One of the characteristic securities litigation patterns for many years has been that lawsuit filings tend to come in distinctive waves, in which specific sectors get hit with a series of securities suits or companies engaging in certain types of conduct or business practices attract securities litigation. The lawsuits arising out of the dot-com crash and the options backdating scandal are examples of these kinds of litigation patterns. Over the last several weeks, a different industry sector pattern has emerged. The poultry production industry, which recently has been the target of private antitrust litigation, has now been hit with a string of follow-on securities class action lawsuits as well. These lawsuits represent one of the more distinctive securities litigation filing patterns this year.
A relatively small number of poultry producers supplies the country’s meat distributors and restaurants with chicken meat and chicken parts. Questions about the industry’s pricing practices began to circulate earlier this year, as illustrated, for example, in a January 18, 2016 Wall Street Journal article (here).
The pricing concerns came to a head in September 2016, when food distributor Maplevale Farms, Inc. filed a private antitrust class action lawsuit in the Northern District of Illinois against 27 defendants, alleging that the defendants had conspired to fix chicken prices. The named defendants included, among others, Tyson Foods and Pilgrim’s Pride.
The plaintiff’s complaint (a copy of which can be found here) alleges that the defendants manipulated the price of broiler chickens by limiting production and exchanging information about prices, capacity and sales through the data firm Agri Stats Inc., which was also named as a defendant in the suit. The complaint alleges that as a result of the defendants’ conspiracy to manipulate supply and pricing, direct purchasers of chickens paid inflated prices for broilers (that is, chickens raised for meat consumption). Among other things, the plaintiff alleges that the defendants’ activities had resulted in a 50% increase in the prices since 2008.
Maplevale’s initial complaint was followed during September and early October 2016 by several other class action lawsuits filed on behalf of other groups of plaintiffs, including, for example, restaurant chains and restaurant supply companies.
While many of the defendants named in these lawsuits are privately-held, a number of them are publicly traded. The shares of the publicly traded companies took a beating on October 7, 2016, after an analyst at Pivotal Research Group filed a report suggesting that the antitrust litigation could be a big problem for the companies involved. As discussed in an October 7, 2016 Business Insider article (here), among other things, the analyst called Maplevale Farms’ complaint as “powerfully convincing.” The Wall Street Journal’s October 7, 2016 article about the analyst’s report can be found here.
The adverse publicity and the stock price decline have led to a series of securities class action lawsuit filings against a number of the poultry producers caught up in the antitrust litigation.
First, as discussed here, on October 17, 2016, a plaintiff shareholder filed a securities class action lawsuit in the Central District of California against Tyson Foods and certain of its directors and officers. According to the plaintiff’s law firm’s October 17, 2016 press release (here), the plaintiff’s complaint, which can be found here, expressly refers to the September 2, 2016 antitrust lawsuit filing and the analyst’s October 7, 2016 press release. The complaint alleges that the defendants made false or misleading statements and failed to disclose that Tyson Foods had conspired to fix chicken prices, in violation of the federal securities laws.
Next, as discussed here, on October 20, 2016, a plaintiff shareholder filed a securities class action lawsuit in the District of Colorado against Pilgrim’s Pride Corporate and certain of its directors and officers. Pilgrim’s Pride is one of the named defendants in the private antitrust class action litigation. The plaintiff’s complaint, which can be found here, also specifically refers to the Maplevale antitrust lawsuit and the Pivotal Research Group analyst report, and alleges that:
(i) Pilgrim’s Pride systematically colluded with several of its industry peers to fix prices in the broiler-chicken market; (ii) the foregoing conduct constituted a violation of federal antitrust laws; (iii) consequently, Pilgrim’s Pride’s revenues during the class period were the result of illegal conduct and (iv) as a result of the foregoing, Pilgrim’s Pride’s public statements were materially false and misleading at all relevant times.
Finally, on October 28, 2016, another shareholder plaintiff filed a securities class action lawsuit in the Southern District of New York against yet another of the poultry producers that had been named as a defendant in the antitrust lawsuit, Sanderson Farms, Inc. A copy of the plaintiff’s complaint can be found here. The lawsuit filed against Sanderson and certain of its directors and officers also referenced the prior antitrust litigation as well as the analyst report and alleged that the company had failed to disclose that it had conspired to fix priced in the broiler market, in violation of the federal securities laws.
There may be a limit to the number of these follow-on securities lawsuits that will be filed, as many of the defendants in the antitrust litigation are privately held.
I have frequently noted on this blog (most recently here), that antitrust litigation and enforcement activity represents a significant and growing corporate liability exposure. Among other things, the risk of antitrust litigation and enforcement activity includes the risk of follow-on corporate and securities litigation, as the cases above illustrate. These issues are of particular concern for a number of specific industries, including the health care industry, as I recently discussed here.
Over the years, I have noted a number of securities lawsuits (refer for example here) that have been filed against companies in a number of different industries after it was disclosed that the company was the target of an antitrust enforcement action or regulatory action. These securities suit following the disclosure of antitrust litigation or antitrust enforcement activity fit a larger pattern (which I discussed here) in which follow-on corporate or securities litigation follows after the announcement of regulatory enforcement litigation or private civil litigation based on alleged regulatory violations.
As the cases discussed above, when a pattern of regulatory or legal violations is alleged against a specific industry sector or segment, a wave of follow-on securities class action litigation can quickly follow. Of course, it remains to be seen whether any of the securities lawsuits – or for that matter, the underlying antitrust litigation – will be successful. But at a minimum, this lawsuit filing patterns represents a significant component in securities class action lawsuit frequency.