In re Campbell Soup Co. Sec. Litig.
| Decision Date | 11 October 2022 |
| Docket Number | 1:18-cv-14385-NLH-MJS |
| Parties | IN RE CAMPBELL SOUP COMPANY SECURITIES LITIGATION |
| Court | U.S. District Court — District of New Jersey |
SHARAN NIRMUL JOHNSTON DE F. WHITMAN, JR. JONATHAN F. NEUMANN STEPHANIE M. GREY KESSLER TOPAZ MELTZER & CHECK, LLP LINDA P. NUSSBAUM NUSSBAUM LAW GROUP, P.C. Lead Counsel for Plaintiffs.
JAMES E. CECCHI DONALD A. ECKLUND CARELLA, BYRNE, CECCHI, OLSTEIN BRODY & AGNELLO P.C. 5 BECKER FARM ROAD Liaison Counsel for Plaintiffs.
ROBERT A. MINTZ BRIAN W. CARROLL GREGORY J. HINDY MCCARTER & ENGLISH, LLP FOUR GATEWAY CENTER JUSTIN D. D'ALOIA STACY NETTLETON AMANDA K. POOLER JOHN A. NEUWIRTH WEIL, GOTSHAL & MANGES LLP Counsel for Defendants.
In this consolidated putative securities class action, plaintiffs allege that defendants Campbell Soup Company and two of its senior executives made various materially false or misleading statements regarding their ability to deliver profitable growth to investors. Presently before the Court is Defendants' Motion to Dismiss Plaintiffs' Second Amended Consolidated Class Action Complaint. For the reasons expressed herein, Defendants' motion will be granted and the action will be dismissed with prejudice.
We take our brief recitation of the facts from Plaintiffs' Second Amended Consolidated Class Action Complaint (“SAC”). The SAC was filed on January 15, 2021 after this Court dismissed the First Amended Complaint (“FAC”) with leave to file an amended complaint. (ECF 57, 58).
This is a putative securities class action asserted against Defendants Campbell Soup Company (“Campbell”) and several of its top executives, including former President and CEO Denise M Morrison (“Morrison”) and Senior Vice President and CFO Anthony P. DiSilvestro (“DiSilvestro”) (the “Individual Defendants”) (collectively, “Defendants”). The putative class, led by court-appointed lead plaintiff the Oklahoma Firefighters Pension and Retirement System (“Plaintiffs”), consists of those who purchased Campbell common stock from July 19, 2017 through and including May 17, 2018. (ECF 61).
Plaintiffs' claims center around Campbell's public statements regarding one of its many divisions, a relatively new fresh foods division called Campbell Fresh (“C-Fresh”). (Id.) As alleged in the SAC, upon appointment as Campbell's CEO, Morrison promised to overhaul the company's image and began by creating C-Fresh. (Id. at 2-3). Morrison embarked on a crusade of acquisitions to bolster the C-Fresh concept, ultimately acquiring Bolthouse Farms (“Bolthouse”), a fresh food producer, for $1.55 billion. (Id.) In June of 2016, Bolthouse recalled a protein drink it produced due to possible spoilage. (Id. at 4). Thereafter the SAC alleges that C-Fresh's profit and sales declined. (Id.)
Plaintiffs allege that the negative impact of the recall was not solely limited to “increased costs, production delays, and reduced beverage production capacity” but also extended to loss of critical shelf space from its largest supermarket chain customers such as Target, Walmart, Publix, Kroger, and Albertsons. (Id. at 5). Changes in shelf space allocations by retailers are referred to as “Modular Resets”, and according to Plaintiffs can occur as infrequently as once a year for some retailers. (Id.) According to Plaintiffs, retailers made decisions about their Modular Resets around two months before they were implemented, thereby putting Campbells on notice of changes well before the date of any Modular Reset. (Id.) Plaintiffs contend that the Bolthouse recall caused Campbell to miss the Modular Resets at its major retailers for stocking its Bolthouse products, “making sales growth at these customers impossible in FY 2018.” (Id.) These major retailers “often replaced Bolthouse beverages with competitor products” which made it “highly unlikely that Bolthouse could win back that shelf space in FY 2018.” (Id.)
Modular Resets were of “critical importance” to Campbell's business so information regarding them was saved in a shared document, the “Modular Reset Tracker” which was accessible to “all C-Fresh sales personnel” and “spelled out the impact of missed Modular Resets on C-Fresh's prospective profitability months in advance of the Modular Reset date.” (Id. at 6). Plaintiffs state that because of the need to “sell-in” to upcoming Modular Resets, Campbell executives, including Morrison were “flying all over the country” at least through July 2017 to meet with Bolthouse's top customers to try to preserve and regain shelf space. (Id.) Plaintiffs allege that Defendants concealed these facts from investors. (Id.)
