United States District Court, D. New Jersey
GARY CURRAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff,
FRESHPET, INC., RICHARD THOMPSON, RCHARD KASSAR, SCOTT MORRIS and CHARLES A. NORRIS, Defendants.
MADELINE COX ARLEO UNITED STATES DISTRICT JUDGE.
MATTER comes before the Court by way of Defendants
Freshpet, Inc. (“Freshpet”), Richard Thompson,
Richard Kassar, Scott Morris, and Charles A. Norris's
(together, “Defendants”) Motion to Dismiss Lead
Plaintiff Alaska Electrical Pension Fund's (“Lead
Plaintiff”) Amended Complaint on behalf of itself and
others similarly situated (“Plaintiffs”), ECF No.
28, pursuant to Fed.R.Civ.P. 12(b)(6). ECF No. 29. For the
following reasons, the motion is DENIED.
are purchasers of Freshpet common stock between April 1, 2015
and November 11, 2015 (the “Class Period”). Am.
Compl. ¶ 1. Plaintiffs allege that Defendants, a
publicly traded company and several of its officers and
directors, made misrepresentations in their statements to
investors in violation of the Securities Act of 1933, 15
U.S.C. §§ 77k, 77l, 77o (the “Securities
Act”) and the Securities Exchange Act of 1934, 15
U.S.C. §§ 78j, 78t (the “Exchange
Act”). Id. ¶¶ 7-12. Lead Plaintiff
seeks to certify a class of stockholders. Id.
Freshpet Business Model
Freshpet is a manufacturer and marketer of natural fresh
foods, refrigerated meals, and treats for dogs and cats.
Id. ¶ 20. Freshpet describes its business model
as “disrupting the North American pet food
industry” by offering healthy, organic alternatives to
traditional pet food. Id. ¶ 22. It distributes
its products through branded refrigerators, known as
“Freshpet Fridges” (“Fridges”), which
are placed in retail locations. Id. ¶ 20.
Freshpet claimed that its Fridges gave them a competitive
advantage in several ways, including guaranteeing Freshpet
exclusive shelf space in retail stores and allowing it
greater control over its brand identity. Id. ¶
23. Plaintiffs allege that Freshpet's growth strategy is
therefore directly linked with its ability to install new
Fridges in retail stores. Id. ¶ 24. These
retailers include Petco, PetSmart, Target, and Walmart.
Id. ¶¶ 33-51. At the beginning of the
Class Period, Freshpet reported that it had installed 14, 019
Fridges in stores. Id.
Allegedly Misleading Statements
allege that throughout the Class Period, Freshpet experienced
issues with its largest customers and most popular products,
which ultimately stunted the growth of its Fridges.
Plaintiffs allege that despite being aware of these issues in
early 2015, Defendants failed to disclose them until their
November 2015 earnings report.
made its initial public offering in November 2014, and
subsequently filed its annual financial report on Form 10-K
for the period ending December 31, 2014 on March 31, 2015.
Id. ¶¶ 79, 110. That same day, Freshpet
issued a press release and held a conference call to discuss
its earnings release and operations. Id. ¶ 112.
On the call, individual Defendants provided details regarding
Freshpet's outlook for the year, including statements
about the growth of Freshpet Fridges. Id. They
specifically stated, “For full-year 2015, we expect
Freshpet Fridges in the range of 15, 100 to 15, 600, ”
and “we are very confident that we are going to be
where we need to be by the end of the year.”
Id. ¶¶ 113-14. Following the March 31,
2015 call, the price of Freshpet common stock rose to a Class
Period high of $25.46 on April 9, 2015. Id. ¶
subsequently filed a registration statement in connection
with its Secondary Offering (the “Registration
Statement”) on April 13, 2015. Id.
¶¶ 20, 25. The Registration Statement included
guidance about the expected growth of Fridges (i.e. “We
have successfully expanded our network of Freshpet Fridges
within leading blue-chip retail chains . . . we believe there
is an opportunity to install a Freshpet Fridge in at least
35, 000 stores across North America.”). Id.
¶ 51. Plaintiffs allege that Freshpet insiders and
Defendants collectively sold 6.1 million shares of their
personally held common stock in the Secondary Offering,
earning gross proceeds of $131.1 million. Id. ¶
reiterated this guidance in their August 11, 2015 earnings
call. Id. ¶¶ 124-32. Defendant Kassar
stated that he projected “net sales, excluding Freshpet
Baked test product, to be in the range of $112 million to
$114.5 million, representing an increase of 29% to 32%
compared to 2014.” Id. ¶ 129. Also on
August 11, Freshpet disclosed that its gross margin gains
throughout the rest of 2015 were likely to be more modest
than contemplated and were forecasted to come in 100 to 200
basis points below prior forecast for the year. Id.
¶ 132. In addition, the Company predicted it would be
closer to the low end of its guidance for Fridge placement.
Id. Plaintiffs allege that these statements caused
analysts to lower their earnings per share ratings for
Freshpet. Id. On August 12, 2015, the price of
Freshpet common stock declined $0.87 per share, to close at
$13.73 per share. Id. ¶ 133.
November 11, 2015, Freshpet issued a press release announcing
its financial results for the third quarter of 2015, updating
its previous guidance to note challenges to its business.
Id. ¶ 133. Specifically, Defendants stated:
We experienced lower than expected Freshpet Fridge growth and
our gross margin was negatively affected by manufacturing
inefficiencies from new product innovation and the near term
cost of adjusting processes on our primary products.
Id. ¶ 135. Defendants noted, “production
capabilities including the production throughput of our new
Freshpet Shredded product has been lower than originally
projected, ” “we now expect Freshpet Fridges in
the range of 14, 900 to 15, 000, ” and “[i]n the
third quarter, our production rates were significantly lower
than we had ever projected.” Id. ¶¶
allege that following the November 2015 disclosures, Freshpet
was downgraded by several analysts. Id. ¶¶
144-48. The price of Freshpet subsequently fell to $6.28 per
share on November 12, 2015, the end of the Class Period.
Id. ¶ 149.
allege that Defendants “artificially inflated”
the price of Freshpet common stock during the Class Period by
publicly stating materially false and misleading statements
throughout 2015 about its “manufacturing, operations,
forecasts, and business prospects.” Id.
¶¶ 156-57. Plaintiffs allege that they suffered
losses from the decline in the common stock price of Freshpet
after Defendants disclosed the truth about the company to the
public in November 2015. Id.
specifically allege that Defendants misled investors about
Freshpet's growth potential by failing to disclose
material information with respect to: (1) Freshpet's
ability to expand its Fridges in retail locations, including
stores such as Target, BJ's, A&P, and Haggen; (2)
difficulties producing Freshpet's baked product line at
the forecasted profit margin stemming from a factory fire
that halted production for two weeks; (3) and production
problems with Freshpet's shredded product line stemming
from the frequent break down of manufacturing equipment.
Id. ¶¶ 86-108.
seek damages for violations of the Securities Act Sections
11, 12(a)(2) and 15, and the Exchange Act Sections 10(b) and
20(a). Id. ¶¶ 58-78, 165-70. Defendants