In re Tyson Foods, Inc.
275 F. Supp. 3d 970
W.D. Ark.2017Background
- Tyson Foods, a leading U.S. broiler (ready-to-cook) chicken producer, reported unusually high and sustained chicken-segment margins and profits from 2009–2016 and attributed the gains to legitimate business changes (value‑added product mix, cost reductions, and a “buy‑versus‑grow” strategy).
- Plaintiffs (Hawaii ERS and Blue Sky) allege Tyson participated in an industry‑wide antitrust conspiracy (2008–2016) to suppress domestic supply and manipulate the Georgia Dock price index, inflating prices and margins — aided by industry data service Agri Stats and coordination at trade events.
- Plaintiffs filed a consolidated securities class action alleging §10(b)/Rule 10b‑5 and §20(a) claims based on Tyson’s public statements attributing financial performance to lawful business practices rather than to the alleged antitrust schemes. Defendants moved to dismiss under Rule 12(b)(6) and the PSLRA’s heightened pleading standards.
- The court held Plaintiffs must plead falsity and scienter with PSLRA particularity, and that where underlying alleged illegal conduct is pleaded on information and belief, the complaint must allege particularized facts supporting that belief.
- The court found Plaintiffs failed to plead a plausible agreement to suppress supply (insufficient plus‑factor allegations; alternative explanations like recession and Tyson’s buy‑versus‑grow strategy explained conduct). The court assumed, without deciding, that allegations about Georgia Dock manipulation could satisfy falsity but held Plaintiffs failed to plead scienter with the required strong inference.
- The complaint was dismissed without prejudice for failing to plead falsity (as to supply‑suppression theory) and scienter (as to Georgia Dock theory); §20(a) claim also dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Were defendants’ public statements false/misleading because they omitted that illegal antitrust conduct (supply suppression and Georgia Dock manipulation) caused Tyson’s results? | Statements attributing results to business strategy/cost cuts were misleading because undisclosed collusion materially contributed to margins. | Statements explained year‑to‑year/quarter changes by legitimate factors; alleged conspiracy predated those statements and could not explain short‑term changes; financials themselves were accurate. | Court: Must evaluate underlying conspiracy allegations. Supply‑suppression theory inadequately pleaded; court assumed Georgia Dock claims could satisfy falsity but did not reach merits for that theory. |
| Did Plaintiffs plead an antitrust agreement to suppress supply with the required particularity? | Alleged contemporaneous production cuts across industry, Agri Stats data sharing, trade‑meeting attendance, exports, and index manipulation are plus factors supporting coordinated agreement. | Parallel conduct explained by recession, industry economics, and Tyson’s buy‑versus‑grow strategy; trade association membership and Agri Stats subscription insufficient to show agreement. | Court: Plausible alternative explanations and lack of plus factors mean conspiracy to suppress supply not pleaded with requisite particularity. |
| Did Plaintiffs plead scienter (strong inference) for statements allegedly rendered false by Georgia Dock manipulation? | Insider stock sales, executives’ positions, and timing/circumstances of CEO/CXO departures create motive/opportunity and support scienter. | Sales and option exercises fit long‑standing compensation/trading patterns; defendants increased retained holdings; departures have innocent explanations. | Court: Holistic review finds stock trades and resignations insufficiently unusual; no strong inference of scienter. Claim fails. |
| Is control‑person liability under §20(a) established? | If primary Rule 10b‑5 claims alleged, control‑person liability follows. | Primary claims fail. | Court: Since Rule 10b‑5 claims dismissed, §20(a) claim also dismissed. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (establishes PSLRA scienter comparative inquiry and strong‑inference standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard requires factual allegations that state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (parallel conduct alone insufficient to plead conspiracy; need plus factors)
- Stoneridge Inv. Partners, LLC v. Sci‑Atlanta, 552 U.S. 148 (elements of Rule 10b‑5 claims and connection to securities transactions)
- Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778 (PSLRA particularity for falsity and scienter; how to plead who/what/when/where/how)
- In re Van der Moolen Holding N.V. Sec. Litig., 405 F. Supp. 2d 388 (failure to disclose illegal practices that were a source of revenue can make public explanations misleading)
- In re Gentiva Sec. Litig., 932 F. Supp. 2d 352 (undisclosed fraud inflating reported revenue/margins can render financial explanations misleading)