Beyond Meat settles stockholder derivative action filed in wake of dispute with former co-packer Don Lee Farms

11-Apr-2022 - Last updated on 11-Apr-2022 at 16:01 GMT

Beyond Meat has agreed to settle a lawsuit filed by four common stockholders "in order to avoid the expense, distraction, and uncertainty of litigation." Image credit: Beyond Meat

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Beyond Meat has agreed to settle a lawsuit filed by common stockholders alleging that top executives breached their fiduciary duties in their dealings with former co-packer Don Lee Farms. Company executives named in the complaint do not admit any wrongdoing, but say they wish to avoid the expense and distraction of protracted litigation.

According to a complaint* filed in March 2020 by a group of common stockholders against Beyond Meat (nominal defendant) and top executives including CEO Ethan Brown, former executive chairman Seth Goldman, and former CFO Mark Nelson; selected executives altered food reports submitted to former co-packer Don Lee Farms to exclude pertinent safety information; wrongfully terminated an exclusive supply agreement with Don Lee; misappropriated Don Lee’s trade secrets with two other manufacturers; and failed to maintain internal controls.

The plaintiffs further alleged that Brown et al failed to provide sufficient disclosures about the plant-based meat company's ongoing legal dispute with former co-packer Don Lee Farms ahead of Beyond Meat’s May 2019 IPO, noting that media reports in January 2020 about the latest developments in the case caused a precipitous drop in Beyond Meat’s share price.

Settlement to ‘avoid the expense, distraction, and uncertainty of litigation’

In a settlement agreement signed in January and approved by the court on a preliminary basis in March, in which Beyond Meat is both the plaintiff and the nominal defendant, Beyond Meat has agreed to pay $515,000 to plaintiffs’ counsel for attorneys’ fees and expenses.

Plaintiffs’ counsel shall also apply to the court for service awards of $2,000 to be paid to each of the four plaintiffs, to be paid out of any attorneys’ fees and expense award.

It has also agreed to set up a risk committee and publish nonconfidential written corporate governance guidelines on its website, while its audit committee will assist the risk management committee and chief legal officer in an annual review of the code of conduct.

The court will hold a hearing on July 11 to determine whether the proposed settlement is fair and reasonable.

In a statement issued on Friday (April 8, 2022), Beyond Meat Inc explained: “Settling defendants deny each and every allegation of wrongdoing or liability … and further assert that, at all times, they acted legally, in good faith, and in a manner they reasonably believed to be and that was in the best interests of Beyond Meat and Beyond Meat’s stockholders.

“Nonetheless, settling defendants have entered into the stipulation, without admitting or conceding any fault, liability, wrongdoing, or damage whatsoever, in order to avoid the expense, distraction, and uncertainty of litigation.”

Ugly legal dispute with former co-packer to go to trial in September

The litigation** between Beyond Meat and former co-packer Don Lee Farms is still moving through the courts, meanwhile.

The legal dispute began in May 2017 - three years after the two parties entered into a five-year supply agreement - with Don Lee Farms alleging that Beyond Meat wrongfully terminated the parties’ fixed term contract early “under the guise of purported health & safety concerns," in order to enter more economically favorable arrangements with Don Lee's competitors.

Don Lee further alleged that it developed proprietary methods for processing Beyond Meat's products, which it claims Beyond Meat went on to share with Don Lee's competitors.

Beyond Meat then countersued, accusing Don Lee Farms of breaching their contract by failing to meet agreed upon health and safety standards.

In a ruling issued last August, Los Angeles Superior Court Judge Holly J. Fujie granted Beyond Meat’s motion for summary adjudication on Don Lee Farms’ claims for misappropriation of trade secrets and unfair competition.

As a result, those claims will not proceed to trial, which has been set for May 16, 2022. However, Don Lee Farms’ claims that Beyond Meat breached their contract and that Don Lee was fraudulently induced to continue working remain in dispute, with a trial date now set for September 26, 2022.

*The case is In re: Beyond Meat, Inc. Derivative Litigation, Case No. 2:20-cv-02524, Eric Weiner, derivatively on behalf of Beyond Meat, Inc. vs defendants Ethan Brown, Mark J. Nelson, Seth Goldman, Gregory Bohlen, Diane Carhart, Raymond J. Lane, Bernhard Van Lengerich, Ned Segal, Christopher Isaac “Biz” Stone, Donald Thompson, and Kathy N. Waller, and Beyond Meat, Inc. (nominal defendant).

**The case is Don Lee Farms vs Savage River Inc (d.b.a. Beyond Meat) Case #: BC662838 in Los Angeles County Superior Court, CA.