One trend I have noted on this site in recent years is the proclivity of plaintiffs’ lawyers to file securities class action lawsuits or shareholder derivative lawsuits in the wake of antitrust regulatory or enforcement actions. These kinds of lawsuits tend to cluster in specific industries as antitrust enforcement authorities concentrate on alleged anticompetitive behavior in those sectors. One industry that recently was the focus of both regulatory action and securities litigation is the poultry production industry.
As discussed here, beginning in 2016 companies in this industry that found themselves the subject of antitrust enforcement actions were hit with follow on securities litigation. In connection with one of those suits involving poultry producer Pilgrim’s Pride the court recently granted the defendants’ motion to dismiss. Both the lawsuit and the court’s ruling are significant given the current Presidential administration’s ramped-up antitrust enforcement approach and the possibility for resulting follow-on D&O claims. The Court’s March 8, 2022 order in the Pilgrim’s Pride case can be found here.
In early 2016, questions began to circulate in the press about pricing practices in the poultry production industry. A smaller industry participant, Maplevale Farms, filed a private antitrust class action lawsuit against 27 defendants, including Pilgrim’s Pride, alleging a conspiracy to fix prices. A separate action on behalf of consumer plaintiffs was later filed against many of the same companies. Ultimately, a number of executives for the companies involved were the subject to criminal antitrust prosecution. Among the defendants in the criminal proceedings were several Pilgrim’s Pride executives. Pilgrim’s Pride itself ultimately pled guilty and agree to pay a criminal fine of about $108 million. Criminal proceedings against Pilgrim’s Pride executives are ongoing.
These various antitrust actions and proceedings ultimately led to the filing of a series of securities class action lawsuits against many of the publicly traded companies in the poultry industry. Among the companies hit with securities suits as Pilgrim’s Pride. 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. The plaintiff’s complaint, which can be found here, also specifically refers to the Maplevale antitrust lawsuit and the criminal indictments. In essence, the securities class action lawsuit alleges that the defendants deceived investors by failing to disclose that the company’s strong results during the class period were the result of an undisclosed and illegal bid-rigging conspiracy. The defendants moved to dismiss the securities class action claims.
The March 8, 2022 Order
In a short March 8, 2022 order, District of Colorado Judge Raymond P. Moore granted the defendants’ motion to dismiss with prejudice. Judge Moore granted the motion based on his conclusion that the plaintiff had failed to sufficiently allege falsity. In reaching this conclusion, Judge Moore made a series of four separate determinations.
First, Judge Moore concluded that nearly all of the alleged conduct alleged in the complaint related to the bid-rigging scheme precedes the class period, much of it by years. Under these circumstances, Judge Moore said, the court found that the plaintiff “has not met its high burden under the PSLRA to state with particularity a factual basis for its belief that the bid-rigging scheme significantly contributed to Pilgrim’s success during the class period such that its statements attributing success to other factors were materially false or misleading.”
Second, Judge Moore found that plaintiffs’ allegations were insufficient because the complaint does not contain particularized facts “that establish a central premise of Lead Plaintiff’s fraud scheme – that Pilgrim’s success was driven by Defendants’ bid-rigging scheme.” The plaintiffs, Judge Moore said, ‘has not shown that the bid-rigging scheme had such a significant impact on Pilgrim’s bottom line that it could be credited with turning around the company following its filing for bankruptcy in 2008 or with driving its success during the class period.”
Third, Judge Moore also found that the defendants were also entitled to dismissal because “the bulk, if not all, of the statements relied upon in the Complaint are not actionable because they constitute vague statements of corporate optimism that are incapable of objective verification.”
