At the beginning of the year, when I surveyed the D&O claims landscape and predicted the factors that I thought might drive D&O claims volume in 2023, one set of factors I projected might make significant contributions to the number of claims to be filed during the year were the number of macroeconomic challenges – for example, rising interest rates, economic inflation, labor supply disruption, and the war in Ukraine. The recent failure of Silicon Valley Bank and the ensuing securities litigation provides one illustration of how these macro factors can translate into D&O claims.

Now, in the latest illustration of these forces at work, investors have filed a securities lawsuit against the organic foods company United Natural Foods, following the company’s recent disappointing earnings announcement in which the company disclosed a decline in profitability, despite increasing sales, due to inflationary pressures. A copy of the March 20, 2023, lawsuit against United Natural Foods can be found here.


United Natural Foods distributes natural and organic grocery and non-food products. In December 2020, the company announced a “Value Path” initiative calculated to try to improve margins and save costs across pricing, procurement, operations, and administrative functions. In the company’s filings and public statements in the intervening period, the company has announced the various improvements the company has been able to secure from the initiative, including in particular with respect to its margins.

However, on March 8, 2023, when the company announced its second quarter 2023 results, the company announced a $6 million decline in gross profits despite a 6% increase in net sales. Among other things, in explaining the quarterly results, the company said that its profits “were challenged as we did not repeat the significant level of procurement gains from rapidly accelerating inflation and inventory gains, due to supply chain volatility, that we experienced in the second quarter of last year.” The company also announced that it was lowering its profitability expectations for fiscal 2023 and withdrawing its fiscal 2024 targets. According to the subsequently filed securities class action lawsuit complaint, the company’s share priced fell over 28% on this news.

The Lawsuit

On March 20, 2023, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against United Natural Foods and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchase the securities of United Natural Foods between March 10, 2021, and March 7, 2023.

The complaint contains extensive quotes from the company’s SEC filings, particularly with respect to statements in the filings concerning the Value Path initiative and the impact of the initiative on the company’s margins and profitability. The complaint alleges that during the class period the defendants failed to disclose to investors : ”(1) that, despite its cost saving Value Path initiative, United Natural Foods had not invested in improving its data management and related infrastructure; (2) that as a result, the Company could not respond adequately to cost pressure, such as inflationary pressure; (3) that, as a result, the Company could not appreciate the benefits of procurement gains and inventory gains achieve during fiscal 2022; (4) that, as a result of the foregoing, the Company’s profitability would be materially adversely impacted; and (5) and that as a result of the foregoing, Defendant’s [sic] positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”

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.


The allegations in this complaint are a reminder of the operational challenges that the current macroeconomic environment pose for company operations and it is also an illustration of the ways in which these challenges can translate into D&O claims.

The impact of economic inflation affected this company is interesting to consider. In explaining the decline in its profitability during the company’s second quarter despite its increase in sales, the company said “we did not repeat the significant level of procurement gains from rapidly accelerating inflation and inventory gains, due to supply chain volatility, that we experienced in the second quarter last year,” adding that “the decrease in profit rate … was primarily driven by lower current period procurement gains due to the decelerating rate of inflation and lower inventory gains.”

In other words, in the year prior quarter, inflationary effects brought on by supply chain volatility produced “procurement gains,” that, owing to the decelerating rate of inflation, did not play as big of a factor in the current quarter. In a sense, then, inflation had a beneficial impact in the year earlier quarter, but the inflationary effects were absent in the current quarter, creating a year-over-year comparison between the quarters apparently showing a decline in profitability.

The varying impacts of inflation between the quarters produced results that in the end produced what the market appears to have interpreted as a disappointing quarter. The lesson is that inflationary impacts are not moment-in-time phenomena but rather are over-the-course-of-time phenomena – which suggests further that the impacts from current inflation will only be apparent over time. And by extension the potential D&O consequences from economic inflation similarly will play only over time as well.

All of this is a long way of saying the point that I made at the outset, which is that macroeconomic factors could have a significant role to play in the volume of securities litigation during 2023 – and not just as a result of inflation, but also, as the recent turmoil in the banking sectors shows, as a result of interest rate developments as well.