A lawsuit alleging a massive price-fixing conspiracy involving Tyson Foods Inc. and other chicken producers has sparked more litigation against the Springdale meat producer.
Since Nov. 28, shareholders who say they lost money on Tyson stock as a result of the antitrust allegations have filed four lawsuits in U.S. District Courts against Tyson Foods.
The shareholders charge that they bought Tyson stock at an inflated price and then lost money when the antitrust allegations were released and the stock price fell.
The Employees’ Retirement System of the State of Hawaii said it lost approximately $3 million between the proposed class period of Nov. 23, 2015, and Nov. 18, 2016, as a result of buying Tyson stock “that was artificially inflated by Defendants’ misconduct,” according to a pleading filed in U.S. District Court in Fayetteville by the system’s attorney at Bernstein Litowitz Berger & Grossmann LLP in New York.
The law firm has asked U.S. District Judge Timothy Brooks to consolidate the four shareholder lawsuits into one case, said John Rizio-Hamilton, a partner at the firm. The firm also wants to be appointed as lead counsel in the case.
A case management hearing is set for March 2 in U.S. District Court in Fayetteville.
A spokesman for Tyson Foods referred Arkansas Business to a Oct. 7 company news release, in which the company said it doesn’t normally make comments regarding pending litigation but disputes the allegations in the antitrust litigation. “We will defend ourselves in court,” the release said.
New York food service distributor Maplevale Farms Inc. filed a proposed class-action complaint on Sept. 2 against Tyson Foods, Pilgrim’s Pride Corp., Koch Foods Inc. and other chicken producers. The companies are leading suppliers of broiler chickens, which account for nearly all the chicken meat sold in the country and generate more than $30 billion in annual wholesale revenue.
Maplevale’s lawsuit, filed in U.S. District Court in Illinois, alleged that the producers conspired to keep the price of broiler chickens artificially high. The alleged conspiracy dates back to at least January 2008, according to the 113-page complaint.
The defendants’ actions resulted in a nearly 50 percent increase in broiler wholesale prices since 2008, despite input costs — such as those of corn and soybeans — falling about 20 percent over the same period, the lawsuit said.
Between Sept. 7 and Oct. 7, eight more class-action complaints were filed against Tyson and other poultry companies on behalf of consumers and companies that bought broiler chickens at what they allege were artificially high prices.
On Sept. 2, Tyson’s stock closed at $76.44, but the price was about to tumble.
In an Oct. 7 research note, Pivotal Research Group of New York changed its rating to “sell” from “buy” as a result of the allegations in the lawsuit.
“This is a downgrade of a stock, where I hope I am wrong but the evidence is quite chilling,” wrote Timothy Ramey, an analyst at Pivotal. “There is no easy way to explain the perfect harmony that the industry has operated in since 2009, driving Tyson margins to the highest levels ever achieved.”
The stock price at the close on Oct. 6 was $74.38. Ramey thought it could crash to $40 a share. “The risk of a major finding of industry collusion is top of mind,” Ramey wrote.
“Damages could be very substantial,” and the Department of Justice and the Federal Trade Commission could get involved in the case.
Tyson issued a news release on Oct. 7 disputing the “speculative conclusions reached by the analyst.”
The Tyson release failed to bolster the stock price. Shares closed at $67.75 on Oct. 7. By Nov. 21, the price had fallen to $57.60, but it was back above $60 last week.
Meanwhile, Donnie Smith, who had been Tyson’s CEO since November 2009, announced on Nov. 21 that he was resigning on the last day of 2016.
An analyst asked Smith during Tyson’s fourth-quarter conference call on Nov. 21 whether he was stepping down because of the antitrust litigation. Smith denied that, according to a transcript of the conference call provided by Seeking Alpha, a website providing stock market analysis and research.
“This is an excellent time for us to be making this transition,” Smith said. “As we have said before, we dispute the claims. We are looking forward to our opportunity to defending ourselves in court on the litigation.”
A week after after Smith announced he was leaving, the first shareholder lawsuit was filed, by Harold M. Voellinger, who bought 50 shares of Tyson stock on Aug. 12 at $74.76 a share.
Using the allegations from the antitrust litigation, Voellinger charged in the lawsuit that Tyson had “made numerous materially false and misleading statements and omissions to investors regarding Tyson’s business and operations.”
Voellinger, who filed his suit in federal court in Fayetteville, also alleged that Tyson had “concealed the true reason for Tyson’s high margins and profits from the sale of chickens.”
Tyson’s revenue for fiscal 2016 fell 10.9 percent to $36.9 billion from the previous year. Its net income, however, rose from $1.2 billion in 2015 to $1.8 billion in 2016.
Rizio-Hamilton, a partner at the New York law firm wanting to represent the shareholders, said the shareholders’ case doesn’t depend on the antitrust litigation because the legal claims are different.
In the antitrust case, consumers allege they were harmed because they paid too much for their chickens; the stockholders allege they overpaid for their Tyson stock because of the failure to disclose antitrust violations.
In order to win the case, the shareholders will have to prove that statements from Tyson about the business were rendered false because it failed to disclose that it was involved in the alleged antitrust activities, said Adam Pritchard, who teaches corporate and securities law at the University of Michigan Law School.
In addition, the plaintiffs would have to show Tyson had “to be at least reckless in making the misrepresentations that they are alleged to have made,” he said. And the person who made the statements should have known that what was being said was false at the time the statement was made, Pritchard said.
Proving that in a securities lawsuit is hard because the plaintiffs, in their initial complaint, must have alleged that whoever made the misstatements should have known the statements were false, said Jessica Erickson a law professor at the University of Richmond School of Law in Virginia.
“What that means is that the plaintiffs have to have facts before discovery … about what was going on in the defendant’s head,” said Erickson, who teaches corporate governance and securities regulation.
And that can be a high bar to clear. So securities attorneys sometimes use other lawsuits as the basis for their complaints.
About 40 percent of securities lawsuits are dismissed early in the proceeding because they can’t meet that requirement, Pritchard said.
Still, if the lawsuit survives a motion to dismiss, “its settlement value goes way up,” Erickson said. “Nobody wants to get to discovery.”
(Update: July 28, 2017 — A judge dismissed the lawsuit.)