Businesses currently face a host of challenging operating circumstances: supply chain issues; labor shortages; economic inflation; the war in Ukraine; and the continuing disruptive effects of the pandemic. As a new securities class action lawsuit filed this week against the consumer product company Tupperware shows, these kinds of operating conditions not only create business and financial risk for many companies, but these conditions can also translate into litigation risk, as well. A copy of the securities lawsuit complaint filed recently against Tupperware can be found here.



On June 14, 2022, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Tupperware and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased Tupperware’s securities between November 2, 2021 and May 3, 2022.


At the beginning of the class period, the company was in the midst of a three-year “turnaround plan.” The complaint quotes from numerous company statements made during the class period touting the company’s “consistent successful execution” of its three-year plan and the company’s progress on its efforts to “achieve our long-term strategic goals.” Company disclosures also included a statement in a press release, quoting a company official, saying “I am highly confident in our future trajectory and look forward to 2022 being a year of meaningful expansion.”


However, on May 4, 2022, the company released financial results for the first quarter of 2022. Among other things, the company announced that results were “below expectations”; that the company was appointing a new Chief Financial Officer; and that the company was withdrawing its full year 2022 operations outlook.


In explaining the disappointing results, the company’s press release cited “a combination of external and internal factors.” Sales, the press release stated, were “negatively impacted by the Russia/Ukraine conflict, as well as strict COVID-related lockdowns in China,” and internal challenges in “execution, technology or service.” Profitability, the press release stated, was “significantly impacted by persistent inflationary pressures and the latency between rising input costs and our decision to increase prices.” The company explained that its decision to withdraw its full-year 2022 outlook was due to “the rapidly changing inflationary environment, uncertainty relating to the full impact of the Russia/Ukraine conflict and the Omicron variant of COVID-19” on the company’s business.


The complaint goes on to note that while the press release cited the war in Ukraine as one of the causes of the company’s disappointing quarterly results, in the company’s earnings call, the then-CFO “effectively contradicted that explanation,” by stating that Russia-Ukraine represents about 2-3% of the company’s revenue so, the CFO is quoted as saying, “It’s not overly significant.”


The complaint alleges that during the class period the defendants made false and/or misleading statements and/or failed to disclose that: “(i)Tupperware was facing significant challenges in maintaining its earnings and sales performance; (ii) accordingly, Tupperware’s full year 2022 guidance was unrealistic and/or unsustainable; (iii) all the foregoing, once revealed, was likely to have a material negative impact on Tupperware’s financial condition; and (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.” According to the complaint, the company’s share price declined over 32% on the disappointing results.


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.



This complaint has only just been filed and it remains to be seen how it will fare. I will say that when the time comes for the court to consider the adequacy of the plaintiff’s allegations, the Court will be hard-pressed to find allegations sufficient to satisfy the plaintiff’s burden to plead scienter with particularity.


The plaintiff’s effort to sustain his complaint will also be challenged by the simple fact that the conditions the company cited in explaining its disappointing first quarter are all well-known and commonly understood to be difficult conditions affecting the general business and economic environment. It does not seem implausible that these factors – especially taken collectively, even if the impact of any one factor may be slight – both undermined the company’s first quarter performance and affected the company’s results more than the company had anticipated. The war in Ukraine, for example, started during the first quarter and so unsurprisingly had an impact not predicted by prior quarterly results. In addition, inflation has in fact been running hotter than even the Fed expected.


The fact is that the factors the company cited for its disappointing results simply underscore the difficultly of the current business conditions. Many, if not most, companies now face circumstances that make business operations more challenging, in ways the unquestionably could (in this company’s case, did) affect financial results. Most of these factors are likely to continue to present operating challenges for many companies in the months ahead. In other words, as the year progresses, there could be more companies forced to report disappointing operating results due to difficult business conditions.


This case also shows how these ongoing operating challenges can translate into securities litigation. In many ways this lawsuit is, of course, a classic earnings miss/stock drop strike suit, and to that extent, it arguably is not particularly noteworthy.


However, I still think that the factors the company cited in explaining its disappointing result are specific to the current phase in the business cycle. As I said before, these very time-specific business conditions are affecting many companies now. Which means, I think, that many companies also face the further possibility of litigation of the type that the plaintiff has filed against this company. In other words, as the year unfolds, we may not only see more companies whose results are affected by the significant number of current business operating challenges, but we may also see that a number of these companies are also hit with securities class action lawsuits or other D&O claims.


Of all of the challenges, I think the one that we may hear about the most and that may have the greatest impact on future lawsuit filings is the impact of economic inflation, and the related phenomenon of rising interest rates. If I were to go out on the limb here, I would say that by year’s end, there could be a significant number of securities suits against companies whose share prices declined following the release of disappointing results owing to the impact of economic inflation and/or rising interest rates.


One final thought about this lawsuit. In reading the excerpts from the company’s May 4, 2022 quarterly earnings press release, I was struck by something that the complaint doesn’t really refer to. The press release cites, in addition to all of the macroeconomic factors that affected the company’s financial results, the impact of “internal challenges in execution, technology, and service.” I have to say that this statement is the one that interests me the most; if I were a financial analyst, that is the statement I would want to know more about. I also wonder if perhaps there is material here for a possible future amended complaint. Is it possible, this hypothetical future complaint might ask, that the macroeconomic factors cited were merely pretextual, and that the real reason for the disappointing results are these vague, unspecific “internal challenges”? Something to think about, anyway.