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Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 1 of 28
JL!DEKAPLA1 UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
RENEE BLUMSTEIN, Individually and On Behalf of All Others Similarly Situated,
Plaintiff,
V.
FAIRWAY GROUP HOLDINGS CORP., HERBERT RUETSCH, EDWARD C. ARDITTE, and KEVIN MCDONNELL,
Defendants
IN01A !9 CV 0 50. CLASS ACTION
COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
DEMAND FOR JURY TRIAL
Plaintiff Renee Blumstein ('Plaintiff'), individually am
similarly situated, by her undersigned attorneys, for her complaint against defendants, alleges the
following based upon personal knowledge as to herself and her own acts, and information and
belief as to all other matters, based upon, inter alia, the investigation conducted by and through
her attorneys, which included, among other things, a review of the defendants' public
documents, conference calls and announcements made by defendants, United States Securities
and Exchange Commission ("SEC") filings, wire and press releases published by and regarding
Fairway Group Holdings Corp., ("Fairway" or the "Company"), analysts' reports and advisories
about the Company, and information readily obtainable on the Internet. Plaintiff believes that
substantial evidentiary support will exist for the allegations set forth herein after a reasonable
opportunity for discovery.
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NATURE OF THE ACTION
1. This is a federal securities class action on behalf of a class consisting of all
persons other than defendants who purchased or otherwise acquired Fairway securities between
April 16, 2013 and February 6, 2014, both dates inclusive (the "Class Period"), and/or who
acquired Fairway shares pursuant or traceable to Fairway's false and misleading Registration
Statement and Prospectus in connection with its April 17, 2013 initial public offering ("IPO"),
seeking to recover damages caused by defendants' violations of the federal securities laws and to
pursue remedies under §§ 11 and 15 of the Securities Act of 1933 ("1933 Act"), and under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule
lOb-S promulgated thereunder, against the Company and certain of its top officials.
2. Fairway Group Holdings Corp. and its subsidiaries operate in the retail food
industry, selling fresh, natural and organic products, prepared foods and hard to find specialty
and gourmet offerings along with a full assortment of conventional groceries. The Company
operates fourteen stores in the Greater New York metropolitan area, three of which include
integrated Fairway Wine & Spirits locations.
3. In the Company's Registration Statement, Fairway touted the Company's "iconic
brand," "distinctive marketing strategy," while running the "most productive" stores, leading
investors to believe that it would be able to achieve consecutive growth in same store sales, as
well as 30% growth in EBITDA for 2015. Indeed, during the Class Period, the Company
projected "solidly positive same store sales growth," as well as EBITDA growth of 25% for the
third quarter of 2014. In fact however, the Company was experiencing a contraction in same
store sales, increased direct store expenses, and diminished EBITDA growth.
4. Throughout the Class Period, defendants made materially false and misleading
statements regarding the Company's business, operational and compliance policies. Specifically,
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defendants made false and/or misleading statements and/or failed to disclose that: (1) Fairway's
same store sales were declining; (2) the Company's direct store expenses were increasing; (3) the
Company's financial forecasts were wholly unrealistic; and (4) as a result of the foregoing,
Fairway's public statements were materially false and misleading at all relevant times.
5. On February 6, 2014, Fairway reported earnings that severely missed analysts'
estimates including very disappointing same store sales, as well as increased direct store
expenses. Moreover, the Company reported a colossal miss in EBIDTA growth for the third
quarter as EBIDTA grew 3.2% over the same period in the prior year compared to growth of
"20% - 25%" that management had predicted. Suspiciously, the Company also announced the
retirement of CEO Herbert Ruetsch, a mere ten months after the Fairway's IPO.
6. Analysts were skeptical of the Company's explanation for the disappointing
results, diminished outlook, as well as the suspicious timing of Ruetsch' s resignation. During a
conference call held with analysts after the Company reported its results, one analyst
commented:
First, an observation, and then a question. For a company with 14 stores, there is an amazingly high level of complexity here. So, my question then is going to be, can you just try to simplify for us what has changed in the fiscal 2015 outlook? Because analysts' estimates have about 30% adjusted EBIDTA growth and now we are looking at 10%.
7. As a result of this news, Fairway securities declined $3.19 or 27.91%, on massive
volume, to close at $8.24 on February 7, 2014.
8. As a result of defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
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JURISDICTION AND VENUE
9. The claims asserted herein arise under and pursuant to §§11 and 15 of the 1933
Act (15 U.S.C. §.77k and 77o), and §10(b) and 20(a) of the Exchange Act (15 U.S.C. §78j(b)
and 78t(a)) and Rule 1 Ob-5 promulgated thereunder by the SEC (17 C.F.R. §240.1 Ob..5).
10. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. § 1331, §22 of the 1933 Act and § 27 of the Exchange Act.
11, Venue is proper in this District pursuant to §27 of the Exchange Act, 15 U.S.C.
