Kraft Heinz Defeats Stockholder’s Attempt to Revive Previously Dismissed Derivative Claims

Paul, Weiss won the dismissal, with prejudice, of a stockholder lawsuit on behalf of The Kraft Heinz Company and certain current or former Kraft Heinz officers and directors that sought to reopen claims relating to the $1.2 billion stock sale in August 2018 by certain entities affiliated with 3G Capital, Inc., which had been dismissed with prejudice in 2021.

In a complaint filed in the Delaware Court of Chancery against our clients, 3G Capital and certain 3G Capital affiliates, the plaintiff sought to revive claims based on the $1.2 billion stock sale, which followed Kraft Heinz’s disclosure of disappointing financial results and preceded a significant drop in its stock price in February 2019. The plaintiff alleged that 3G Capital, its affiliated entities and certain affiliated Kraft Heinz directors and officers breached their fiduciary duties under Delaware law by purportedly engaging in or facilitating the stock sale based on adverse material nonpublic information belonging to Kraft Heinz. In December 2021, the claims were dismissed with prejudice for failure to plead demand futility. In August 2022, that decision was summarily affirmed by the Delaware Supreme Court, sitting en banc.

The plaintiff’s new complaint asserted that the prior dismissal should be reopened under Rule 60(b), which provides a basis for relief from a judgment in certain cases, based on purportedly newly discovered evidence or fraud relating to a one-time award of 500,000 stock options to a Kraft Heinz director in 2019 after a consulting arrangement between him and Kraft Heinz ended. The plaintiff also asserted a direct claim for breach of fiduciary duty against certain Kraft Heinz directors and officers for purportedly approving or failing to correct allegedly false public statements about the stock options, for which the plaintiff sought the reimbursement of the legal fees and expenses it incurred in the dismissed action as compensatory damages.

Vice Chancellor Lori Will dismissed the complaint with prejudice, finding that the plaintiff had failed to state any “reasonably conceivable” claim for relief. In particular, she reasoned that the plaintiff had not pleaded the existence of newly discovered evidence because “reasonable diligence on [the plaintiff’s] part—either through its books and records demand or a thorough review of Kraft Heinz’s public filings—would have uncovered this information during the prior lawsuit.” She also observed that the plaintiff had raised its theory concerning the director’s option in its appeal to the Delaware Supreme Court, and she further reasoned that the plaintiff failed to plead the prior decision should be reopened due to fraud because the plaintiff challenged statements made outside the litigation but “raise[d] no conduct affecting the integrity of the judicial process that could support the relief it seeks.” In short, the plaintiff “was not deceived and this court was not defrauded.” Finally, Vice Chancellor Will reasoned the plaintiff’s “creative attempt to recover attorneys’ fees” failed to state a direct claim for breach of fiduciary duty based on purportedly false statements because the plaintiff failed to plead the required elements of reasonable reliance, causation, resulting damages and scienter.

The Paul, Weiss team included litigation partners Daniel Kramer and Andrew Ehrlich, who argued the motion, and counsel Robert Kravitz and Matthew Stachel.