In re EveryWare Global, Inc. Sec. Litig.

• Decision Date: 30 March 2016
• Docket Number: Case No. 2:14-CV-01838
• Citation: 175 F.Supp.3d 837
• Parties: In re EveryWare Global, Inc. Securities Litigation
• Court: U.S. District Court — Southern District of Ohio

175 F.Supp.3d 837

In re EveryWare Global, Inc. Securities Litigation

Case No. 2:14-CV-01838

United States District Court, S.D. Ohio, Eastern Division.

Signed March 30, 2016

OPINION & ORDER

ALGENON L. MARBLEY, UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Plaintiffs IBEW Local No. 58 Annuity Fund, Electrical Workers Pension Trust Fund of IBEW Local No. 58, and IBEW Local No. 58 have filed a securities class action complaint against Defendants on behalf of all purchasers of EveryWare Global, Inc. (“EveryWare”) securities between May 21, 2013 and May 16, 2014, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Sections 11, 12, and 15 of the Securities Act of 1933 (“Securities Act”). Six Defendants or groups of Defendants have filed Motions to Dismiss Plaintiffs' Amended Complaint on various grounds: Defendants Oppenheimer & Co. Inc., CJS Securities, Inc., Telsey Advisory Group, LLC, Imperial Capital, LLC and BTIG, LLC (the “Underwriter Defendants”) (Doc. 110); Defendants Daniel Collin, Stephen W. Presser, Monomoy Capital Partners, LLC, Monomoy Capital Partners, L.P., MCP Supplemental Fund, L.P., Monomoy Executive Co-Investment Fund, L.P., Monomoy Capital Partners II, L.P., MCP Supplemental Fund, II, L.P., Monomy General Partner, L.P., Monomoy General Partner II, L.P., and Monomoy Ultimate GP, LLC (the “Monomoy Defendants” or, without Collin and Presser, the “Monomoy Entities”) (Doc. 111); Defendant John K. Sheppard, former Chief Executive Officer of EveryWare (Doc. 112); Defendant Bernard F. Peters, former Chief Financial Officer of EveryWare (Doc. 113); Defendants Thomas J. Baldwin, Barry L. Kasoff, Ronald McCray, William Krueger, Joseph A. De Perio, and Ron Wainshal (the “Non-Management Directors”) (Doc. 114); and Defendant Michael Jurbala, EveryWare's Controller and Principal Accounting Officer (Doc. 115).

For the following reasons, the Court GRANTS the six Motions to Dismiss because Plaintiffs have not stated a claim for relief under Federal Rule of Civil Procedure 12(b)(6).

II. BACKGROUND

A. Factual History

This action concerns a purported “pump and dump” scheme by the Monomoy Defendants (a group of New York City-based private equity funds as well as their two principals, Defendants Collin and Presser), Sheppard, and Peters to inflate the price of EveryWare Global Inc. stock so that the Monomoy Defendants could sell their 15 million shares before the share price plummeted. Plaintiffs' complaint alleges the following facts.

In March of 2012, Monomoy combined two private kitchenware companies already under its control, Oneida, Ltd. and Anchor Hocking LLC, into EveryWare Global Inc., a producer, marketer, and distributor of kitchenware. (Am. Compl., Doc. 38 at ¶¶ 56-58.) Sheppard served as CEO beginning in April of 2012. (Id. at ¶ 22.) On May 21, 2013, EveryWare Global Inc. merged with ROI Acquisition Corp. (“ROI”), a “blank check” company, defined as a publicly traded company that raises money to pursue an acquisition of an existing company. (Id. at ¶ 59.) After the merger was complete, the Monomoy Defendants were the controlling shareholders of the new public company EveryWare (“EveryWare” or “the Company”), owning more than 60% of the Company's common stock. (Id. at ¶ 61.) Under the terms of the merger, the Monomoy Defendants received a $90 million payment and approximately 15 million shares of common stock in EveryWare, while ROI's shareholders received about 35% of the shares in the new company. (Id. at ¶ 63; 5/21/13 8-K, Doc. 111-3.) These terms were disclosed publicly. (5/21/13 8-K, Doc. 111-3.) Before the merger, EveryWare had assets of $320 million and liabilities of $310 million and, after the merger, EveryWare had assets of $323 million and liabilities of $382 million. (Am. Compl., Doc. 38 at ¶ 63.) EveryWare stock began trading at $10 per share following the merger. (Doc. 111-24.)