§78aa and 28 U.S.C. §1391(b), as defendant is headquartered in this District and a significant
portion of the defendants' actions, and the subsequent damages, took place within this District.
12. In connection with the acts, conduct and other wrongs alleged in this Complaint,
defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
including but not limited to, the United States mail, interstate telephone communications and the
facilities of the national securities exchange.
PARTIES
13. Plaintiff, as set forth in the attached Certification, acquired Fairway securities at
artificially inflated prices during the Class Period and was damaged upon the revelation of the
alleged corrective disclosures.
14. Defendant Fairway is a Delaware corporation with its principal executive offices
located at 2284 12th Avenue, New York, NY United States. Fairway's common stock trades on
the NASDAQ Global Stock Market ("NASDAQ") under the ticker symbol "FWM."
15. Defendant Herbert Ruetsch ("Ruetsch") has served at all relevant times as the
Company's Chief Executive Officer.
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16. Defendant Edward C. Arditte ("Arditte") has served at all relevant times as the
Company's Chief Financial Officer.
17. Defendant Kevin McDonnell ("McDonnell") has served at all relevant times as
the Company's Chief Operating Officer.
18. The defendants referenced above in T 15 - 17 are sometimes referred to herein as
the "Individual Defendants."
SUBSTANTIVE ALLEGATIONS
Background
19. Fairway and its subsidiaries operate in the retail food industry, selling fresh,
natural and organic products, prepared foods and hard to find specialty and gourmet offerings
along with a full assortment of conventional groceries. The Company operates fourteen stores in
the Greater New York metropolitan area, three of which include integrated Fairway Wine &
Spirits locations.
20. Twelve of the stores were open prior to the beginning of fiscal 2014 and two
stores were opened during fiscal 2014: one store in the Chelsea neighborhood of Manhattan, NY,
which opened in late July 2013, and another store in Nanuet, NY, which opened in mid-October
2013.
21. Seven of the Company's food stores, which the Company refers to as "urban
stores," are located in New York City and the remainder, which the Company refers to as
"suburban stores," are located in New York (outside of New York City), New Jersey and
Connecticut. The Company has determined that it has one reportable segment. Substantially all
of the Company's revenue comes from the sale of items at its retail food stores.
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22. Fairway Group Holdings Corp. was incorporated in the State of Delaware on
September 29, 2006 and is controlled by investment funds managed by Sterling Investment
Partners L.P. and affiliates (collectively, "Sterling").
23. On April 22, 2013, the Company completed its initial public offering ("IPO") of
15,697,500 shares of its Class A common stock at a price of $13.00 per share, which included
13,407,632 new shares sold by Fairway and the sale of 2,289,868 shares by existing stockholders
(including 2,047,500 sold pursuant to the underwriters exercise of their over-allotment option).
The Company received approximately $158.8 million in net proceeds from the IPO after
deducting the underwriting discount and expenses related to the IPO. The Company used the net
proceeds that it received from the IPO to (i) pay accrued but unpaid dividends on its Series A
preferred stock totaling approximately $19.1 million, (ii) pay accrued but unpaid dividends on its
Series B preferred stock totaling approximately $57.7 million, (iii) pay $9.2 million to an
affiliate of Sterling Investment Partners in connection with the termination of the Company's
management agreement with the affiliate and (iv) pay contractual IPO bonuses to certain
members of the Company's management totaling approximately $8.1 million.
24. The Company's intent was to use the remainder of the net proceeds,
approximately $64.7 million, for new store growth and other general corporate purposes. The
Company did not receive any of the proceeds from the sale of shares by the selling stockholders.
In connection with the IPO, the Company issued 15,504,296 shares of Class B common stock (of
which 33,576 shares automatically converted into 33,576 shares of Class A common stock) in
exchange for all outstanding preferred stock and all accrued dividends not paid in cash with the
proceeds of the IPO.
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Materially False and Misleading Statements Issued During the Period
25. On April 16, 2013 the SEC declared effective the Form S-i Fairway filed on
September 24, 2012 and later amended on February 26, 2013, April 4, 2013, April 12, 2013, and
April 16, 2013 (collectively, the "Registration Statement"), in connection with the Company's
initial public offering ("IPO") on April 17, 2013.
26. The Registration Statement incorporated a prospectus to be used in connection
with the offer and sale of Fairway shares. The Registration Statement and Prospectus
(collectively, the "Offering Documents") were negligently prepared and, as a result, contained
untrue statements of material facts or omitted to state other facts necessary to make the
statements made not misleading, and was not prepared in accordance with the rules and
regulations governing its preparation.
