City of Warwick Mun. Emps. Pension Fund v. Rest. Brands Int'l Inc.

• Decision Date: 02 May 2022
• Docket Number: Index No. 655686/2020
• Citation: 75 Misc.3d 1202 (A),166 N.Y.S.3d 510 (Table)
• Parties: CITY OF WARWICK MUNICIPAL EMPLOYEES PENSION FUND, Plaintiff, v. RESTAURANT BRANDS INTERNATIONAL INC., Jose Cil, Matthew Dunnigan, Jacqueline Friesner, Alexandre Behring, Daniel Schwartz, Marc Caira, Martin Franklin, Paul Fribourg, Neil Golden, Ali Hedayat, Golnar Khosrowshahi, Carlos Sicupira, Joao Castro-Neves, Roberto Motta, Alexandre Van Damme, 3G Capital Partners Ltd., 3G Restaurant Brands Holdings LP, Morgan Stanley & Co. LLC, Defendant.
• Court: New York Supreme Court

75 Misc.3d 1202 (A)

166 N.Y.S.3d 510 (Table)

CITY OF WARWICK MUNICIPAL EMPLOYEES PENSION FUND, Plaintiff,

v.RESTAURANT BRANDS INTERNATIONAL INC., Jose Cil, Matthew Dunnigan, Jacqueline Friesner, Alexandre Behring, Daniel Schwartz, Marc Caira, Martin Franklin, Paul Fribourg, Neil Golden, Ali Hedayat, Golnar Khosrowshahi, Carlos Sicupira, Joao Castro-Neves, Roberto Motta, Alexandre Van Damme, 3G Capital Partners Ltd., 3G Restaurant Brands Holdings LP, Morgan Stanley & Co. LLC, Defendant.

Index No. 655686/2020

Supreme Court, New York County, New York.

Decided on May 2, 2022

Plaintiff by: Labaton Sucharow LLP, 140 Broadway, New York, NY 10005

Defendants by: Paul Weiss Rifkind Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, NY 10019, O'Melveny & Myers LLP, 7 Times Square, 34th Floor, New York, NY 10036

Andrew Borrok, J.

The following e-filed documents, listed by NYSCEF document number (Motion 001) 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 32, 33, 34, 35, 37 were read on this motion to/for DISMISS.

Upon the foregoing documents, the defendants’ motion to dismiss the complaint must be denied.

The Relevant Facts and Circumstances

This is a putative securities class action alleging strict liability and negligence claims brought pursuant to Sections 11, 12(a)(2) and 15(a) of the Securities Act of 1933 (the 1933 Act ) against Restaurant Brand International Inc. (QSR ), certain of its senior executives and directors and Morgan Stanley & Co. LLC (the Underwriter ) which acted as underwriter in connection with QSR's secondary public offering commenced on or about August 12, 2019 of 24,000,000 common shares at a price of $73.50 (the August SPO ) and QSR's secondary public offering commenced on or about September 5, 2019 of 16,690,717 common shares at a price of $75.10 (the September SPO; the September SPO, together with the August SPO, hereinafter collectively, the SPOs ). Jurisdiction in this Court is proper and removal is prohibited ( Cyan, Inc. v Beaver County. Emps. Retirement Fund 138 S Ct 1061 [2018] ).

The 1933 Act protects investors by ensuring full and fair disclosure relevant to the public offering of securities and Section 11 imposes liability on issuers in two ways for the contents of a registration statement -- "one focusing on what the registration says and the other on what it leaves out" ( Omnicare, Inc. v Laborers Dist. Council Const. Indus., 135 S Ct 1318, 1323 [2015] ).

This lawsuit is brought on behalf of all persons or entities who acquired QSR's common shares pursuant to QSR's Shelf Registration Statement in connection with the SPOs. As discussed more completely below, the predicate for liability in this lawsuit is not based on what the offering documents said, but, rather, for what they did not say. What they did not say, according to the plaintiffs, is that QSR's business plan to increase customer loyalty and its customer base and sales in the offering documents was based on the Tims Program and Winning Together and both of those programs were failing because the heavy discounting associated with those programs were not offset by an increase in foot traffic. Stated differently, the plaintiffs allege that the offering documents were materially misleading by painting a deceptive positive description of QSRs business plan and outlook and omitting disclosing the very programs which formed the core business plan and the fact that they were not achieving the results that they were otherwise telling the market that they were achieving.

The lead plaintiff is the City of Warwick Municipal Employees Pension Fund. It is alleged to have purchased common shares pursuant to and traceable to the Shelf Registration Statement including shares its purchased in the August SPO from the Underwriter. (NYSCEF Doc. No. 11 ¶ 21).

QSR is the defendant issuer of the shares sold in the SPOs. QSR trades on the New York Stock Exchange under the ticker symbol "QSR," has restaurants located in the United States and more than one hundred other countries, and is incorporated and headquartered in Canada (id. ¶ 22).

The individual defendants are as follows (each, an Individual Defendant , and collectively hereinafter, the Individual Defendants;id. ¶¶ 23-37):

-Jose E. Cil was the Chief Executive Officer and a member of the QSR Board of Directors.

