion to Dismiss (Doc. 15). But first, the court turns to several background subjects that inform the analysis to follow.

B. Derivative Shareholder Actions

This action is a derivative shareholder lawsuit. See Doc. 1 at 1 (Compl.). A derivative lawsuit “is a suit by a shareholder to enforce a corporate cause of action[, ]” which, in turn, requires that the “corporation is a necessary party to the suit.” Price v. Gurney, 324 U.S. 100, 105 (1945). That's why MGP appears-in both halves of the caption-at least ostensibly as a plaintiff and nominal defendant. See Doc. 1 at 1 (Compl.). If any of Mr. Carter's claims survive defendants' Motion to Dismiss, plaintiff is “allowed to act in protection of [MGP's] interest somewhat as a ‘next friend' might do for an individual, ” on the theory that “wrongdoing officers . . . possess the control which enables them to suppress any effort by the corporate entity to remedy such wrongs.” Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518, 522-23 (1947). In other words, plaintiffs in derivative actions “step into the corporation's shoes . . . to seek in its right the restitution he could not demand in his own.” Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 548 (1949).

C. The Parties in this Action

The Complaint alleges a few important introductory points about the parties in this suit. For clarity's sake, the court identifies these individuals before turning to the lawsuit's broader components. This information comes from plaintiff's Complaint (Doc. 1). For purposes of this

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Order, the court assumes these allegations are true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted).

1. Plaintiff

“Plaintiff Justin Carter is a current stockholder of [MGP] and intends to retain ownership of said shares through the prosecution of the instant matter.” Doc. 1 at 2 (Compl. ¶ 4). Plaintiff is suing a handful of individuals who have or still do serve in leadership roles at MGP. Below, the court identifies these defendants.

2. “The Director Defendants”

Some defendants named in plaintiff's Complaint serve or used to serve as Directors on MGP's Board. These individuals are: (1) Augustus Griffin, (2) David Colo, (3) Terrence Dunn, (4) James Bareuther, (5) Anthony Foglio, (6) Lynn Jenkins, (7) Karen Seaberg, and (8) M. Jeannine Strandjord. See id. at 3-4 (Compl. ¶¶ 6-13). The Complaint refers to this group of defendants as “the Director Defendants, ” id. at 4 (Compl. ¶ 14), terminology that this Order adopts.

Defendant Griffin is MGP's former President and CEO. See id. at 3 (Compl. ¶ 6). Defendant Colo previously served as MGP's President and COO, and now acts as the company's President and CEO. See id. (Compl. ¶ 7). The remaining defendants-Dunn, Bareuther, Foglio, Jenkins, Seaberg, and Strandjord-all have served on MGP's Board of Directors and in various roles on related Board Committees. See id. at 3-4 (Compl. ¶¶ 8-13).

3. “The Officer Defendants”

The Complaint names two more defendants. These individuals are described together in the Complaint as the “Officer Defendants[.]” See id. at 5 (Compl.). These individuals are: (1) Brandon Gall, and (2) Thomas Pigott. Id. (Compl. ¶¶ 16-17). Defendant Gall, according to the

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Complaint, serves in several roles at MGP: (i) CFO, (ii) Vice President of Finance, and (iii) Corporate Controller. Id. (Compl. ¶ 16). Defendant Pigott is MGP's former CFO and Vice President of Finance. Id. (Compl. ¶ 17).

D. Plaintiff's Allegations

1. Plaintiff's Factual Allegations

The court reviews plaintiff's factual allegations against the backdrop of defendants' Motion to Dismiss. Accordingly, a few guiding principles apply. The court must “accept as true all particularized allegations of fact and give [plaintiff] all reasonable inferences logically flowing from them.” City of Cambridge Ret. Sys. v. Ersek, 921 F.3d 912, 918 (10th Cir. 2019) (citing City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47, 55-56 (Del. 2017)). But, the benefits of this presumption aren't limitless. “‘[C]onclusory allegations are not considered as expressly pleaded facts or factual inferences.'” Id. (quoting White v. Panic, 783 A.2d 543, 549 (Del. 2001)). The court must give plaintiff the benefit of any doubts, but only when doing so is reasonable-i.e., because those inferences “logically flow[ ]” from the particularized facts alleged in his Complaint. Id.