Compounding the issues stemming from the Bolthouse recall, in the time leading into the class period, Campbell had internal data that Bolthouse's carrot yields would be down for the remainder of 2017 due to excessive rainfall. (Id.) Carrots were a key ingredient in Bolthouse's products. (Id.)
Plaintiffs aver that due to irreversible problems at C-Fresh, Morrison sought a “solution to suppress the disastrous problems that the C-Fresh division was suffering as Campbell's fiscal year 2017 came to a close.” (Id.) That deal would be the acquisition of Snyder's-Lance, Inc. (“Snyder's”). (Id. at 6-7). The SAC alleges that it was critical for Campbell to have a high credit rating in order to facilitate the acquisition of Snyder's, which was being financed in part by debt. (Id. at 7). According to Plaintiffs, Defendants were motivated by the acquisition and maintaining the company's credit score to make misleading statements about the health of C-Fresh. (Id.)
Plaintiffs cite as examples statements made by Morrison and DiSilvestro at Campbell's July 19, 2017 Investor Day Conference where Morrison stated that C-Fresh ““will significantly improve,” and for FY18, “Campbell Fresh would be over the [1% to 3%] range.” At the same event, DiSilvestro stated, “We do anticipate I would call fairly significant margin expansion in C-Fresh in F'18.” (Id.) Plaintiffs say that this caused the company's stock to shoot up almost 5% overnight. (Id.)
Defendants continued to claim that C-Fresh would return to profitability, claiming, for example, that (i) “we expect [C-Fresh] to return to profitable growth in fiscal 2018,” (ii) “we do expect to see top line growth in Campbell Fresh in 2018,” (iii) “the Campbell Fresh turnaround is progressing,” and (iv) “we would expect to see profitability pretty quick in Campbell Fresh.” (Id. at 78-81). In November 2017, Morrison announced that C-Fresh had returned to normal beverage production and packaging, and again touted this in February 2018, also claiming that C-Fresh had returned to its normal promotional activities. (Id. at 62). According to Plaintiffs, these statements were materially false or misleading. (Id. at 8). Plaintiffs suggest that these allegations are supported by information obtained from “multiple” former Campbell employees serving as confidential witnesses (“CWs”). (Id.)
The SAC presents statements from twenty-seven non-party CWs. Those individuals and their statements are discussed as relevant through this Opinion. The CW statements generally focus on Defendants' knowledge regarding the status of C-Fresh's business-state and its knowledge relating to growth goals and outward-facing statements regarding C-Fresh's financial state. For example, CW statements include allegations that C-Fresh was “losing shelf space like crazy[,]” that its stated growth goals were “unrealistic[,]” and that Campbell's leadership team was “overly optimistic” with “all sales targets . . . and [p]rofit [m]argins [being] extremely aggressive].]” (Id. at 36, 58, 65).
These CW statements were primarily present in the FAC, but the SAC adds allegations that the timing and scale of Modular Resets of Bolthouse products by Campbell's major customers made it “impossible for the Bolthouse beverage business to regain shelf space and reach profitable growth in FY 2018.” (Id. at 41). They allege that from at least July 2016 through July 2017 Morrison was “flying all over the country” to play “defense and offense” in order to meet with important customers to prevent such customers from abandoning “sell-in” meetings, and to “reinstill faith” in C-Fresh and its products after the Bolthouse Recall and resulting loss of shelf space for Bolthouse products. (Id. at 100).
The SAC further adds allegations that C-Fresh employees had access to a spreadsheet called the Modular Reset Tracker which was “incredibly important” because it tracked data related to Modular Resets and C-Fresh products and thus was integral to planning. (Id. at 100-01). The SAC states that information from the Modular Reset Tracker was incorporated into financial projections which were available to Morrison. (Id.) According to one CW, the “Modular Reset was being watched by everyone” and everyone was “wired in” with respect to the Modular Reset process at Campbell's top ten customers. (Id. at 101). Plaintiffs also contend that Morrison received updates from Senior Vice Presidents at the Company who attended meetings where Modular Resets were discussed and that she had access to presentations from one CW regarding the lack of demand for Bolthouse beverages. (Id.)
The SAC alleges that key Modular Resets had passed by August 2017, so Morrison and DiSilvestro should have known they would not be able to make up the shelf space until the next Modular Reset and that that would have made their projections of growth in FY 2018 virtually impossible. (Id. at 102). They allege that this coupled with the outsourcing of marketing responsibilities for C-Fresh products to a “mercenary marketing group” that had divided attention and was not knowledgeable about customer relationships made it impossible to gain...
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