27. in the Offering Documents the Company stated:
We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies, value positioning and efficient operating structure. We have increased our net sales from $401.2 million in fiscal 2010 to $554.9 million in fiscal 2012, or 38.3%, and our Adjusted EBITDA from $23.9 million in fiscal 2010 to $35.8 million in fiscal 2012, or 49.8%, while significantly investing in corporate infrastructure to support our growth, including new store expansion. We increased our net sales from $404.5 million in the thirty-nine weeks ended January 1, 2012 to $482.5 million in the thirty-nine weeks ended December 30, 2012, or 19.3%, and our Adjusted EBITDA from $24.9 million in the thirty-nine weeks ended January 1, 2012 to $33.8 million in the thirty-nine weeks ended December 30, 2012, or 35.9%, due principally to new store openings and leveraging our infrastructure. We had net losses of $7.1 million, $18.6 million, $11.9 million, $10.0 million and $56.2 million in fiscal 2010, fiscal 2011 and fiscal 2012 and the thirty-nine weeks ended January 1, 2012 and December 30, 2012, respectively.
We believe the foliowing strengths contribute to our success as a premier destination food retailer and position us for sustainable growth:
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Iconic brand. We believe our Fairway brand has a well established reputation for delivering high-quality, value-priced fresh, specialty and conventional groceries. Fairway has served millions of passionate customers in the Greater New York City metropolitan area for more than 75 years, recording approximately 12.7 million customer transactions in fiscal 2012. We believe the strength of the Fairway brand enhances our ability to: (i) attract a broad demographic of customers from a wider geographic radius than a conventional supermarket; (ii) source hard-to-find, unique gourmet and specialty foods; (iii) build a trusted connection with our customers that results in a high degree of loyalty; (iv) attract and retain highly talented employees; (v) secure attractive real estate locations; and (vi) successfully open new stores.
Destination food shopping experience "Like No Other Market". We provide our customers a differentiated one-stop shopping experience by offering a unique mix of product breadth, quality and value in a visually appealing in-store enviromnent. Fairway creates a fun and engaging atmosphere in which customers select from an abundance of fresh foods and other high-quality products while interacting with our attentive and knowledgeable employees throughout the store. Customers will find in our stores a "specialty shop" orientation designed to recreate the best features of local specialty markets, such as a gourmet cheese purveyor, full service butcher shop, seafood market and bakery, all in one location. We believe the distinctive Fairway food shopping experience drives loyalty, referrals and repeat business.
Distinctive merchandising strategy. Our merchandising strategy is the foundation of our highly differentiated, one-stop shopping experience. We offer a unique product assortment generally not found in either conventional grocery stores or natural / specialty stores, consisting of a large variety of high-quality produce, meats and seafood, as well as gourmet, specialty and prepared foods and a full selection of everyday conventional groceries. High-quality perishables and prepared foods account for approximately 65% of our sales, compared to the more typical one-quarter to one-third of a conventional grocer's sales. We believe that our distinctive merchandising strategy has enabled us to build a trusted connection with our customers.
Powerful store format with industry leading productivity. We believe our stores are among the most productive in the industry in net sales per store, net sales per square foot and store contribution margin. During fiscal 2012, for food stores open more than 13 full months, our net sales per store and net sales per selling square foot averaged $64.8 million and $1,859, respectively. In addition, during fiscal 2012, the contribution margin of our food stores open more than 13 full months was 12.3%. Our highly productive store format delivers attractive returns on investment due to the following key characteristics: High-volurne one-stop shopping destination. Our high volumes result in operating efficiencies and generate high inventory turnover, which enables us to maintain a fresher selection of quality perishables than most of our competitors, in turn helping to drive customer traffic and sales. -Attractive product mix. Our broad assortment of
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high-quality fresh, natural and organic products and prepared foods, which account for approximately 65% of our sales, and specialty items, which account for approximately 7% of our sales, enhance gross margins and store productivity.
28. On June 6, 2013, the Company issued a press release and filed a Form 8-K with
the SEC, announcing its financial and operating results for the fourth quarter and fiscal year
ended March 31, 2013.
29. For the fiscal 2013 fourth quarter, the Company reported an increase of net sales
by 19% to $1783 million from net sales of $150.3 million in the same period a year ago and that
adjusted EBITDA for the fiscal 2013 fourth quarter increased 24% to $13.5 million, inclusive of
$2.5 million of business interruption insurance, from $10.9 million in the fourth quarter of 2012.
For the full year fiscal 2013, the Company reported an increase of net sales by 19% to $661.2
million in fiscal 2013 from $554.9 million in fiscal 2012 and an adjusted EBITDA increase for
fiscal 2013 of 32% to $47.4 million, inclusive of $5 million in business interruption insurance,
from $35.8 million in fiscal 2012.
30, On June 6, 2013, the Company filed a Form 10-K with the SEC which was signed
by Defendants Ruetsch and Arditte, and reiterated the Company's previously announced
quarterly and fiscal year-end financial results and financial position. In addition, the 10-K
contained signed certifications pursuant to the Sarbanes-Oxley Act of 2002 ("SOX") by
Defendants Ruetsch and Arditte, stating that the financial information contained in the Form 10-
K was accurate and disclosed any material changes to the Company's internal control over
financial reporting.