Plaintiff's Complaint asserts several causes of action, some of them rooted in federal law and others based on state law. But plaintiff asserts all of these claims against MGP Ingredients, “a producer and supplier of premium distilled spirits[.]” Doc. 1 at 12 (Compl. ¶ 21). Plaintiff's concerns are intricately and exclusively tied to MGP's liquor production-especially so-called “aged whiskey.” Id. at 13 (Compl. ¶ 22).

Plaintiff's concerns came to a head in February 2015, when MGP “announced a new five-year plan” involving “key strategies” designed to capitalize on “the rapidly growing whiskey category” within the overall liquor market. Id. at 12 (Compl. ¶ 22) (internal quotation

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marks omitted). MGP's strategic growth plan had a unique hook compared to the company's typical operations. “[I]nstead of selling the Company's whiskey as an unaged new distillate, which was then barreled and aged by the Company's customers, ” MGP announced it would begin aging its own brand of whiskey for direct-to-consumer sales. Id. at 12-13 (Compl. ¶ 22). This process would take about four years to play out because you can't sell aged whiskey without letting it age. See id. at 13 (Compl. ¶ 23). So, MGP announced, investors and consumers could expect to buy MGP's own branded whiskey by early 2019. See id.

MGP invested $73 million toward its aged whiskey strategy by mid-2018. See Id. (Compl. ¶ 24). And company leadership predicted substantial growth in MGP's operating income in 2019, when its aged whiskey would be ready for sale. See id. (Compl. ¶¶ 25, 27). By early 2019, MGP's leadership expressed similar sentiments, telling investors “that the Company ‘continue[s] to see strong demand for aged whiskey as customers seek to fill inventory gaps driven by higher-than-expected consumer demand.'” Id. at 16 (Compl. ¶ 34). Shortly before that point, financial analysts “reported that the Company['s] management was ‘adamant that it could sell the entire inventory at the 3x multiple tomorrow if needed[.]'” Id. at 14 (Compl. ¶ 29).

But things didn't go according to that plan. The Complaint alleges that MGP suffered from unsold inventory and related financial loss for all of 2019. “On May 1, 2019, the Company issued a press release and reported poor financial results for the first quarter of 2019.” Id. at 17 (Compl. ¶ 39). “On July 31, 2019, . . . the Company issued a press release and reported that the Company's quarterly financial results for the second quarter of 2019 . . . again missed expectations.” Id. at 18 (Compl. ¶ 46). “On October 31, 2019, the Company issued a press release and reported that its financial results for the third quarter of 2019 were again below expectations.” Id. at 20 (Compl. ¶ 52). And “on February 26, 2020, the Company announced its

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2019 fourth quarter and fiscal year financial results, ” which showed “that the Company had experienced disappointing results yet again[.]” Id. at 22 (Compl. ¶ 60) (internal quotation marks and alterations omitted).

Each time MGP's growth strategy stumbled, the company's stock value fell. The Company's first quarter results preceded a decline in stock price by about 23%. See id. at 17 (Compl. ¶ 40). After MGP announced its second quarter 2019 results, “the Company's stock price declined by approximately 26%[.]” Id. at 19 (Compl. ¶ 48). MGP's third quarter performance announcement was followed by a 12% drop in stock price. See id. at 20 (Compl. ¶ 53). And the company's February 2020 announcement spurred a decline in stock price around 11%. See id. at 22 (Compl. ¶ 61).

Plaintiff's Complaint links these figures to accompanying statements from MGP's leadership which, according to the Complaint, were materially false or misleading. Plaintiff's biggest concern is this: Throughout 2019, and despite consistent, disappointing financial results, MGP's leadership reassured investors that its aged whiskey strategy still could succeed. See, e.g., id. at 19-20 (Compl. ¶¶ 50-51) (alleging that on the same day MGP announced its second quarter 2019 financial results, defendant Griffin...