Westmoreland County Employee Retirement Fund v. Inventure Foods Incorp. et al.

TO: ALL PERSONS OR ENTITIES (“PERSONS”) THAT PURCHASED OR OTHERWISE ACQUIRED THE COMMON STOCK OF INVENTURE FOODS, INC. (“INVENTURE” OR THE “COMPANY”; TICKER: SNAK) PURSUANT OR TRACEABLE TO INVENTURE’S SECONDARY PUBLIC STOCK OFFERING WHICH CLOSED ON OR ABOUT SEPTEMBER 14, 2014, AND WERE DAMAGED THEREBY.

The Allegations

On April 6, 2016, Plaintiff commenced this Litigation in the Court asserting claims pursuant to Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77(a)(2) and 77o (the “Securities Act”), on behalf of itself and a class of persons and entities who purchased or otherwise acquired Inventure common stock pursuant and/or traceable to the Company’s secondary public offering (“SPO”) which closed on or about September 14, 2014, of 4.1 million shares of common stock at an offering price of $12.85 per share.

Plaintiff alleged that Defendants violated the Securities Act by issuing the Registration Statement, Prospectus, and Prospectus Supplement (“offering documents”) in connection with Inventure’s SPO that Plaintiff claims included false statements of material fact, omitted material information, and contained false and misleading mixed statements of opinion and fact that lacked a reasonable basis, concerning: (a) the Company’s adherence to regulatory laws governing the safe processing of foods; (b) the adequacy of the Company’s quality and safety controls over food manufacturing; (c) the quality of the Company’s manufacturing facilities and capabilities, specifically with respect to its facility in Jefferson, Georgia; and (d) the Company’s compliance with Georgia law to process and sell food from the Jefferson, Georgia facility (“Jefferson Facility”).

Plaintiff alleged that the offering documents’ statements contrasted the true condition of the Jefferson Facility that existed prior to and at that time of the SPO. Plaintiff alleged that the Jefferson Facility was operating with unsanitary and unsafe conditions, and violated industry standards for food packaging and production that were designed to prevent contamination and foodborne illness. Plaintiff alleged that on or about April 17, 2016, the FDA and Georgia Department of Agriculture performed a joint inspection that revealed the Jefferson Facility’s substandard conditions, with the FDA issuing a Form 483 that cited the Jefferson Facility for alleged violations of industry standards pertaining to the prevention of food contamination, and found that the Jefferson Facility tested positive for Listeria monocytogenes, which led to a April 23, 2015 voluntary recall (the “Recall”) of food manufactured in the Jefferson Facility from November 2013 to April 2015. The Company ordered the Recall and destruction of hundreds of thousands of pounds of food that were processed at the Jefferson Facility prior to and through the time of the SPO. On April 24, 2015, Inventure’s stock price closed down at $8.71 per share, which represented a 30% decrease from the price Inventure stock was sold in the SPO.

Defenses to Plaintiff’s Allegations

Defendants have denied and continue to deny each and all of the claims and contentions alleged by Plaintiff in the Litigation. Defendants expressly have denied and continue to deny all charges of wrongdoing or liability against them arising out of any of the conduct, statements, acts, or omissions alleged, or that could have been alleged, in the Litigation. Defendants also have denied and continue to deny, inter alia, the allegations that Plaintiff or Class Members have suffered damage, or were otherwise harmed by the conduct alleged in the Litigation. Defendants asserted over 44 separate defenses in their answer to the Second Amended Complaint (“SAC”), including, but not limited to, their assertion that the SAC failed to state a claim upon which relief may be granted.

What Occurred Since the Filing of the Case

After the Litigation was filed, the Inventure Defendants removed the Litigation to federal court on May 6, 2016. See Westmoreland County Employee Retirement Fund v. Inventure Foods Incorp. et al., 2:16-cv-01410-SMM (D. Ariz.). On May 26 2016, Plaintiff filed a motion seeking to have the action remanded to state court, and on August 11, 2016, the federal court granted Plaintiff’s motion.

Plaintiff filed with the Court its Amended Complaint (the “AC”) on October 17, 2016. On November 21, 2016, Defendants moved to dismiss the AC, which motions Plaintiff opposed. After a February 23, 2017 oral argument, the Court issued an Under Advisement Ruling with Orders granting in part and denying in part Defendants’ motions, holding that (i) Plaintiffs sufficiently pleaded statutory standing for a Section 11 claim against all Defendants and statutory standing for a Section 12 claim against Defendant William Blair & Company, L.L.C. (but not Defendants Canaccord Genuity Inc. and Roth Capital Partners, LLC), and that the Individual Defendants are “controlling persons” under Section 15; and (ii) while the allegations supported at least some misstatements and omissions, Plaintiff needed to satisfy Rule 9(b) by providing in an amended complaint a clearer delineation of which statements or omissions are alleged to be false or misleading and why.