31. In the 10-K the Company stated that:
We intend to continue our strong growth by expanding our store base in our existing and new markets, capitalizing on consumer trends and improving our operating margins. We opened an additional food store and integrated Fairway Wines & Spirits location in Woodland Park, New Jersey in June 2012, an additional food store in Westbury, New York in August 2012, and an additional
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food store in Manhattan's Kips Bay neighborhood in late December 2012. We reopened our Red Hook store, which was temporarily closed due to damage sustained during Hurricane Sandy, on March 1, 2013, and we expect to open an additional food store in Manhattan's Chelsea neighborhood in July 2013 and in Nanuet, New York in fall 2013. For the next several years beginning in fiscal 2015, we intend to grow our store base in the Greater New York City metropolitan area at a rate of three to four stores annually. Over time, we also plan to expand Fairway's presence into new, high-density metropolitan markets. Based on demographic research conducted for us by the Buxton Company, a customer analytics research firm, we believe, based on these demographics, we have the opportunity to more than triple the number of stores in our existing marketing region of the Greater New York City metropolitan area, the Northeast market (from New England to the District of Columbia) can support up to 90 stores and the U.S. market can support more than 300 additional stores (including stores in the Northeast) operating under our current fonnat,
32. On August 8, 2013, the Company issued a press release and filed a Form 8-K with
the SEC, announcing its financial and operating results for the fiscal 2014 first quarter ending
June 30, 2013. The Company reported that net sales increased $32 million, or 21%, to $187
million from $155 million in the first quarter of fiscal 2013 and that adjusted EBTTDA increased
12% to $12.7 million in the first quarter of fiscal 2014 from $11.3 million in the first quarter of
fiscal 2013.
33. On August 8, 2013 the Company filed a Form 10-Q with the SEC which was
signed by Defendants Ruetsch and Arditte, and reiterated the Company's previously announced
quarterly and fiscal year-end financial results and financial position. In addition, the lO-Q
contained signed certifications pursuant to the S arb anes- Oxley Act of 2002 ("SOX") by
Defendants Ruetsch and Arditte, stating that the financial infonnation contained in the Form 10-
Q was accurate and disclosed any material changes to the Company's internal control over
financial reporting.
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34. In the l0-Q, the Company stated that:
We intend to continue our strong growth by expanding our store base in our existing and new markets, capitalizing on consumer trends and improving our operating margins. We opened an additional food store and integrated Fairway Wines & Spirits location in Woodland Park, New Jersey in June 2012, an additional food store in Westbury, New York in August 2012, an additional food store in Manhattan's Kips Bay neighborhood in late December 2012 and an additional food store in Manhattan's Chelsea neighborhood in July 2013, after the end of first quarter 2014. We reopened our Red Hook store, which was temporarily closed due to damage sustained during Hurricane Sandy, on March 1, 2013, and we expect to open an additional food store in Nanuet, New York in fall 2013. For the next several years beginning in fiscal 2015, we intend to grow our store base in the Greater New York City metropolitan area at a rate of three to four stores annually. Over time, we also plan to expand Fairway's presence into new, high-density metropolitan markets. Based on demographic research conducted for us by the Buxton Company, a customer analytics research finn, we believe, based on these demographics, we have the opportunity to more than triple the number of stores in our existing marketing region of the Greater New York City metropolitan area, the Northeast market (from New England to the District of Columbia) can support up to 90 stores and the U.S. market can support more than 300 additional stores (including stores in the Northeast) operating under our current format.
We believe that we are well positioned to capitalize on evolving consumer preferences and other key trends currently shaping the food retail industry. These trends include an increasing consumer focus on the shopping experience and on healthy eating choices and fresh, quality offerings, including locally sourced products, as well as growing interest in high-quality, value-oriented private label product offerings.
We intend to improve our operating margins through scale efficiencies, improved systems, continued cost discipline and enhancements to our merchandise offerings. We expect store growth will also permit us to benefit from economies of scale in sourcing products and will enable us to leverage our existing infrastructure.
35, On November 7, 2013, the Company issued a press release and filed a Form 8-K
with the SEC, announcing its financial and operating results for the fiscal 2014 second quarter
ending September 29, 2013. For the second quarter of fiscal 2014, the Company reported that net
sales increased $22.7 million, or 14.1%, to $183.2 million from $160.5 million in the second
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quarter of fiscal 2013 and that adjusted EBITDA increased 4.7% to $10.6 million in the second
quarter of fiscal 2014 from $10.1 million in the second quarter of fiscal 2013.
36. On November 7, 2013 the Company filed a Form 10-Q with the SEC which was
signed by Defendants Ruetsch and Arditte, and reiterated the Company's previously announced
quarterly financial results and financial position. In addition, the 10-Q contained signed
certifications pursuant to the S arbanes -Oxley Act of 2002 ("SOX") by Defendants Ruetsch and
Arditte, stating that the financial infonnation contained in the Fonu 10-Q was accurate and
disclosed any material changes to the Company's internal control over financial reporting.
