Siegel v. The Boston Beer Company, Inc.

Background

Investors in The Boston Beer Company, Inc. brought a proposed securities class action against the company, its chief executive officer David A. Burwick, its chief financial officer Frank H. Smalla, and its founder and board chairman C. James Koch. The complaint alleged that statements made between April 22 and September 8, 2021, about Truly hard seltzer and the hard seltzer market artificially inflated Boston Beer’s stock price. The complaint did not challenge the accuracy of Boston Beer’s reported financial data.

The amended complaint asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, as well as related control-person claims under Section 20(a) against Burwick, Smalla, and Koch. The defendants moved to dismiss the amended complaint for failure to state a claim.

Court’s analysis

Judge Cote explained that securities-fraud complaints must identify each misleading statement, explain why it was misleading, and plead particular facts supporting a strong inference that the defendants acted with the required state of mind. The court addressed the alleged statements from three periods: April 2021 statements in a press release, earnings call, and quarterly filing; statements Koch made at a May 2021 beverage-industry forum; and a statement Burwick made in a June 2021 trade-publication article.

The court concluded that most of the April statements were opinions or predictions about future performance, including expressions of optimism about Truly, the hard seltzer market, and Boston Beer’s on-premise business. The complaint did not plausibly allege that these opinions contained false factual assertions or implied false facts. The forward-looking statements were also accompanied by cautionary language that protected them under the securities-fraud statute.

The court separately considered statements describing the hard seltzer category as fast-growing and the company’s distributor inventory as approximately seven weeks on hand. It found the allegations about industry trends conclusory and unsupported by facts or figures. The inventory allegations did not show falsity because both the filing and the complaint acknowledged that inventory had increased. The court also rejected arguments that later statements, an allegedly unreliable forecasting system, or increased inventory showed that the April statements were false when made. Even assuming the complaint asserted an omission claim about the forecasting system, the court found no adequately pleaded duty to disclose that information.

The court found that the May statements were predictions and opinions about the market’s future, Truly’s market share, and the reopening of bars and restaurants. The allegation that Truly’s market share had not grown was based on a misreading of the cited source; other data showed that Truly’s share had grown during the relevant period. The court therefore found no adequately pleaded false or misleading statement from the beverage forum.

The court also rejected the claim based on the June trade-publication article. It treated Burwick’s statement expressing confidence in Truly’s growth as general corporate optimism and found that the complaint did not adequately plead that Truly’s reported high-double-digit growth was false when made. The court determined that a later statement about low-double-digit growth referred to the hard seltzer category, not Truly.

Ruling and effect

Because the complaint failed to state a Section 10(b) and Rule 10b-5 claim, the court also dismissed the Section 20(a) claims, which depended on an underlying violation by Boston Beer. Judge Cote denied the request for leave to amend because the lead plaintiff did not explain how another amendment would cure the deficiencies and the court found amendment would be futile.

The court granted the defendants’ March 16, 2022 motion to dismiss, directed the Clerk of Court to enter judgment for the defendants, and ordered the case closed. The opinion does not state that the dismissal was with or without prejudice.