A California federal judge denied most of the motion to dismiss filed against Fatburger’s parent company. U.S. District Judge Philip S. Gutierrez ruled that investors can proceed with their claims that the company omitted key information in its initial public offering documents. The judge stated that FAT Brands Inc.’s failure to disclose its management team’s former bankruptcies in similar business circumstances could be considered misleading, especially because the regulatory filings touted the management team’s “track record” and “experience.” The IPO documents didn’t mention that several Fatburger subsidiaries filed for bankruptcy in 2009 while under the direct supervision of the FAT Brands’ current management team, the order said. Fatburger is a fast-casual restaurant operated by FAT Brands.
The Fatburger bankruptcies also occurred in the context of an acquisition spree, which was to be one of FAT Brands’ key growth strategies following the IPO, according to court documents. The incidents allegedly also resulted in Fatburger’s owner, Fog Cutter Capital Group Inc., having its stock delisted. FCCG is run by members of FAT Brands’ leadership team and is a majority shareholder in FAT Brands, according to court documents.
However, Judge Gutierrez said shareholders didn’t explain how certain other alleged omissions could have misled investors. Investors’ second amended complaint pointed out that FCCG had also been delisted from the Nasdaq in 2004 for allegedly “one-sided agreements,” such as paying an executive $4.75 million while he was in jail and allowing him to exercise considerable control over the company while incarcerated. But the complaint didn’t show why that publicly available information was needed in the IPO filings, the order said.
The case is Adam Vignola v. FAT Brands Inc. et al., case number 2:18-cv-07469, in the U.S. District Court for the Central District of California.
This blog is intended to provide information to the general public and to practitioners about developments that may impact Oregon class actions.
