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Public Employees' Retirement System of Mississippi v. Treehouse Foods, Inc.

United States District Court, N.D. Illinois, Eastern Division

February 12, 2018



          Samuel Der-Yeghiayan United States District Court Judge

         This matter is before the court on Defendants' motion to dismiss. For the reasons stated below, the motion to dismiss is denied.


         Defendant TreeHouse manufactures store brand food products for grocery stores, warehouse chains and other retailers. Since 2006, TreeHouse has purchased twelve companies. In 2014, TreeHouse purchased Flagstone Foods, a competitor that sold snack nuts, trail mixes, dried fruits and other healthy snacks, for approximately $854 million. Plaintiffs allege that Defendants fraudulently represented that Flagstone was being successfully integrated into TreeHouse. In 2015, TreeHouse purchased the "Private Brands" business from ConAgra Foods, Inc. for approximately $2.7 billion. Plaintiffs contend that following these acquisitions, TreeHouse continued to fraudulently reassure the market that the acquisitions were successful. On November 3, 2016, TreeHouse disclosed that third quarter earnings would be substantially below expectations. On that same day, TreeHouse also announced the resignation of the Company's President, Christopher Silva. Company shares fell roughly 20%. Plaintiffs contend that as a result of Defendants' wrongful acts and omissions, and the subsequent decline in the market value of the Company's stock, Plaintiffs suffered significant loss and damages. Plaintiffs bring this putative class action lawsuit against Defendants for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (Act). See 15 U.S.C. §§ 78j(b) and 78t. Defendants now move to dismiss all claims.


         In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court must draw all reasonable inferences that favor the plaintiff, construe the allegations of the complaint in the light most favorable to the plaintiff, and accept as true all well-pleaded facts and allegations in the complaint. Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609, 622 (7th Cir. 2012); Thompson v. III. Dep't of Prof I Regulation, 300 F.3d 750, 753 (7th Cir. 2002). A plaintiff is required to include allegations in the complaint that "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a 'speculative level' " and "if they do not, the plaintiff pleads itself out of court." E.E.O.C. v. Concentra Health Services, Inc., 496 F.3d 773, 776 (7th Cir. 2OO7)(quoting in part Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007)); see also Morgan Stanley Dean Witter, Inc., 673 F.3d at 622 (stating that "[t]o survive a motion to dismiss, the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face, " and that "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged")(quoting Ashcroft v. Iqbal, 556 U.S. 662 (2OO9))(internal quotations omitted)

         Rule 9(b) provides that a party alleging fraud or mistake "must state with particularity the circumstances constituting fraud or mistake, " but "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R, Civ. P. 9(b). A complaint satisfies Rule 9(b) when it alleges "the who, what, when, where, and how" of the fraud. Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2OO7)(quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). The heightened pleading standard for fraud allegations set forth under Rule 9(b) works to prevent "the stigmatic injury that comes with alleging fraud, " while balancing the "concomitant desire to ensure that such fraught allegations are not lightly leveled." Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436, 442 (7th Cir. 2011); See Payton v. Rush-Presbyterian-St. Luke's Medical Center, 184 F.3d 623, 627 (7th Cir. l999)(stating that "[a] plaintiff claiming fraud or mistake must do more pre-complaint investigation to assure that the claim is responsible and supported, rather than defamatory and extortionate.")(quoting Ackerman v. Northwestern Mutual Life Ins. Co., 172 F.3d 467, 469 (7th Cir. l999))(internal quotations omitted). The Private Securities Litigation Reform Act of 1995 (PSLRA) raised the pleading standard for securities fraud claims even beyond Rule 9(b), imposing even more demanding requirements on plaintiffs filing §10b-5 claims. See Merrill Lynch, Pierce, Fenner & Smith Inc. V. Dabit, 547 U.S. 71 (2006). The PSLRA requires the plaintiff to "specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading." 15 U.S.C. §78u-4(b)(3)(A). The complaint must also "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." §78u-4(b)(2)(A). If these requirements under the PSLRA are not met, the Court must, on defendant's motion, dismiss the complaint. §78u-4(b)(3)(A).


         I. 10b-5 Claim

         In the instant action, Plaintiffs allege that Defendants violated Section 10(b) of the Act and Rule 10b-5. Section 10(b) of the Securities and Exchange Act of 1934 makes it unlawful for any person to "use or employ, in connection with the purchase or sale of any security. . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the Securities and Exchange Commission, "[f]orbids a company or individual 'to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.'" Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 704 (7th Cir. 2OO8)(quoting 17 C.F.R. §240.10b-5(b)). The basic elements of a Rule 10b-5 claim are: "(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Stoneridge Inv, Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 157 (2008). Defendants move to dismiss Plaintiffs 10b-5 claim because Plaintiff has not alleged any material misstatement, Plaintiff failed to allege that any statements were false at the time they were made, Plaintiff failed to allege a strong inference of scienter, Plaintiff failed to adequately allege loss causation and Plaintiff has failed to plead that the individual defendants made certain alleged misstatements.

         A. Material Misstatement

         Defendants contend that the complaint should be dismissed because Plaintiff failed to allege a material misstatement. Defendants argue that all of the misstatements and omissions alleged in the Complaint are immaterial as a matter of law. To plead a claim under Rule 10b-5, the plaintiff must allege "a material misrepresentation or omission by the defendant." Id. "The crux of materiality is whether, in context, an investor would reasonably rely on the defendant's statement as one reflecting a consequential fact about the company." Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 596 (7th Cir. 2006); see also Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (holding that an omitted fact is material if there is a substantial likelihood that its disclosure would have been viewed by the reasonable investor as having significantly altered the total mix of information made available).

         1. Puffery

         Defendants argue that numerous alleged misstatements are inactionable because they are statements of corporate optimism, or "puffery." Statements that are vague aspirations or unspecific puffery are not considered material statements. Makor, 437 F.3d at 596; see Eisenstadt v. Centel Corp.,113 F.3d 738, 746 (7th. Cir. l997)(stating that "Mere sales puffery is not actionable under 10b-5"). Defendants argue that general statements about the integration efforts of TreeHouse's employees, such as comments about TreeHouse's integration team "doing all the work" and an "incredible job" are not material (Mot. 13). Defendants also argue that general statements about the progress of the Private Brands integration, such as comments about how the integration was "good, " "great, " "gaining momentum, " and showing "great progress" are equally immaterial. (Mot. 14). ...

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