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Robert Kalkstein, Et Al. V. Darden Restaurants Inc., Et Al. 08-CV-507

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Robert Kalkstein, Et Al. V. Darden Restaurants Inc., Et Al. 08-CV-507 UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION ROBERT KALKSTEIN, Individually and On Behalf of All Others Similarly Situated, CIVIL ACTION NO. 5b1-- 02_(, - ($K Plaintiff, U:04,- CV, vs. CLASS ACTION COMPLAINT DARDEN RESTAURANTS, INC., CLARENCE OTIS, JR. and C. BRADFORD RICHMOND, JURY TRIAL DEMANDED Defendants. Plaintiff, Robert Kalkstein ("Plaintiff'), alleges the following based upon the investigation by Plaintiffs counsel, 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 Darden Restaurants, Inc. ("Darden" or the "Company"), securities analysts' reports and advisories about the Company, and information readily available on the Internet, and Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION AND OVERVIEW 1. This is a federal class action on behalf of purchasers of Darden's securities between June 19, 2007 and December 18, 2007 inclusive (the "Class Period"), seeking to pursue remedies under the Securities Exchange Act of 1934 (the "Exchange Act"). 1 2. Darden owns and operates nearly 1,400 Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones, Capital Grille, Longhorn Steakhouse and Seasons 52 restaurants. 3. On December 18, 2007, the Company shocked investors when it announced that its earnings for the quarter fell below expectations. Further, the Company announced that it expected diluted net earnings per share in 2008 to be 2% to 4%, in stark contrast to the 10% to 12% projection the Company gave in August 2007. 4. Upon the release of this news, the Company's shares declined $7.74 per share, or 21.3 percent, to close on December 19, 2007 at $28.60 per share, on unusually heavy trading volume. 5. The Complaint alleges that, throughout the Class Period, defendants failed to disclose material adverse facts about the Company's financial well-being, and prospects. Specifically, defendants failed to disclose or indicate the following: (1) that the Company's food costs were rising at a higher rate than the Company admitted; (2) that same-store sales at the Company's restaurants were experiencing negative trends; (3) that the Company's restaurants were underperforming; (4) that the Company lacked adequate internal and financial controls; and (4) that, as a result of the foregoing, the Company's statements about its financial well-being and future business prospects were lacking in any reasonable basis when made. 6. 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. JURISDICTION AND VENUE 7. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act, (15 U.S.C. §§ 78j(b) and 78t(a)), and Rule l0b-5 promulgated thereunder (17 2 C.F.R. § 240.10b-5). 8. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Exchange Act (15 U. S.C. § 78aa) and 28 U.S.C. § 1331. 9. Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa and 28 U.S.C. § 1391(b). Many of the acts and transactions alleged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this Judicial District. Additionally, Darden's principal executive offices are located within this Judicial District. 10. 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 mails, interstate telephone communications and the facilities of the national securities exchange. PARTIES 11. Plaintiff, Robert Kalkstein, as set forth in the accompanying certification, incorporated by reference herein, purchased Darden's securities at artificially inflated prices during the Class Period and has been damaged thereby. 12. Defendant Darden is a Florida corporation with its principal executive offices located at 5900 Lake Ellenor Drive, Orlando, Florida. 13. Defendant Clarence Otis, Jr. ("Otis") was, at all relevant times, the Company's Chairman and Chief Executive Officer ("CEO"). 14. Defendant C. Bradford Richmond ("Richmond") was, at all relevant times, the Company's Chief Financial Officer ("CFO") and Senior Vice President. 15. Defendants Otis and Richmond are collectively referred to hereinafter as the 3 "Individual Defendants." The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Darden's reports to the SEC, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company's reports and press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them, each of these defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and misleading. The Individual Defendants are liable for the false statements pleaded herein, as those statements were each "group- published" information, the result of the collective actions of the Individual Defendants. SUBSTANTIVE ALLEGATIONS Background 16. Darden owns and operates nearly 1,400 Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones, Capital Grille, Longhorn Steakhouse and Seasons 52 restaurants. Materially False and Misleading Statements Issued During the Class Period 17. The Class Period begins on June 19, 2007. On this day, the Company issued a press release entitled "Darden Restaurants Reports 13% Increase in Annual Diluted Net EPS From Continuing Operations; Announces Quarterly Dividend of 18 Cents Per Share; Discusses Fiscal 2008 Financial Outlook." Therein, the Company, in relevant part, stated: Darden Restaurants, Inc. (NYSE: DRI) today reported results for the fiscal year and fiscal fourth quarter ended May 27, 2007. For the fiscal year, diluted net earnings per share from continuing 4 operations increased 13% to $2.53 from $2.24 in the prior year. In the fourth quarter, diluted net earnings per share from continuing operations increased 8% to 67 cents, versus 62 cents in the prior year. Darden Restaurants , the world's largest casual dining company, reported that full year sales from continuing operations were $5.57 billion, compared to $5.35 billion in the prior year. This 4.0% increase reflects same- restaurant sales growth at Olive Garden, Red Lobster and Bahama Breeze, as well as new restaurant growth at Olive Garden. In the fourth quarter, sales from continuing operations increased 3.2% to $1.46 billion, driven primarily by strong same-restaurant sales growth and new restaurant growth at Olive Garden. "We had competitively superiorfinancial results from continuing operations this year in what was clearly a difficult environment for our industry and we also made considerable strategic progress," said Clarence Otis, Chairman and Chief Executive Officer of Darden. "As a result, we begin fiscal 2008 in a strong competitive position and with great confidence we can achieve our goal of being the best in casual dining, now and for generations. When you combine the strength and resiliency that Olive Garden, Red Lobster and Bahama Breeze demonstrated this year, the promise that Seasons 52 continues to show, our talented and dedicated employees and the financial strength we possess, this Company's future is bright. And it's a future that we believe will be marked by an acceleration in profitable sales growth, beginning with our anticipated strong financial performance in fiscal 2008." Fiscal 2008 Outlook Darden expects combined same-restaurant sales growth in fiscal 2008 of between 2% and 4% for Red Lobster and Olive Garden. The Company also expects approximately 3% unit growth in fiscal 2008, comprised mainly ofOlive Garden restaurants. "We expect that solid same-restaurant sales growth at Red Lobster, Olive Garden and Bahama Breeze and strong cost management, combined with an acceleration in new restaurant expansion at Olive Garden, will result in 10% to 12% diluted net earnings per share growth from continuing operations in fiscal 2008," said Otis. "We believe this is a well-supported growth plan that reflects the emerging cost pressures in the casual dining industry and our expectation that casual dining sales growth will continue to be relatively soft before improving in the second halfofourfiscal year. " [Emphasis added.] 18. On August 2, 2007, the Company issued a press release entitled "Darden Restaurants Reports July Same-Restaurant Sales Results." Therein, the Company, in relevant part, stated: Same-restaurant sales at Red Lobster increased 8% to 9% for fiscal July, which reflected a 4% to 5% increase in guest counts and a 4% increase in check average The check average increase was a result of a 3% increase
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