Johnson Fistel Defeats Motion to Dismiss in Flowers Foods Securities Litigation

Johnson Fistel Defeats Motion to Dismiss in Flowers Foods

SAN DIEGO, Mar. 29, 2018 — On March 23, 2018, Judge W. Louis Sands, Sr. of the United States District Court for the Middle District of Georgia denied, in substantial part, the defendants’ motion to dismiss in In re Flowers Foods, Inc. Securities Litigation.

The plaintiffs in the case, represented by Johnson Fistel as co-lead counsel, allege that certain directors and officers of Flowers violated the Securities Exchange Act of 1934 and caused significant financial losses to investors as a result.  Flowers is a food company that operates two primary business segments—direct-store delivery (“DSD”) and warehouse-delivery, the former of which generates the majority of Flowers’ sales.  The complaint alleges that, between February 7, 2013 and August 10, 2016, the defendants knowingly made false and misleading public statements, and withheld material information, concerning Flowers’ business, operations, and prospects.  Specifically, the lawsuit contends that defendants misleadingly touted the purported competitive advantages of Flowers’ DSD model while misleading investors about its DSD model’s legal compliance, present and future success, and the risks posed by the DSD model.  As a result of these false statements, Flowers’ stock traded at artificially inflated prices during the class period.  However, as the truth emerged, including through the U.S. Department of Labor’s announcement that it would conduct a compliance review into Flowers’ classification of distributors, as well as through statements issued by analysts and the defendants themselves, the Company’s stock price declined precipitously, causing significant losses to investors.

The defendants moved to dismiss the case, which the court denied in substantial part.  The Court explained that “Plaintiff has sufficiently alleged that the challenged opinion statements, including statements that Flowers was complying with the law, were misleading in context because they would ‘conflict with what a reasonable investor would take from the statement itself,’” and that “Defendants did voluntarily tout the benefits of the DSD model and that their failure to disclose known material problems with that model was materially misleading.”  The Court further found that the “facts sufficiently allege that Flowers’ management had knowledge that its distributor program was violating laws and that yet Flowers concealed that information and misled investors about its legal compliance, present and future success, and the risks posed by the DSD model,” as well as that “partial corrective disclosures revealed the falsity of Defendants’ prior statements and caused Plaintiff’s losses.”

The case is captioned as In re Flowers Foods, Inc. Securities Litigation, No. 7:16-cv-00222-WLS (M.D. Ga.).

The Johnson Fistel attorneys leading the case include Michael I. Fistel, Jr., William W. Stone, and David A. Weisz.