ORLANDO Fla. At least four separate law firms have announced shareholder class-action complaints against Darden Restaurants Inc., accusing the casual-dining operator of misleading shareholders about the company’s performance and outlook for the year ahead.
At press time just one lawsuit had actually been filed with a plaintiff, a plumber and pipefitting union in the Northeast, but all of the actions seek to attain class-action status from the court system. The class would represent investors that held Darden stock between June 19, 2007, and Dec. 18, 2007. The complaints were filed in a district court in Florida.
Darden said in a statement that it does not comment on pending litigation, though it did add, “We are proud of our record of transparency with shareholders and Wall Street."
Shareholder class-action suits are typically sparked by a large drop in a company’s stock price, or a significant change in corporate direction like a sale or a merger. Many law firms scout for instances when a company could be vulnerable to shareholder complaints and then cast a wide net to attain enough plaintiffs to garner class-action standing.
Landry’s Restaurants Inc. is facing a class-action complaint surrounding its chairman’s offer to purchase the company.
Outback Steakhouse’s former parent OSI Restaurants Partners Inc. also faced litigation surrounding a buyout, while Applebee’s International Inc. faced shareholder discontent surrounding proxy disclosures. Both of those cases were eventually settled.
In recent years, restaurant companies including AFC Enterprises Inc., Buca Inc., Cosi Inc. and Krispy Kreme Doughnuts Inc. have all been hit with shareholder litigation. Some, as in Cosi’s case, were dismissed, while other settled.
Last year, on Dec. 18, Darden revised its earnings and sales projections in the face of stiff industry and economic headwinds, including reduced customer traffic and increased operating costs. The company’s stock fell 21 percent the day after its announcement and was down about 37 percent from its 52-week high prior to the company’s third-quarter earnings report on Tuesday. On Wednesday, Darden’s stock rose 6.6 percent to close at $31.83 per share.
According to the complaint filed on behalf of the union, the plaintiffs allege that Darden and certain executives inflated the company’s share price last year by giving “materially false and misleading statements” about the performance of its core restaurant operations, mainly Red Lobster, Olive Garden and LongHorn Steakhouse. It also alleged that the company was not forthcoming on the negative impact of increased food costs and slowed consumer traffic. The suit names as defendants Darden chief executive Clarence Otis and chief financial officer Brad Richmond.