Operations

Class actions allege Burger King’s parent company violated securities laws

At least four separate law firms have filed suit against Popeyes', Burger King' and Tim Hortons' Toronto-based parent company, Restaurant Brands International.

Photo: iStock.

December 29, 2020

At least four separate law firms have filed suit against Popeyes', Burger King' and Tim Hortons' Toronto-based parent company, Restaurant Brands International, according to a series of news releases from the litigation groups. Three of the suits are class actions, while a fourth suit is awaiting certification as a class by the court.

The legal actions are aimed at holding the Canadian QSR company responsible for allegedly telling investors that the company's efforts to turn around sales declines at Tim Hortons were working, then later revealing sales at the QSR were, in fact, worsening. The suits alleged that was a misrepresentation that not only led to financial losses for investors, but violated U.S. securities laws.

The Canadian corporation, Restaurant Brands International, is among the world's biggest quick-service restaurant companies, with more than 27,000 Tim Hortons, Burger King and Popeyes restaurants in more than 100 countries and U.S. territories. The suits allege that RBI investors between late April and late October last year, were duped about the effectiveness of the company's Winning Together Plan and Tims Rewards loyalty program.

The firms involved to date include:

• Bernstein Liebhard LLP in New York City.
• Bronstein, Gewirtz & Grossman, LLC in New York City.
• Kessler Topaz Meltzer & Check, LLP in Radnor, Pennsylvania
• Rosen Law Firm in New York City, which is still seeking certification as a class action.

At Bernstein Liebhard, for example, the release said that after RBI touted the benefits of those two aforementioned initiatives, the company completed two stock offerings on or about Aug.12 and Sept. 5, last year, which collectively resulted in proceeds of approximately $3 billion to "insiders."

But in the suit filed in U.S. District Court for the Southern District of New York, attorneys allege that following that, on Oct. 29, 2019, the company announced disappointing financial resultsfor the third quarter that ended Sept. 30, 2019. At that time, RBI reported a 0.1% system-wide year-over-year sales decline for Tim Hortons—representing a 1.4% same-store sales decline—on system-wide sales of $1.774 billion.

Following news reports of the results, the price of Restaurant Brands common stock fell $2.59 per share or approximately 3.8%, from a close of $68.45 per share on Oct. 25, 2019, to close at $65.86 per share on Oct. 28, 2019.

The lawsuit alleges that, throughout the period of the class (April 29, 2019 to Oct. 28, 2019), the defendants misrepresented and/or failed to disclose that:

• Restaurant Brands' Winning Together Plan was failing to generate substantial, sustainable improvement within the Tim Hortons brand
• The Tims Rewards loyalty program was not generating sustainable revenue growth as increased customer traffic was not offsetting promotional discounting.

As a result, the suit alleges that the defendants' statements about Restaurant Brands' business, operations, and prospects lacked a reasonable basis, which violated mandates of the Securities Exchange Act of 1934.

Additionally, in the action filed by Bernstein Liebhard, attorneys said that after reporting the poor Q3 results on Oct. 28, last year, RBI executives acknowledged that "results at Tim Hortons were not where we want them to be with global comparable sales dipping into negative territory," saying that "discounting [associated with "Tims Rewards"] is slightly more than offsetting the traffic levels," leading to "softness in sales," according to the release.

At Kessler Topas Meltzer & Check, the complaint alleges that, throughout the same class period, RBI misrepresented and/or failed to disclose that:

• Restaurant Brands' Winning Together Plan was failing to generate substantial, sustainable improvement within the Tim Hortons brand.
• The Tims Rewards loyalty program was not generating sustainable revenue growth as increased customer traffic was not offsetting promotional discounting.

In all of the court actions, investors have been given until Feb. 19, 2021 to join the suit.

RBI did not respond to a request for comment.