The Second Circuit U.S. Court of Appeals has upheld the dismissal of a securities fraud class action against Sanderson Farms Inc., finding that investors had not adequately supported allegations that the company conspired with other chicken producers to control supplies and drive up prices.

The ruling Tuesday, from a unanimous panel, was a win for Mississippi-based Sanderson Farms, the country's third-largest poultry producer, and its Kirkland & Ellis attorneys, who succeeded in having the lawsuit dismissed last year.

Sanderson Farms investors Gordon Gamm and Don Pritchard had alleged in the complaint that the agribusiness failed to disclose a secret plot to manipulate natural "boom and bust" cycles in the chicken market to capitalize on high prices.

In order to keep chicken supplies low, Sanderson and other industry leaders destroyed breeding hens and eggs and then dumped their excess inventories on foreign markets, the plaintiffs said. According to the complaint, the companies organized their scheme at a series of industry meetings and conferences and tracked each other's reductions by monitoring industry data reports.

U.S. District Judge Richard M. Berman of the Southern District of New York dismissed the suit last January, finding that the antitrust allegations at the heart of the investors' security claims were too vague to survive dismissal.

The panel turned aside arguments that the courts should not apply the pleading standards of securities law to antitrust factual claims at the heart of the suit.

Plaintiffs' team of Pomerantz attorneys argued that—while the particularity standard would apply to securities-law disclosure allegations—the facts of the underlying antitrust conspiracy only needed to meet the lower bar of Rule 8 plausibility.

There was "no public policy reason," they said, to use a heightened pleading standard for allegations of anti-competitive conduct "simply because they underpin a securities fraud class action."

But Judge Ralph K. Winter Jr. of the U.S. Court of Appeals for the Second Circuit said district courts in the Second Circuit have consistently held that the particularity standard applies to alleged illegal acts when they form the basis for a nondisclosure claim.

"The clear language of the statute, the existing case-law, and the stated intent of the securities laws all lead us to recognize 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," Winter wrote.

Gamm and Pritchard, meanwhile, had failed to identify any kind of tacit agreement between the companies and provided "virtually no explanation" of how the alleged scheme might have worked. Absent any clearer details, Winter said, the complaint had alleged nothing more than parallel conduct that could not be seen as evidence of coordinated action.

"Appellants provide no facts alleging that Sanderson or its peers actually reduced supply, and that these reductions were 4 the result of an agreement, or were even interrelated," he said in the opinion, joined by Judges John M. Walker Jr. and Christopher F. Droney of the U.S. Court of Appeals for the Second Circuit.

Attorneys for both sides were not immediately available to comment on the ruling, and Sanderson's press office did not immediately respond to a request for comment.

The plaintiffs were represented by Tamar Weinrib, Marc I. Gross and Jeremy A. Lieberman of Pomerantz in New York.

Sanderson was represented by Joshua Rabinovitz, Robert J. Kopecky, Nathaniel J. Kritzer and Stacy Pepper from Kirkland's offices in New York and Chicago.

The case was captioned Gamm v. Sanderson Farms.

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