37. In the lO-Q, the Company stated that:
We intend to continue our strong growth by expanding our store base in our existing and new markets, capitalizing on consumer trends and improving our operating margins, We opened an additional food store and integrated Fairway Wines & Spirits location in Woodland Park, New Jersey in late June 2012, an additional food store in Westbury, New York in August 2012, an additional food store in Manhattan's Kips Bay neighborhood in late December 2012, an additional food store in Manhattan's Chelsea neighborhood in late July 2013 and an additional food store in Nanuet, New York in mid-October 2013. We reopened our Red Hook store, which was temporarily closed due to damage sustained during Hurricane Sandy, on March 1, 2013. We expect to open a new store in Lake Grove in Suffolk County, Long Island, NY in Spring 2014, a new store in the TriBeCa neighborhood of Manhattan in the Fall 2014 and a new store in the Hudson Yards neighborhood in west midtown Manhattan in Spring 2015.
For the next several years beginning in fiscal 2015, we intend to grow our store base in the Greater New York City metropolitan area at a rate of three to four stores annually. Over time, we also plan to expand Fairway's presence into new, high-density metropolitan markets. Based on demographic research conducted for us by the Buxton Company, a customer analytics research firm, we believe, based on these demographics, we have the opportunity to more than triple the number of stores in our existing marketing region of the Greater New York City metropolitan area, the Northeast market (from New England to the District of Columbia) can support up to 90 stores and the U.S. market can support more than 300 additional stores (including stores in the Northeast) operating under our current format.
We believe that we are well positioned to capitalize on evolving consumer preferences and other key trends currently shaping the food retail industry. These trends include an increasing consumer focus on the shopping experience and on
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healthy eating choices and fresh, quality offerings, including locally sourced products, as well as growing interest in high-quality, value-oriented private label product offerings.
We intend to improve our operating margins through scale efficiencies, improved systems, continued cost discipline and enhancements to our merchandise offerings. We expect store growth will also permit us to benefit from economies of scale in sourcing products and will enable us to leverage our existing infrastructure.
38. During a conference call on November 7, 2013, discussing the fiscal 2014 second
quarter, management predicted that same store sales growth would increase around I% or more.
Santaro stated that:
[W]e estimate that the 5-week month of October, ending November 2, continues to show same-store sales growth of more than 1%, excluding Red [Took and after reflecting the fill effect of Sandy, including, as I mentioned earlier, pre-Sandy stocking and post-Sandy stocking. So we do feel good about our sales momentum going into the third quarter. And we do expect, at this time, to have solidly positive same-store sales growth for the third quarter.
Santaro also stated that "our current guidance for the third quarter adjusted EBITDA is 20% to
25% growth over last year."
39. The statements referenced in ¶J 25-38 above were materially false and/or
misleading because they misrepresented and failed to disclose the following adverse facts, which
were known to defendants or recklessly disregarded by them, including that: (1) Fairway's same
store sales were declining; (2) the Company's direct store expenses were increasing; (3) the
Company's financial forecasts were wholly unrealistic; and (4) as a result of the foregoing,
Fairway's public statements were materially false and misleading at all relevant times.
The Truth Emerges
40. On February 6, 2014, Fairway reported earnings that severely missed analysts'
estimates including very disappointing same store sales, as well as increased direct store
expenses. Moreover, reported a colossal miss in EBIDTA growth for the third quarter as
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EBIDTA grew 3.2% over the same period in the prior year compared to growth of "20% -25%"
that management had predicted. The Company attributed the decrease in same store sales to the
compressed holiday shopping period and the effect of Hurricane Sandy, which benefited sales in
the third quarter of fiscal 2013. Management also lowered fiscal-fourth-quarter and 2015
guidance, noting that only two stores are now expected to open in fiscal 2015 versus three
contemplated in prior guidance.
41. In addition, the Company announced that Ruetsch would step down as Fairway's
chief executive officer to allow him to spend more time with his family.
42. Analysts were skeptical of the Company's explanation for the disappointing
results, diminished outlook, as well as the suspicious timing of Ruetsch's resignation. During a
conference call held with analysts after the Company's earnings announcement on analyst
commented:
First, an observation, and then a question. For a company with 14 stores, there is an amazingly high level of complexity here. So, my question then is going to be, can you just try to simplify for us what has changed in the fiscal 2015 outlook? Because analysts' estimates have about 30% adjusted EBIDTA growth and now we are looking at 10%.
Another analyst commented with regard to "direct store expenses" that while the Company was
mentioning that they were "seeing them ramp in the typical fashion," it "sounds like they are
coining in a little higher" than expected,
43. On this news, Fairway shares declined $3.19 or 27.91% on massive volume, to
close at $8.24 on February 7, 2014.