On March 27, 2017, Plaintiff filed its SAC delineating eleven statements Plaintiff claims were actionable, the facts that allegedly supported why the statements and omissions were false and misleading, and, where applicable, the omissions that allegedly rendered the statements material and false or misleading. On May 3, 2017, Defendants jointly moved to dismiss the SAC. On May 26, 2017, the Court convened a status conference. During the conference, the Court ordered Defendants to answer the SAC, and converted Defendants’ Motion to Dismiss the SAC to a Motion for Judgment on the Pleadings. On July 10, 2017, Defendants answered the SAC, asserting over 44 separate defenses. On August 4, 2017, the Court held oral argument on Defendants’ motion and later that day issued its ruling denying in part and granting in part Defendants’ motion.

In May 2017, the Settling Parties agreed to participate in a mediation with Robert Meyer (“Mediator Meyer”). The mediation was scheduled for August 24, 2017, and in advance of the mediation Plaintiff requested a number of categories of documents from Defendants, which Defendants provided to Plaintiff in advance of mediation. On August 18, 2017, the Settling Parties exchanged mediation statements and also submitted them to Mediator Meyer. On August 24, 2017, the Settling Parties participated in a day-long, in-person mediation. At the conclusion of the mediation session, the Settling Parties had not reached a resolution; however, the Settling Parties agreed to continue discussions with the assistance of Mediator Meyer and to exchange detailed information prepared by their respective experts concerning damages. Over the next few weeks, the Settling Parties exchanged affirmative and rebuttal damages analyses, and conferred with Mediator Meyer concerning the claims and damages.

On October 31, 2017 Defendants filed a Motion for a Temporary Stay of the Litigation, which motion Plaintiff opposed, seeking to stay the Litigation pending a ruling in Cyan, Inc. v. Beaver County Retirement Fund, U.S. Supreme Court No. 15-1439, in which the Supreme Court was addressing whether state courts have subject matter jurisdiction over class actions asserting claims under the Securities Act.

After extensive arm’s-length negotiations with the assistance of Mediator Meyer, on November 7, 2017, the Settling Parties agreed to a mediator's proposal to settle the case for $4.2 million. This sum reflects a compromise result, and therefore, is less than the full amount of damages alleged by Plaintiff. On April 24, 2018, the Settling Parties entered into the Stipulation of Settlement.

THE COURT HAS NOT RULED AS TO WHETHER DEFENDANTS ARE LIABLE TO PLAINTIFF OR TO THE CLASS. THE NOTICE IS NOT INTENDED TO BE AN EXPRESSION OF ANY OPINION BY THE COURT WITH RESPECT TO THE TRUTH OF THE ALLEGATIONS IN THIS LITIGATION OR THE MERITS OF THE CLAIMS OR DEFENSES ASSERTED. THE NOTICE IS SOLELY TO ADVISE YOU OF THE PENDENCY OF THE LITIGATION AND PROPOSED SETTLEMENT THEREOF AND YOUR RIGHTS IN CONNECTION WITH THAT SETTLEMENT.

SUMMARY OF YOUR OPTIONS AND LEGAL RIGHTS IN THIS SETTLEMENT
SUBMIT A PROOF OF CLAIM FORM BY DECEMBER 6, 2018	If you do not submit a timely Proof of Claim form with all of the required information, you will not receive a payment from the Settlement Fund Click here to download a Proof of Claim form.
EXCLUDE YOURSELF BY OCTOBER 3, 2018	If you make a proper request for exclusion, you will not receive a Settlement payment, and you cannot object to the Settlement. If you make a proper request for exclusion, you will not be legally bound by anything that happens in this lawsuit. Click here for more information about excluding yourself.
Object To The Settlement Or The Request For Fees and Expenses By Submitting A Written Objection So That It Is Received No Later Than October 3, 2018	If you are a Class Member, you may object to the terms of the Settlement. Whether or not you object to the terms of the Settlement, you may also object to the requested attorneys’ fees, costs and expenses, the payment to Plaintiff for its time and expenses, and/or the Plan of Allocation. Click here for more information about objecting yourself from the Settlement.
GO TO HEARING NOVEMBER 2, 2018	You can ask by October 3, 2018 to speak in Court about the fairness of the proposed settlement. Click here for more information about appearing at the Final Approval Hearing.