Attorneys who led a four-year-long class action on behalf of investors claiming financial losses from a 2015 merger that created Kraft Heinz are seeking $90 million of a $450 million settlement pool.
The underlying litigation dates to February 2019, when lawyers from Mololamken, of Chicago, and Rosen Law Firm, of New York, brought a putative class action on behalf of named plaintiff George Hedick Jr., seeking to represent anyone who bought Kraft stock from May 14, 2017, through Feb. 21, 2019. Named defendants included Kraft Heinz and three officers: CEO Bernando Hees and Paulo Basilio, who served as chief financial officer and executive vice president from June 2015 until Oct. 1, 2017, and his successor, David Knopf.
The complaint, filed in federal court in Chicago, accused the company and executives of violating U.S. Securities and Exchange Commission rules via more than 100 “materially false and misleading statements” through several filings attesting to disclosure controls and procedures as well as internal financial reporting processes. “The truth” emerged, according to the complaint, in a Feb. 21, 2019, earnings announcement when Kraft detailed a $15.4 billion “impairment charge” and disclosed the SEC had subpoenaed the company in October 2018.
Specifically, the complaint alleged the company slashed costs across a sprawling product line to temporarily boost earnings before interest, taxes, depreciation and amortization. Plaintiffs alleged the long-term result was permanent damage to the value of many individual brands under the giant corporate umbrella. The complaint said the Feb. 21 disclosures caused Kraft shares to fall more than 27% the next day, closing at $34.95.
By Aug. 8, 2023, according to motions for settlement and attorney compensation, different law firms and lead plaintiffs headed the docket. Lawyers from Kessler Topaz Meltzer & Check, of Radnor, Pennsylvania, and San Francisco, represent named plaintiffs Sjunde AP-Fonden and Booker Enterprises. Bernstein Litowitz Berger & Grossman, of New York, represent Union Asset Management Holding.
The settlement motion said discovery involved production of more than 15 million pages of documents. Attorneys said they believed in their allegations but acknowledged the potential challenges of proceeding to trial, noting questions about “whether the alleged misstatements caused consistent inflation in Kraft Heinz’s stock price, the extent to which the company’s business lines were impacted by defendants’ alleged fraud, and whether plaintiffs’ theory of loss causation that would rely on expert testimony could withstand” procedural motions and other challenges.
U.S. District Judge Jorge Alonso granted preliminary approval to the settlement in May, after which the attorneys said there have been no objections from settlement class members. Although a steep drop from the maximum potential damages of $4.3 billion, the $450 million cash payout “will be the largest pretrial securities class action settlement ever in the Seventh Circuit,” according to the motion for legal fees. The U.S. Seventh Circuit covers federal courts in the states of Illinois, Indiana and Wisconsin.
Individual investors will have to show they obtained stock or options during the class period and still had them during one of three different “alleged corrective disclosures.” Loss calculations include securities purchase and sale prices to establish prorated settlement payouts.
The firms cited 112,835 hours of professional time spent thus far, “including interviews with hundreds of former Kraft Heinz employees” and also requested up to $3.2 million in litigation expenses.
The named plaintiffs would be in line for $114,340 for costs related to representation of the class.
Only one person has objected to the fee request, though the deadline to do so extends to Aug. 22. The law firms asserted the objector’s complaint “is virtually identical to series of other objections that he has submitted in unrelated, factually distinct cases.”