44. As a result of defendants' wrongful acts and omissions, and the precipitous
decline in the market value of the Company's securities, Plaintiff and other Class members have
suffered significant losses and damages.
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PLAINTIFF'S CLASS ACTION ALLEGATIONS
45. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or
otherwise acquired Fairway securities during the Class Period (the "Class"); and were damaged
upon the revelation of the alleged corrective disclosures. Excluded from the Class are
defendants herein, the officers and directors of the Company, at all relevant times, members of
their immediate families and their legal representatives, heirs, successors or assigns and any
entity in which defendants have or had a controlling interest.
46. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Fairway securities were actively traded on the
NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and
can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds
or thousands of members in the proposed Class. Record owners and other members of the Class
may be identified from records maintained by Fairway or its transfer agent and may be notified
of the pendency of this action by mail, using the form of notice similar to that customarily used
in securities class actions.
47. Plaintiff's claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by defendants' wrongful conduct in violation of
federal law that is complained of herein.
48. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
Plaintiff has no interests antagonistic to or in conflict with those of the Class.
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49. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
• whether the federal securities laws were violated by defendants' acts as alleged herein;
• whether statements made by defendants to the investing public during the Class Period misrepresented material facts about the business, operations and management of Fairway;
• whether the Individual Defendants caused Fairway to issue false and misleading financial statements during the Class Period;
• whether defendants acted knowingly or recklessly in issuing false and misleading financial statements;
• whether the prices of Fairway securities during the Class Period were artificially inflated because of the defendants' conduct complained of herein; and
• whether the members of the Class have sustained damages and, if so, what is the proper measure of damages.
50. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
51. Plaintiff will rely, in part, upon the presumption of reliance established by the
fraud-on-the-market doctrine in that:
• defendants made public misrepresentations or failed to disclose material facts during the Class Period;
• the omissions and misrepresentations were material;
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Fairway securities are traded in an efficient market;
the Company's shares were liquid and traded with moderate to heavy volume during the Class Period;
the Company traded on the NASDAQ and was covered by multiple analysts;
the misrepresentations and omissions alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and
• Plaintiff and members of the Class purchased, acquired and/or sold Fairway securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.
52. Based upon the foregoing, Plaintiff and the members of the Class are entitled to a
presumption of reliance upon the integrity of the market.
COUNT I
For Violation of §11 of the 1933 Act (Against All Defendants
53. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein, except as set forth below in Paragraph 55.
54. This Count is brought pursuant to §11 of the 1933 Act, 15 U.S.C. §77k, on
behalf of the Class, against all Defendants.
55. This Count does not sound in fraud. All of the preceding allegations of fraud or
fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiff does not
allege that the Defendants had scienter or fraudulent intent with respect to this Count, insofar as
sci enter or fraudulent intent are not elements of a § 11 claim.
56. The Registration Statement for the IPO was inaccurate and misleading, contained
untrue statements of material facts, omitted to state other facts necessary in order to make the
statements not misleading, and omitted to state material facts required to be stated therein.
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57. Fairway is the registrant for the IPO. The other defendants named herein were
responsible for the contents and dissemination of the Registration Statement.
58. As the issuer of the shares, Fairway is strictly liable to Plaintiff and the Class for
any misstatements or omissions in the Registration Statement.
59. None of the defendants named herein made a reasonable investigation or
possessed reasonable grounds for the belief that the statements contained in the Registration
Statement were true, and/or without omissions of any material facts, were not misleading.
60. By reason of the conduct alleged herein, each defendant violated, and/or
controlled a person who violated, §11 of the 1933 Act.
61. Plaintiff acquired Fairway shares pursuant and/or traceable to the Registration
Statement for the IPO.
62. Plaintiff and the Class have sustained damages. The value of Fairway stock has
declined substantially subsequent to and due to defendants violations.
63. At the time of their purchases of Fairway shares, Plaintiff and the other members
of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein
and could not have reasonably discovered those facts prior to February 6, 2014. Less than one
year has elapsed from the time that plaintiff discovered or reasonably could have discovered the
facts upon which this complaint is based, to the time that Plaintiff filed this complaint. Less than
three years elapsed between the time that the securities upon which this Count is brought were
offered to the public, and the time Plaintiff filed this complaint.
iI
Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 19 of 28
COUNT II
For Violation of §15 of the 1933 Act (Against The Individual Defendants)
64. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein, except as set forth below in ¶ 66.
65. This Count is brought pursuant to §15 of the 1933 Act against the Individual
Defendants.
66. This Count does not sound in fraud. All of the preceding allegations of fraud or
fraudulent conduct and/or motive are specifically excluded from this Count. Plaintiff does not
allege that Defendants had scienter or fraudulent intent with respect to this Count, insofar as
sci enter or fraudulent intent are not elements of a § 15 claim.