Finally, Judge Moore rejected the plaintiff’s allegation that the defendants’ statements were misleading because disclosure of the bid-rigging scheme was required to prevent the defendants’ statements from being misleading. Judge Moore cited with approval to prior Second Circuit case law that “disclosure is not a rite of confession, and companies do not have a duty to disclose uncharged, unadjudicated wrongdoing.” Imposing such a requirement “would allow plaintiffs to bring securities fraud lawsuits merely by piggybacking on allegations raised in antitrust cases.” The fact that Pilgrim’s Pride pleaded guilty “does not change the calculus,” because “the conduct that forms the basis of Pilgrim’s conviction is insufficiently tied to any statements or omissions made during the class period, and that statements relied upon are too vague and indefinite to give rise to a duty to disclose.”
As I noted at the outset, plaintiffs’ lawyers have been inclined in recent years to file securities class action lawsuits in the wake of antitrust enforcement actions. For example, and in addition to the wave of securities suits plaintiffs’ lawyers filed against companies in the poultry production industry that were caught up on the industry antitrust proceedings, plaintiffs’ lawyers also filed a number of securities suits filed against various generic drug businesses following civil and criminal charges based on alleged price-collusion in the industry (discussed here). The pattern of civil damages litigation following in the wake of antitrust enforcement goes back many years; and over the years, there have been many instances of this type of follow-on litigation – for example, as noted here, and here.
While plaintiffs’ lawyers clearly have demonstrated enthusiasm for these kinds of antitrust enforcement follow-on lawsuits, Judge Moore’s opinion in the Pilgrim’s Pride case arguably represents a strong signal that merely because a company is caught up in antitrust proceedings does not mean that the company has committed or is liable for securities fraud.
One particularly striking aspect of Judge Moore’s opinion that the plaintiff failed to establish a sufficient link between the bid-rigging scheme and the statements that the plaintiff claimed to be misleading. Somewhere in this analysis is an unstated premise that just because a company engaged in undisclosed antitrust activity does not automatically make statements about the company’s financial condition misleading. To be sure, other plaintiffs in other cases may be able to raise allegations to establish the requisite connection, but Judge Moore’s opinion shows how high the bar is to link the antitrust allegations to the company’s financial statements.
Perhaps even more telling is Judge Moore’s analysis of the plaintiffs’ allegations that the defendants made actionable omissions by failing to disclose the bid-rigging scheme itself. Judge Moore not only found that companies do not have a duty to disclosed uncharged, unadjudicated wrongdoing. He also said that imposing such a requirement would in effect allow securities fraud plaintiffs to “piggyback” on antitrust cases – which is, of course, exactly what the plaintiff in this case (and in many of these other antitrust follow-on actions) was trying to do. Significantly, the fact that Pilgrim’s had even pled guilty to the criminal antitrust charge “does not change the calculus.”
Defendants subject to these kinds of follow-on antitrust securities suits will find Judge Moore’s analysis of these issues heartening. Judge Moore’s disinclination to allow securities plaintiffs simply to “piggyback” on the antitrust allegations to try to state a claim for securities fraud is important; plaintiffs are going to need more than just underlying antitrust allegations to state a claim for securities fraud – even, it should be noted, if the defendant company has in fact admitted the antitrust allegations.
Of course, every case will depend on what is actually alleged, and different allegations in different cases might lead to different results. In addition, in pursuing antitrust follow-on claims, plaintiffs’ lawyers have not limited themselves just to securities fraud claims; plaintiffs’ lawyers may instead choose to try to pursue shareholder derivative claims, as was the case, for example, in the shareholder derivative claims recently filed against Google-parent Alphabet in the wake of antitrust enforcement actions against Google by state and federal antitrust regulators (as discussed here).
All of this is highly relevant now, because, as I have documented elsewhere on this blog (for example, here), the newly aggressive antitrust approach of the current Presidential administration presents the prospect for increased levels of antitrust enforcement activity, which in turn raises the possibility for increased antitrust follow-on D&O claims. To the extent companies targeted by the administration’s antitrust authorities are hit with follow-on securities suits, the companies will find Judge Moore’s opinion in the Pilgrim’s Pride case instructive and helpful.