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Particularized Pleading of Underlying Illegal Acts in the Second Circuit
Earlier this year, several senior executives at various national chicken producers were indicted for allegedly conspiring between 2012 and 2017 to fix prices in violation of federal antitrust laws. See, Indictment, 1:20-cr-00152-PAB (June 2, 2020); see also, Press Release, Senior Executives at Major Chicken Producers Indicted on Antitrust Charges (June 3, 2020). The supposition that the chicken industry had engaged in such practices is not new, as alleged chicken price fixing has been making headlines and generating antitrust litigation since at least 2016. See, e.g., You Might be Paying Too Much for Chicken, New York Times (Nov. 3, 2016); Broiler Chicken Antitrust Litigation, No. 1:16-cv-08637 (N.D. Ill.).
Thus to nobody's surprise, securities litigation alleging failure by chicken suppliers to disclose an illegal price-fixing scheme (and making false or misleading statements regarding the competitiveness of their industry) in SEC filings soon followed. But the U.S. Court of Appeals for the Second Circuit affirmed dismissal of one such action late last year.
That holding, Gamm v. Sanderson Farms, establishes a high burden for a plaintiff to plead adequately failure to disclose illegal conduct — regardless of how much circumstantial evidence a plaintiff is able to amass or how much news coverage the alleged conduct attracts. In particular, the Second Circuit held that "when a complaint claims that statements were rendered false or misleading through the non-disclosure of illegal activity, the facts of the underlying illegal acts must also be pleaded with particularity, in accordance with the heightened pleading requirement of Rule 9(b) and the [Private Securities Litigation Reform Act (PSLRA')]." 944 F.3d 455, 458 (2d Cir. 2019) (emphasis added).
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