67. The Individual Defendants each were control persons of Fairway by virtue of their
positions as a director and/or senior officer of Fairway. The Individual Defendants each had a
series of direct and/or indirect business and/or personal relationships with other directors and/or
officers and/or major shareholders of Fairway.
68. Defendants each were culpable participants in the violations of §11 of the 1933
Act alleged in the prior Count above, based on their having signed or authorized the signing of
the Registration Statement and having otherwise participated in the process which allowed the
IPO to be successfully completed.
COUNT III
(Against All Defendants For Violations of Section 10(b) And Rule lOb-5 Promulgated Thereunder)
69. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
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70. This Count is asserted against defendants and is based upon Section 10(b) of the
Exchange Act, 15 U.S.C. § 78jb), and Rule lOb-5 promulgated thereunder by the SEC.
71. During the Class Period, defendants engaged in a plan, scheme, conspiracy and
course of conduct, pursuant to which they knowingly or recklessly engaged in acts, transactions,
practices and courses of business which operated as a fraud and deceit upon Plaintiff and the
other members of the Class; made various untrue statements of material facts and omitted to state
material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and employed devices, schemes and artifices to
defraud in connection with the purchase and sale of securities. Such scheme was intended to,
and, throughout the Class Period, did: (i) deceive the investing public, including Plaintiff and
other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of
Fairway securities; and (iii) cause Plaintiff and other members of the Class to purchase or
otherwise acquire Fairway securities and options at artificially inflated prices. In furtherance of
this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions
set forth herein.
72. Pursuant to the above plan, scheme, conspiracy and course of conduct, each of the
defendants participated directly or indirectly in the preparation and/or issuance of the quarterly
and annual reports, SEC filings, press releases and other statements and documents described
above, including statements made to securities analysts and the media that were designed to
influence the market for Fairway securities. Such reports, filings, releases and statements were
materially false and misleading in that they failed to disclose material adverse information and
misrepresented the truth about Fairway's finances and business prospects.
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73, By virtue of their positions at Fairway, defendants had actual knowledge of the
materially false and misleading statements and material omissions alleged herein and intended
thereby to deceive Plaintiff and the other members of the Class, or, in the alternative, defendants
acted with reckless disregard for the truth in that they failed or refused to ascertain and disclose
such facts as would reveal the materially false and misleading nature of the statements made,
although such facts were readily available to defendants. Said acts and omissions of defendants
were committed willfully or with reckless disregard for the truth. In addition, each defendant
knew or recklessly disregarded that material facts were being misrepresented or omitted as
described above.
74. Defendants were personally motivated to make false statements and omit material
infonnation necessary to make the statements not misleading in order to personally benefit from
the sale of Fairway securities from their personal portfolios.
75. Information showing that defendants acted knowingly or with reckless disregard
for the truth is peculiarly within defendants' knowledge and control. As the senior managers
and/or directors of Fairway, the Individual Defendants had knowledge of the details of Fairway's
internal affairs.
76. The Individual Defendants are liable both directly and indirectly for the wrongs
complained of herein. Because of their positions of control and authority, the Individual
Defendants were able to and did, directly or indirectly, control the content of the statements of
Fairway. As officers and/or directors of a publicly-held company, the Individual Defendants had
a duty to disseminate timely, accurate, and truthful information with respect to Fairway's
businesses, operations, future financial condition and future prospects. As a result of the
dissemination of the aforementioned false and misleading reports, releases and public statements,
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Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 22 of 28
the market price of Fairway securities was artificially inflated throughout the Class Period. In
ignorance of the adverse facts concerning Fairway's business and financial condition which were
concealed by defendants, Plaintiff and the other members of the Class purchased or otherwise
acquired Fairway securities at artificially inflated prices and relied upon the price of the
securities, the integrity of the market for the securities and/or upon statements disseminated by
defendants, and were damaged thereby.
77. During the Class Period, Fairway securities were traded on an active and efficient
market. Plaintiff and the other members of the Class, relying on the materially false and
misleading statements described herein, which the defendants made, issued or caused to be
disseminated, or relying upon the integrity of the market, purchased or otherwise acquired shares
of Fairway securities at prices artificially inflated by defendants' wrongful conduct. Had
Plaintiff and the other members of the Class known the truth, they would not have purchased or
otherwise acquired said securities, or would not have purchased or otherwise acquired them at
the inflated prices that were paid. At the time of the purchases and/or acquisitions by Plaintiff
and the Class, the true value of Fairway securities was substantially lower than the prices paid by
Plaintiff and the other members of the Class. The market price of Fairway securities declined
sharply upon public disclosure of the facts alleged herein to the injury of Plaintiff and Class
members.
78. By reason of the conduct alleged herein, defendants knowingly or recklessly,
directly or indirectly, have violated Section 10(b) of the Exchange Act and Rule lOb-5
promulgated thereunder.
