Beyond Meat Settles With Investors On Derivative Suit Amid Ongoing Don Lee Litigation

Beyond Meat has settled a lawsuit, filed by a group of its stockholders in March 2020 alleging the company’s senior management team, including co-founder and CEO Ethan Brown, former executive chairman Seth Goldman and former CFO Mark Nelson, “breached their fiduciary duties.” The litigation was a derivative action related to an ongoing legal dispute brought against the company by its former co-packer, Don Lee Farms.

The plant-based meat maker’s dispute with Don Lee began in 2017 when the co-packer sued Beyond Meat for wrongfully terminating an exclusive five-year co-manufacturing contract over alleged “health and safety concerns.” In addition to the contract termination, Don Lee claims that Beyond Meat shared proprietary technology it had developed specifically for Beyond products, with two other co-packers creating unfair competition. Beyond Meat then filed a countersuit against Don Lee over the alleged “health and safety concerns.”

Beyond Meat investors had alleged that the suit caused Beyond Meat share prices to drop amid ongoing media reports and claim the state of the dispute had not been properly disclosed.

What happened with investors?

A group of Beyond Meat stockholders claim senior management altered and excluded safety information from food reports submitted to Don Lee, wrongfully terminated the co-packing agreement, misappropriated trade secrets, created unfair marketplace competition by sharing proprietary technology and failed to maintain internal controls. Additionally, the suit claimed that Beyond Meat’s team did not sufficiently disclose the ongoings of the dispute to investors prior to taking the company public in May 2019, citing that media reports about the dispute eight months after the IPO caused Beyond Meat’s share price to drop.

While this settlement puts all of the investors’ allegations to bed, the defendants maintain they have not committed any wrongdoing and always acted in the best interests of Beyond Meat and its stockholders. A statement from Beyond Meat said they have agreed to the settlement in order to avoid “the expense, distraction and uncertainty of litigation.”

Pending the court’s approval, Beyond Meat will pay $515,000 in attorney fees and expenses, create a risk committee and publish non confidential, written corporate governance guidelines on its website. Additionally, Beyond Meat’s audit committee will now also be involved in annual review of the company’s code of conduct, with additional supervision by its risk management team and chief legal officer.

The agreement, which was made public earlier this week, was filed in Central California District Court in mid-January and a hearing to approve the motion will be held on July 11.

What is going on with the Don Lee case?

While this litigation may be winding down, the dispute between Don Lee and the plant-based meat maker is expected to finally make it to trial this September.

In the last year, both parties secured a few minor wins relative to the allegations. The Superior Court of California ruled that Beyond Meat had to pay Don Lee Farms $600,000 in damages over the breach of contract dispute. The judge also found there are “triable issues” relative to Don Lee’s claim that Beyond Meat’s team committed fraud. The two counts are relative to Beyond Meat’s response after Don Lee allegedly raised concerns over “inadequate food safety protocols” at Beyond Meat’s facility and claimed that the plant-based meat maker provided unsafe materials to the co-manufacturer.

Last year’s ruling also resulted in a victory for Beyond Meat when Los Angeles Superior Court Judge Holly J. Fujie granted its motion of summary adjudication which affirmed that all nine of the brand’s products involved in the lawsuit were developed and manufactured by Beyond Meat prior to Don Lee’s involvement. This led to the dismissal of Don Lee’s misappropriation and unfair competition claims.

As it looks to the September trial, Don Lee aims to prove that Beyond Meat defrauded and negligently misrepresented the safety of its products. The co-packer is specifically looking to recover 17-months worth of allegedly deleted text messages from Beyond Meat co-founder and CEO Ethan Brown’s phone.

Beyond Meat and Don Lee Farms could not be reached for comment at the time of publication.