The merger agreement between ROI and EveryWare (“Merger Agreement”) provided that shares owned by the Monomoy Defendants were subject to a six month Lock-Up Agreement that barred them from selling their shares until November 18, 2013 unless the share price exceeded $12.50 for 20 trading days within a 30-trading-day period commencing at least 90 days after May 21, 2013 or the Audit Committee of the EveryWare Board waived the lock-up restriction. (Am. Compl., Doc. 38 at ¶¶ 65-66; 5/21/13 Form 8-K, Doc. 111-3 at 44.) The Merger Agreement also entitled Monomoy to retain up to 3.5 million “earn-out” shares if the price of EveryWare stock hit certain targets for 20 trading days in a 30-day trading period: 1 million shares if the price reached $11; 1.25 million additional shares if it hit $12.50; and 1.25 million additional shares if it reached $15. (Id. ¶ at 67.) If the price did not hit the targets for at least 20 days in a 30-day period, Monomoy would lose the shares. (Id. )

On January 31, 2013, before the merger with ROI, the former EveryWare publicly issued its 2013 revenue and earnings projections. (Id. at ¶ 71.) The company projected annual revenue of $457 million for 2013 as well as an adjusted EBITDA¹ of $61.1 million. (Id. ) The Company also calculated EveryWare's “Enterprise Value” at approximately $420 million. (Id. ) According to Plaintiffs, a confidential witness (“CW1”), the Senior Vice President of Sales for Oneida from 2011 until June 2013 when he left the company, has stated that he was personally involved in the formulation of the 2013 projections. (Id. at ¶ 74.) CW1 worked on the 2013 estimates between October and December 2012, and along with a coworker he was “responsible for providing estimates for one of the largest segments of the Company in terms of its earnings and revenue.” (Id. at ¶¶ 75, 76.) CW1 and his coworker formulated their estimates based on the Company's past performance and recent trends. (Id. at ¶ 76.) They discussed their estimates with former Chief Financial Officer Andrew Church;² all three agreed the estimates were reasonable and they were ultimately presented to CEO Sheppard. (Id. ) Church later told CW1 that Sheppard had rejected his 2013 estimates because the sales revenue projection was too low. (Id. at ¶ 77.) CW1 countered to Church that neither he nor his co-worker thought a higher projection was supportable, but Sheppard adopted substantially higher estimates than those that CW1 provided. (Id. at ¶¶ 77-78.) CW1 left the company because he was “disgusted” by this incident. (Id. at 78.) Plaintiffs also stated that CW1 knew that the projections were baseless because Bill Grannis, EveryWare's Senior Vice President for sourcing, informed CW1 that Grannis had been instructed to cut his inventories for 2013, which would make it difficult to hit the targeted sales numbers that could lead to higher revenue. (Id. at ¶ 79.)

The amended complaint also states that several other witnesses, including a sales manager, a district sales manager, an inventory control manager, a national sales manager, and the Director of Finance for EveryWare's United Kingdom office, attested to a “serious cut back in EveryWare's inventory and a deterioration in EveryWare's operations.” (Id. at ¶ 83.) The confidential witnesses reported: staff reductions, inventory shortages, and declining sales (id. at ¶¶ 85-86); information from vendors that EveryWare had begun slowing payments to them between June 2013 and September 2013 (id. at ¶ 92); products being “stuck on the docks” due to EveryWare's inability to pay for them (id. at ¶ 94); and a statement to Confidential Witness 7 (“CW7”), the Director of Finance in the United Kingdom office, from the head of EveryWare International, Colin Walker, in November 2013 that there was a lack of capital to pay the Company's debts. (Id. at ¶ 97.) CW7 also stated that in July 2013 it would have been “unmistakable” to EveryWare management that the Company was running out of money and in danger of defaulting on its debt because of the fact that the nature of the business required substantial lead time for orders to be delivered; therefore, the Company would have known that it was on the verge of insolvency well in advance of payments becoming due. (Id. at ¶ 98.)

In January of 2013, Peters became the CFO of EveryWare. (Id. at ¶ 23.)

In its January 31, 2013 presentation to investors, the Company displayed a chart representing the value of its stock in relation to comparable companies, suggesting that its share price was a relative bargain. (Id. at ¶ 123.) It also laid out its 2013 financial projections, which included predictions of an 8% increase in revenue and a 10% increase in EBITDA over 2012. (Id. at ¶ 124.) The investor presentation was incorporated by reference into the first amendment to the Registration Statement for the Secondary Offering. (Id. at ¶ 125.)

In late May, EveryWare released its financial results from the first quarter of 2013, which reflected growth in both revenue and EBITDA. (5/21/13 Form 8-K, Doc. 111-3 at 64.) On August 1, 2013, EveryWare disclosed financial results for the second quarter of 2013, reporting that revenue for the first six months of 2013 had increased 2.8% over the first six months of 2012 and that adjusted EBITDA was up 3.4% over that same time period. (Am. Compl., Doc. 38 at ¶ 137.) Sheppard also reported that the results “were in line with our internal expectations” and that the “fundamentals and outlook for our business and industry remain strong.” (Id. at ¶ 138.) On a conference call with analysts in which Defendants Sheppard and Peters participated, Sheppard reaffirmed that EveryWare was “on track to meet our stated financial commitments for 2013.” (Id. at ¶ 140.) Peters also stated that the Company was “sticking to the numbers that we've disclosed before” with regard to its EBITDA prediction of $61 million. (Id. at ¶ 145.) Sheppard also stated that the revenue estimate may even be low, musing that $460 million might be more accurate, and that even that prediction was “an attempt to be...