Blue Apron Holdings, Inc.
“The bespeaks caution doctrine does not shield statements
that fail to disclose known risks.”
Murielle Steven Walsh
Murielle Steven Walsh
On May 10, 2021, Pomerantz, acting as Co-Lead Counsel, scored a victory for investors when the court granted approval of a $13.25 million settlement in a securities fraud class action against Blue Apron Holdings, Inc., (“Blue Apron”). Through its subsidiaries, Blue Apron provides meal-kit delivery services, sending weekly boxes of pre-portioned ingredients with instructions for customers to cook meals at home. To ship the millions of meals each month, Blue Apron opened and operated fulfillment centers across the United States. One of the key metrics for Blue Apron was its On-Time In-Full (“OTIF”) rating, indicating the number of meal kits delivered on time with all of their ingredients.
Prior to Blue Apron issuing its IPO, company’s new facility in Linden, New Jersey, which was expected to eventually account for more than half of the meal kits Blue Apron sells, was already experiencing encountering major undisclosed problems, repeatedly delaying and disrupting its planned opening. Linden was so far behind schedule that, by the time it finally shipped its first box on May 15, 2017, it should have been packaging between 5,000 and 6,000 meals each day. On June 29, 2017, Blue Apron filed the final prospectus for its initial public offering (“IPO”) and on July 5, 2017, it completed its IPO and sold 30 million shares of Class A common stock at $10.00 per share.
The Complaint alleges that defendants failed to disclose the serious problems at the Linden factory. It further alleges that defendants made false and/or misleading statements, failing to disclose that Blue Apron had already decided to significantly reduce spending on advertising in Q2 2017, which would hurt sales and profit margins in future quarters and that Blue Apron orders were not arriving on time or with all the ingredients needed, which was hurting customer retention. Also, delays at the new factory in Linden were resulting in additional delays in new product rollouts, which was limiting Blue Apron's ability to gain new customers and retain existing ones.
On August 10, 2017, Blue Apron revealed that it had encountered delays associated with its Linden factory, leading to additional delays in new product rollouts, thereby impeding Blue Apron's ability to gain new customers and maintain current customers.
Following this news, Blue Apron's share price fell $1.10, or more than 17%, to close at $5.14 on August 10, 2017, a 50% drop from the IPO price.
Defendants moved to dismiss plaintiffs’ Complaint, relying, in part, on the “bespeaks caution” doctrine, which holds that forward-looking statements are not misleading if they are accompanied by adequate risk disclosure to caution readers about specific risks that may materially impact the forecasts. The court, however, held that the bespeaks caution doctrine does not apply here because it does not shield statements that fail to disclose known risks. The court also upheld claims based on statements which on their face were literally true, but materially misleading by omitting the Linden problems. For example, the statement that the company was “completing the build out of a new fulfillment center in Linden, New Jersey, which we have recently begun to utilize” was misleading by its failure to disclose the Linden delays. Judge William F. Kuntz II wrote, “Taken in context together and with the remaining statements, it could plausibly ‘have misled a reasonable investor’ through the suggestion increasing automation was actively improving cost-efficiency, when delays at the Linden Facility were in fact doing the opposite.”
Item 303 of SEC Regulation S-K requires companies to disclose “known trends and uncertainties” in certain public filings. To survive a motion to dismiss, a plaintiff must allege the trend “was already known and existing at the time of the IPO, and that the trend or uncertainty in the market was reasonably likely to have a material impact” on the defendant’s financial condition. The court upheld the Item 303 claims as alleged in the Complaint. On April 22, 2020, Judge Kuntz denied Blue Apron’s motion to dismiss Pomerantz’s action in its entirety.
Pomerantz’s Blue Apron litigation was led by partners Murielle Steven Walsh and Jeremy A. Lieberman.
In re Blue Apron Holdings, Inc. Sec. Litig., No. 17-civ-4846 (S.D.N.Y.)
Class Period: June 29 – August 9, 2017, both dates inclusive
For violations of the Securities Act of 1933 and the Securities Exchange Act of 1934