In re Food Fair Securities Litigation

465 F. Supp. 1301, 1979 U.S. Dist. LEXIS 14064
CourtUnited States Judicial Panel on Multidistrict Litigation
DecidedMarch 1, 1979
DocketNo. 368
StatusPublished
Cited by3 cases

This text of 465 F. Supp. 1301 (In re Food Fair Securities Litigation) is published on Counsel Stack Legal Research, covering United States Judicial Panel on Multidistrict Litigation primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Food Fair Securities Litigation, 465 F. Supp. 1301, 1979 U.S. Dist. LEXIS 14064 (jpml 1979).

Opinion

OPINION AND ORDER

PER CURIAM.

I. BACKGROUND

This litigation consists of six actions pending in two districts: three in the [1302]*1302Southern District of New York and three in the Eastern District of Pennsylvania. The principal defendants in these actions are Food Fair, Inc. and several of its present and former officers and directors. Ten of these individuals are named as defendants in each action, and Food Fair is a defendant in four actions. Other defendants named in one or more of these actions include 1) a realty firm and three other companies (Richman Associates, Inc., MGS Incentives Company and Filigree Foods, Inc.) allegedly owned by certain of the other defendants; 2) an individual employed by two of these companies; 3) Food Fair’s accounting firm; and 4) Food Fair’s general counsel.1

Four of the actions before the Panel, two in New York and two in Pennsylvania, were commenced as class actions. No class determinations have yet been made in any of these actions.

The first New York class action was commenced on behalf of all persons who purchased securities of Food Fair between October 25, 1975 and October 2, 1978. Plaintiff in this action alleges that defendants violated the Securities Exchange Act of 1934 in connection with a variety of Food Fair’s public statements from 1975 through October 2, 1978. The complaint charges that Food Fair failed, inter alia, to disclose that Food Fair was encountering difficulties in obtaining goods from certain suppliers; that Food Fair was unable to make quantity purchases and obtain normal discounts, thereby substantially increasing its operating costs; and that the Friedland family was involved in self-dealings and conflicts of interest concerning Food Fair and other companies that supply merchandise to Food Fair.

The second New York class action was commenced on behalf of all persons who purchased certain subordinated debentures of Food Fair-in the open market between 1975 and October 2,1978. The complaint in this action alleges numerous violations of the Securities Exchange Act of 1934 in connection with a variety of Food Fair’s public statements from 1974 through October 3,' 1978. Specifically, plaintiff claims that many of Food Fair’s published materials during that time period were falsely optimistic, giving the misleading impression that Food Fair’s operations and financial condition were in a healthy and proper condition. These materials failed to disclose, plaintiff .alleges, the emergence of strong competitors, as well as Food Fair’s declining position in the marketplace; Food Fair’s high theft and pilferage rate; Food Fair’s continuing labor problems; Food Fair’s poor merchandising programs; Food Fair’s inability to stock its supermarkets; and Food Fair’s difficulties in obtaining credit from merchants and financing institutions. The complaint in this action also alleges that Food Fair failed to disclose the Fried-land family’s numerous self-dealings and conflicts of interests, and the “resultant loss of obtaining the best possible merchandise at the best possible prices and deliveries.”

Except for some of the class action allegations, the complaints in the two Pennsylvania class actions are virtually identical. The first of these actions was brought on behalf of all persons who purchased Food Fair common stock between approximately October 1, 1977 and October 2, 1978, and suffered damages as a result thereof; the class action allegations of the second action differ only in that the purported class period runs from April 1, 1978 to “at least” October 2, 1978. The complaints in both actions allege that defendants violated the Securities Exchange Act of 1934 as a result of various misrepresentations and omissions during the purported class periods set forth above. Plaintiffs charge that Food Fair failed, inter alia, to disclose its liquidity problems; its inability to arrange adequate financing; its credit problems with suppliers; its delinquencies in making timely payments to suppliers; its inventory shortages; [1303]*1303its inability to maintain accurate accounting controls; and its substantial operating losses incurred or to be incurred in fiscal 1978 and the first quarter of fiscal 1979. The complaint also alleges that Food Fair failed to disclose that certain food brokers and wholesalers with which Food Fair conducted' a substantial amount of business were operated “by friends and relatives of the Friedland [family] and executives of Food Fair. . . .”

The remaining two actions before us are both derivative actions brought on behalf of Food Fair. The complaints both charge that the Friedland family dominates and controls the operations of Food Fair and its board of directors. The complaint in the Pennsylvania derivative action further alleges a series of transactions whereby the Friedland family gained ownership or control of Richman, MGS Incentives and Filigree, and then caused Food Fair and some of its subsidiaries and divisions to deal with those three companies on terms favorable to the Friedland family but highly unfair to Food Fair. Included in the complaint are allegations of diversions of corporate opportunities, self-dealings, and conflicts of interest. The complaint in the New York derivative action includes similar allegations as to Richman and Filigree, but does not specifically involve MGS Incentives.

On October 2, 1978, Food Fair filed a petition in the Southern District of New York for protection under Chapter XI of the Federal Bankruptcy Act. On that same day, the bankruptcy judge before whom the reorganization proceedings are pending granted Food Fair’s petition and also entered an order restraining, inter alia, the prosecution of any actions against Food Fair. Under the supervision of the bankruptcy judge, the parties in the bankruptcy proceedings are, inter alia, continuing an investigation of Food Fair that was commenced in August 1978 by Food Fair’s Audit Committee (composed of Food Fair’s outside directors).

II. PROCEEDINGS BEFORE THE PANEL

Food Fair, all but one of its present or former directors who are defendants in this litigation, Food Fair’s general counsel, Filigree, and the realty firm allegedly owned by the Friedland family have moved the Panel, pursuant to 28 U.S.C. § 1407, to centralize four of the six actions before us in the Southern District of New York for coordinated or consolidated pretrial proceedings. The other two actions now before the Panel came to our attention too late to be included in the hearing order in this litigation. Plaintiffs in these two actions, however, have agreed to be bound by our determination, and, since all the defendants in these actions are already before the Panel, these actions are included in the order we are herewith entering under Section 1407.

Plaintiff in one of the Pennsylvania class actions opposes transfer. Should the Panel find transfer appropriate, however, this plaintiff favors the Eastern District of Pennsylvania as the transferee district. All other parties that have taken a position before the Panel favor or do not oppose transfer of all actions to a single district. Various parties have urged centralization of all actions in the Southern District of New York, and plaintiff in the Pennsylvania derivative action favors centralization in the Eastern District of Pennsylvania.

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Bluebook (online)
465 F. Supp. 1301, 1979 U.S. Dist. LEXIS 14064, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-food-fair-securities-litigation-jpml-1979.