79. As a direct and proximate result of defendants' wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases,
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Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 23 of 28
acquisitions and sales of the Company's securities during the Class Period, upon the disclosure
that the Company had been disseminating misrepresented financial statements to the investing
public.
COUNT IV
(Violations of Section 20(a) of the Exchange Act Against The Individual Defendants)
80. Plaintiff repeats and realleges each and every allegation contained in the
foregoing paragraphs as if fully set forth herein.
81. During the Class Period, the Individual Defendants participated in the operation
and management of Fairway, and conducted and participated, directly and indirectly, in the
conduct of Fairway's business affairs. Because of their senior positions, they knew the adverse
nonpublie information about Fairway's misstatement of income and expenses and false financial
statements.
82. As officers and/or directors of a publicly owned company, the Individual
Defendants had a duty to disseminate accurate and truthful information with respect to Fairway's
financial condition and results of operations, and to correct promptly any public statements
issued by Fairway which had become materially false or misleading.
83. Because of their positions of control and authority as senior officers, the
Individual Defendants were able to, and did, control the contents of the various reports, press
releases and public filings which Fairway disseminated in the marketplace during the Class
Period concerning Fairway's results of operations. Throughout the Class Period, the individual
Defendants exercised their power and authority to cause Fairway to engage in the wrongful acts
complained of herein. The Individual Defendants therefore, were "controlling persons" of
Fairway within the meaning of Section 20(a) of the Exchange Act. In this capacity, they
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participated in the unlawful conduct alleged which artificially inflated the market price of
Fairway securities.
84. Each of the Individual Defendants, therefore, acted as a controlling person of
Fairway. By reason of their senior management positions and/or being directors of Fairway,
each of the Individual Defendants had the power to direct the actions of, and exercised the same
to cause, Fairway to engage in the unlawful acts and conduct complained of herein. Each of the
Individual Defendants exercised control over the general operations of Fairway and possessed
the power to control the specific activities which comprise the primary violations about which
Plaintiff and the other members of the Class complain.
85. By reason of the above conduct, the Individual Defendants are liable pursuant to
Section 20(a) of the Exchange Act for the violations committed by Fairway.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment against defendants as follows:
A. Determining that the instant action may be maintained as a class action under
Rule 23 of the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class
representative;
B. Requiring defendants to pay damages sustained by Plaintiff and the Class by
reason of the acts and transactions alleged herein;
C. Awarding Plaintiff and the other members of the Class prejudgment and post-
judgment interest, as well as their reasonable attorneys' fees, expert fees and other costs; and
D. Awarding such other and further relief as this Court may deem just and proper.
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DEMAND FOR TRIAL BY JURY
Plaintiff hereby demands a trial by jury.
Dated: February 14, 2014
Respectfully submitted,
BI1.Ih1 WI UP
ereiy A. Lieberman
L?0'ey F. Portnoy Third Avenue, 20th Floor
New York, New York 10016 Telephone: (212) 661-1100 Facsimile: (212) 661-8665 [email protected] lfportnoypomlaw. corn
A ttorn eys for Plaintiff
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Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 26 of 28
CERTIIIICATION PURSUANT TO IrEtJIFL&L SECURITIES LAWS
1, 1, Renee Blutristein, make this ;leelaration pursuant to Section 27(a)2) of the Securities Act of
1933 ("Securities Act") and/or Section 21D(a)(2) oftho Securities Exchange Act of 1934 ("Exchange Act") as
amended by the Private Securities Litigation Reform Act of 195.
2. 1 have reviewed a Complaint against Fairway Group Holdings Corp., ("Fairway" or the
"Company') and, authorize the filing of a comparable complaint on my behaif
3 I did not purchase or acquire Farway securities at the direction of plaintiffs' counsel or in oulerto
participate In any private action arising mid ar the Securities Act or Exchange Act.
4, lam willing to serve as arepreentative party on behalf of a Class of Investors who purchased or
acquired Fairway securities during the class period, including providing testimony at deposition and trial, if
necessary. I understand that the Court has U te authority to select the most adequate lead plaintiff in this action,
5. To the best of my current knovledgc, the attached sheet lists all of my transactions in Fairway
securities during the Class Period as specW ad In the Complaint.
6, During the three-year period pi icding the date on which this Certification is signed, I have not
sought to serve as a representative party on behalf of a class under the federal securities laws.
7. 1 agree not to accept any paymI!nt for serving as a representative party on behalf of the class as set
forth in the Complaint, beyond my pm rain share of any recovery, except such reasonable costs and expenses
directly relating to the representation of tbt class as ordered or approved by the Court.
Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 27 of 28
S. 1 de!ar under penalty f:pJy 'Lut b aid orrt
(Date)
t U re)
AAKILZ I (T),pe or Print Nua.)
Case 1:14-cv-00950-LAK Document 2 Filed 02/14/14 Page 28 of 28
SIJMMARYOF PURCHASES AD SAM