Class Certified in Tile Shop Holdings Litigation
In an order issued on July 28, 2016, the Honorable Ann D. Montgomery of the United States District Court for the District of Minnesota certified a class and subclass and appointed class counsel in Beaver County Employees’ Retirement Fund v. Tile Shop Holdings, Inc. The securities class action case seeks relief under the Securities Act of 1933 and the Securities Exchange Act of 1934, alleging that Tile Shop (a manufacturer and specialty retailer of natural stone tiles) failed to disclose related-party relationships and transactions during the August 22, 2012 to January 28, 2014 class period.
The complaint alleges that Fumitake Nishi, the brother-in-law of Tile Shop founder and then-CEO Robert A. Rucker, owned interests in overseas companies that sourced and imported materials for Tile Shop. The relationship between Nishi and the overseas companies was not reported in any of Tile Shop’s public disclosures. When the relationship and transactions were exposed on November 14, 2013, the stock price plummeted by almost 39%. On January 28, 2014, Tile Shop filed with the SEC a Form 8-K and an attached press release, which disclosed additional information regarding Nishi's activities and other related-party entities. As a result of the release, the stock dropped again by nearly 6.7% on high trading volume.
On March 4, 2015, the court sustained securities fraud and other claims against Tile Shop and Rucker, navigating a Circuit split and following Second Circuit authority to find that Item 303 of SEC Regulation S-K (which requires the disclosure of known trends that could have an impact on an issuer’s business) imposed a disclosure duty that the defendants violated.
In the July 28 class certification order, Beaver County Employees’ Retirement Fund, Erie County Employees’ Retirement System, and Luc De Wulf were appointed as class representatives, and Beaver County Employees’ Retirement Fund and Erie County Employees’ Retirement System were appointed as subclass representatives. Robbins Geller was also appointed as co-counsel for the class.
Beaver County Employees’ Retirement Fund, et al. v. Tile Shop Holdings, Inc., et al., No. 14-786 ADM/TNL, Memorandum Opinion and Order (D. Minn. July 28, 2016).