Carew v. Biomedical

Background

Lead plaintiffs David Carew and Hugh Robert Holmes filed a securities fraud class action on behalf of persons and entities that purchased or acquired Lifecore Biomedical, Inc. stock between October 7, 2020, and March 19, 2024. The complaint named Lifecore and four individual defendants: Albert D. Bolles (described as Lifecore's CEO until August 2022), James G. Hall (Lifecore's CEO after August 2022), Brian McLaughlin (Lifecore's CFO until January 2021), and John Morberg (Lifecore's CFO after January 2021).

Plaintiffs alleged that Lifecore repeatedly misrepresented the adequacy of its internal financial controls in SEC filings while it divested its Curation Foods business segment, and that even later corrective filings were misleading because they falsely assured investors that problems had been fixed. On March 20, 2024, Lifecore acknowledged in an SEC filing that it had not designed or operated effective internal controls and disclosed material weaknesses and material errors in its financial statements. The stock price dropped sharply following this disclosure. Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, alleging the misrepresentations artificially inflated Lifecore's stock price.

Defendants moved to dismiss on March 25, 2025. The parties attempted mediation, which was unsuccessful, and defendants filed their reply brief. A week before the scheduled hearing on the motion to dismiss, the parties announced they had reached a settlement. The case was thus resolved before the court ruled on the motion to dismiss.

The Settlement

Under the settlement agreement, Lifecore deposited $3,750,000 into an escrow account. After deductions for attorneys' fees, expenses, and service awards, the remaining funds are to be distributed to class members on a pro rata basis, taking into account (1) the total number and value of claims submitted, (2) when each claimant purchased or acquired Lifecore securities, and (3) whether and when the claimant sold those securities. The distribution methodology was developed with the assistance of a damages expert and accounts for the estimated artificial inflation in Lifecore's stock price and the portion of price declines attributable to the alleged fraud.

The court had already granted preliminary approval of the settlement. Following that order, the settlement administrator sent notice by mail or email to approximately 24,370 potential class members beginning March 27, 2026, and also published notice on news journals and a publicly accessible website. Notice under the Class Action Fairness Act (a federal law requiring government authorities to be notified of proposed class settlements) was served no later than January 27, 2026. The deadline for objections was July 7, 2026. No class members objected to either the settlement or the requested fees. One entity, 22NW Fund, LP, requested exclusion from the class, but the court noted that it is managed by 22NW, LP, an entity already explicitly excluded from the settlement class, making the exclusion request meaningless. The court held a final fairness hearing on July 28, 2026.

Class Certification

The court certified the settlement class, analyzing the requirements of Rule 23 of the Federal Rules of Civil Procedure (the rule governing class actions).

Rule 23(a) requirements

- Numerosity: Satisfied because potential class members numbered in the tens of thousands, far exceeding the threshold generally recognized in this district. - Commonality: Satisfied because all class members' claims center on the same alleged public misrepresentations and omissions by Lifecore in SEC filings, and resolving whether those statements were materially misleading would address a question central to every class member's claim. - Typicality: Satisfied because the named plaintiffs' claims arise from the same course of alleged conduct as all other class members' claims; any factual variations relate only to the timing of individual stock purchases and the resulting amount of recovery, not to the claims themselves. - Adequacy of representation: Satisfied because the class representatives participated actively in the litigation and the firms serving as class counsel (Pomerantz LLP and the Rosen Law Firm) have extensive experience in securities class actions.

Rule 23(b)(3) requirements

- Predominance: Common questions predominate. At least three of the six elements of a securities fraud claim—material misrepresentation, scienter (intent or knowledge of wrongdoing), and loss causation—are common to all class members because they focus on defendants' conduct and its effect on the stock price. On the element of reliance, the court applied the "fraud-on-the-market" presumption, which allows class members to avoid individually proving that each relied on the alleged misstatements, because (1) the misrepresentations were publicly known through SEC filings, (2) Lifecore stock traded on Nasdaq, which the court treated as an efficient market (a market where public information is quickly reflected in stock prices) in the absence of any objection, and (3) class members transacted during the period between the alleged misrepresentations and the public disclosure of the truth. On damages, the plan of allocation using a pro rata methodology based on estimated artificial inflation was found adequate. - Superiority: A class action is the superior method of adjudication because individual litigation by thousands of stockholders would be impractical.

Final Approval of the Settlement

The court assessed whether the settlement is "fair, reasonable, and adequate" under the Van Horn factors (a set of considerations used in this circuit) and the factors listed in Rule 23(e)(2).

Van Horn factors

Attorneys' Fees

Class counsel sought 33.33% of the $3.75 million fund—approximately $1,249,987—under the "common fund" doctrine, which allows attorneys who create a settlement fund for the benefit of a class to be paid a reasonable percentage of that fund. The court analyzed seven factors:

The court awarded the full requested amount of $1,249,987, plus interest at the same rate as the settlement fund.

Expenses and Service Awards

The court awarded class counsel $103,468.42 in litigation expenses, including expert fees, notice fees, mediator fees, travel, investigator fees, and court fees. The court found these categories appropriate for reimbursement from a common fund and noted that contingency-fee representation gave counsel a strong incentive to keep expenses reasonable.

The court awarded a $2,000 service award to each of the two class representatives, David Carew and Hugh Robert Holmes, under 15 U.S.C. § 78u–4(a)(4), which permits awards of reasonable costs and expenses to representative parties. The awards were supported by each representative's active participation: communicating with counsel, providing relevant documents, and consulting on settlement discussions.

Disposition

The court granted Plaintiffs' Motion for Final Approval of Class Action Settlement and granted Plaintiffs' Motion for Attorneys' Fees, Expenses, and Service Awards. The action was dismissed with prejudice.