-Matthew Dunnigan was the Chief Financial Officer of QSR.

-Jacqueline Friesner was the Controller and Chief Accounting Officer of QSR.

-Alexandre Behring was the Co-Chairman of QSR and a director of 3G Capital.

-Daniel Schwartz was the Executive Chairman of the Company and Co-Chairman of the QSR's Board of Directors, and the former Chief Executive Officer of QSR since December 2014 and a director of 3G Capital.

-Marc Caira was the Vice-Chairman of QSR.

-Martin Franklin was a member of QSR's Board of Directors until he resigned on October 21, 2019.

-Paul Fribourg was a member of QSR's Board of Directors and lives in New York County.

-Mr. Golden was a member of the QSR's Board of Directors.

-Ali Hedayat was a member of QSR's Board of Directors and lives in New York County.

-Golnar Khosrowshahi was a member of QSRs Board of Directors and lives in New York County.

-Carlos Alberto Sicupira was a member of QSR's Board of Directors and one of the founding partners of 3G Capital.

-Joao M. Castro-Neves was a member of QSR's Board of Directors, a partner of 3G Capital and lives in New York County.

-Roberto Thompson Motta was a member of QSR's Board of Directors, a founding partner of 3G Capital and lives in New York County.

-Alexandre Van Damme was a member of QSR's Board of Directors.

Each of the Individual Defendants are alleged to have reviewed, contributed to and signed the Shelf Registration Statement.

3G Capital Partners, Ltd. (3G Capital ) and 3G Restaurant Brands Holdings LP (3G Restaurant ; 3G Restaurant, together with 3G Capital, hereinafter, collectively, the 3G Defendants ) were QSRs controlling shareholders who allegedly offloaded almost 10% of their holdings in QSR while failing to disclose that not only were the Tims Rewards program (as described below) failing to grow Tim Horton's existing business but also having a negative impact on sales. (id. ¶10). 3G Capital is headquartered in New York County.

The Underwriter was the underwriter for the SPOs. It is based in New York and has consented to jurisdiction pursuant to the underwriting agreement which indicates that New York law governs the underwriting agreement (id. ¶19).

Specifically, the plaintiffs allege that the Underwriters had access to all relevant confidential corporate information, performed what they determined to be appropriate due diligence, participated in the drafting of the offering documents and caused the Shelf Registration Statement to be filed:

Representatives of Morgan Stanley assisted the Company, the Individual Defendants, and the Controlling Stockholder Defendants in planning the Offerings, and purportedly conducted an adequate and reasonable investigation into the business, operations, products, and plans of the Company, an undertaking known as a "due diligence" investigation. During the course of their "due diligence," Morgan Stanley had continual access to confidential corporate information concerning the Company's operations and financial prospects.

In addition to availing themselves of virtually unbridled access to internal corporate documents, agents of Morgan Stanley met with Restaurant Brands’ and the Controlling Stockholder Defendants’ management and top executives (including the Individual Defendants), and engaged in "drafting sessions" regarding the Shelf Registration Statement in advance of its filing. During these sessions, understandings were reached as to: (i) the strategy to best accomplish the Offerings; (ii) the terms of the Offerings, including the price at which the Company's common shares would be sold; (iii) the language to be used in the Shelf Registration Statement; (iv) what disclosures about the Company would be made in the Shelf Registration Statement; and (v) what responses would be made to the SEC in connection with its review of the Shelf Registration Statement. As a result of those constant contacts and communications between Morgan Stanley's representatives and the Company's management and top executives, at a minimum, Morgan Stanley was negligent in not knowing of the Company's undisclosed existing problems and plans, and the materially untrue statements and omissions contained in the Shelf Registration Statement as detailed herein.

Morgan Stanley caused the Shelf Registration Statement to be filed with the SEC and to be declared effective in connection with offers and sales thereof, including to Plaintiff and the Class

(NYSCEF Doc. No. 11, ¶¶ 44-46).

The controlling shareholders were paid for the securities to be sold by the Underwriter on the New York Stock exchange at the New York offices of Davis Polk & Wardell LLP. Thus, as alleged, the defendants benefited from the SPOs and both jurisdiction and venue are proper here in New York County.

At the time of the SPOs, QSR was engaged in certain purported growth strategies including "Winning Together" and "Tims Rewards". There three pillars to the Winning Together plan were (1) restaurant experience, (2) product excellence and (3) brand communications.

The Shelf Registration Statement told investors that "increasing restaurant sales and profitability" were critical to QSR's success. To obtain that success, QSR employed new product offers to elevate QSR's quality and a loyalty program called Tims Rewards which sought to increase customer traffic, grow Restaurant Brands’ existing customer base and increase sales. (id. ¶¶ 5-6). The Shelf Registration Statement emphasized to investors its commitment to developing new products critical to QSR's long term success and its focus on improving among other things its digital channels and loyalty initiatives. Tims Rewards, for example, was available through the Tim Hortons mobile app.

More specifically, the plaintiff al...