In the latest sign that COVID-19 related securities litigation is on track to continue into 2021, a plaintiff shareholder has filed a securities class action lawsuit against Tyson Foods, Inc. relating to the company’s disclosures and actions in its facilities pertaining to the coronavirus outbreak. The plaintiff’s February 2, 2021 complaint can be found here. As noted below, I have some concerns about the complaint.
Tyson is the largest U.S. producer of process chicken, beef, pork, and other protein-based products. On February 2, 2021, a plaintiff shareholder filed a securities class action lawsuit in the Eastern District of New York against the company and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s securities between March 13, 2020 and December 15, 2020. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The complaint quotes from the company’s various SEC filings during the class period, in which the company described the impact that the coronavirus outbreak was having on its operations and of steps the company was taking to deal with the outbreak. For example, the company’s 10-Q for the second quarter, filed on May 4, stated that the company had formed an internal task force to try to help preserve the health and safety of the company’s “team members”; was requiring face masks and other types of protective equipment in its facilities; and requiring social distancing. The company’s subsequent 2020 SEC filings substantially repeated these disclosures.
The complaint alleges that these various company disclosures were materially false or misleading because the defendants failed to disclose that: “(1) Tyson knew, or should have known, that the highly contagious coronavirus was spreading throughout the globe; (2) Tyson did not in fact have sufficient safety protocols to protect its employees in its facilities; (3) as a result, Tyson employees contracted and spread the coronavirus within the facilities; (4) as a result of the foregoing Tyson would face negative impact to its production, including complete shutdowns of certain facilities; (5) due to the failure to protect its employees, Tyson would suffer financial harm related to its lowered production; and (6) as a result, Defendants’ public statements were materially false and/or misleading at all relevant times.”
In a paragraph captioned “The Truth Emerges” the complaint quotes from a December 15, 2020 letter from the New York City Comptroller Scott M. Stringer (here), in which Stringer called on the SEC to open an investigation into Tyson. Among other things, Stringer’s letter asserts that Tysons failed to carry out its stated coronavirus protection policies.
Among other things, Stringer’s letter says the steps Tyson took to protect employees were “grudging and minimal, such as letting workers use bandanas or sleeping masks.” The letter also asserts that “Tyson never moved workers six feed apart … nor did it slow the assembly line so that workers could be socially distanced.” The letter notes that the company did hang plastic sheeting, but that this effort could not be effective if the workers were not six feet apart.” According to the letter, Tyson “reportedly misled its workforce … by telling them ‘everything is fine.’” The company’s sick leave policy eventually was adjusted in June so that the policy resulting in “penalizing workers who take sick leave to avoid contact with any exposed workers.” The company “only reluctantly built outdoor break rooms,” and employees had to use overcrowded bathrooms.
The result, the letter asserts, is that “as of December 3, 2020, Tyson has the highest number of COVID-19 cases of any company in the meatpacking industry, more than three times as many as the next company.”
The complaint alleges that on the trading day on which Stringer’s letter was released, the company’s share price declined 2.5%.
The new lawsuit against Tyson already represents the fourth coronavirus related securities class action lawsuit filed so far in 2021, and the 27th overall. It seems that the coronavirus-related securities litigation phenomenon, like the coronavirus outbreak itself, is lasting a lot longer than anyone anticipated. And, again like the coronavirus outbreak, it starting to look the like the related litigation is poised to continue well into the new year.
As I have observed before, the coronavirus-related securities class action lawsuits fall into three general categories: first, the cases involving companies that have experienced an outbreak of coronavirus in their facilities (cruise ship lines, private prison systems); companies that claimed to be able to profit from the outbreak (vaccine development companies, manufacturers of personal protective equipment, diagnostic testing companies); and companies that experienced setbacks in their operations or financial results owing to the outbreak (real estate development firms, property management companies).
This new case falls most clearly into the first category, as the root of the case has to do with coronavirus outbreaks at the company’s meat-packing facilities, although the alleged misrepresentations do tend to shade into the third category, as well.
The case asserts that that the company made some very serious misrepresentations to investors. And there is no doubt that the allegations concerning the number of company employees that were infected with the coronavirus are serious and disturbing.
However, in asserting that investors were misled, and in support of the very serious allegations of misrepresentations that the complaint asserts, the sole source that the complaint cites and relies upon is the letter from the New York Comptroller. The letter simply asks the SEC to investigate the company. The complaint says nothing about any response of the SEC. In addition, when the letter was published, the company’s share price dropped only 2.5%. As I have found myself saying with depressing frequency recently when commenting on new securities class action complaints, a stock drop of this size is hardly the dramatic drop on which securities complaints used to rely in order to assert that the supposed revelation had “shocked the market.”
The case has only just been filed and it remains to be seen how it will fare. However, in its current form, it seems thin.