On February 12, 2018, Judge Samuel Der-Yeghiayan of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative class action under the Securities Exchange Act of 1934 against Treehouse Foods, Inc. (“TreeHouse”) and certain TreeHouse executives. Public Employees’ Retirement System of Mississippi v. TreeHouse Foods, Inc. et al., 16 C 10632 (N.D. Ill. Feb. 12, 2018). Plaintiff alleged that TreeHouse, a manufacturer of store brand food products for grocery stores, materially misrepresented that its acquisitions of Flagstone Foods and the “Private Brands” business of ConAgra Foods, Inc. were successful. The Court denied the motion to dismiss, holding among other things that plaintiff adequately alleged that defendants made actionable misstatements.

Defendants argued that statements about TreeHouse’s integration efforts—such as that the team was “doing all the work” and an “incredible job”—and about the Private Brands integration—such as that the integration was “good,” “great,” “gaining momentum,” and showing “great progress”—were immaterial as a matter of law because they constituted mere “corporate optimism” or “puffery.” Slip op. at 6. The Court disagreed. Defendants argued that these statements would “not move the needle for a sophisticated investor,” but the Court noted that analysts at firms including J.P. Morgan, BB&T Capital, and Wells Fargo reported on these statements and often used the same wording. The Court highlighted that TreeHouse was reliant on acquisitions to maintain growth levels and that the acquisitions of Flagstone and Private Brands were its largest to date. Thus, the integration and performance of those acquisitions would have had a “profound significance to investors” and it was possible that “a reasonable investor could believe that there was a factual basis for the statements.” Id. at 6-7. The Court also rejected defendants’ argument that general statements about management’s “successful track record,” “expertise and demonstrated ability,” and prior “success” would not affect a sophisticated investor. Id. at 7. To the contrary, the Court held that such statements, in context, could lead a sophisticated investor to believe that the statements referenced the “actual current handling of actual risks and challenges” and that there was a factual basis for them. Id.

The Court further rejected defendants’ argument that certain of the alleged misstatements were protected “forward-looking statements” under the limited safe harbor provision of the Private Securities Litigation Reform Act (“PSLRA”). Defendants claimed that statements such as “we’ve not seen anything that causes us to be concerned with our full-year guidance” and “solidly on track to deliver the earnings” were protected. But the Court determined that these statements were not “forward-looking” under the PSLRA’s safe harbor because they were based on past or present facts and circumstances that could be interpreted as providing false reassurances about present conditions. Id. at 8. Moreover, the Court noted that, even if the statements were forward-looking, they were still not protected under the PSLRA because they were accompanied only by generic factors that might affect performance, not by meaningful cautionary statements identifying specific concerns that could cause actual results to differ. Id. at 8-9.

This case demonstrates that optimistic statements of a type sometimes found non-actionable as vague puffery may be held to be actionable if, in context, they suggest a particular factual basis, and also underscores that the PSLRA’s safe harbor provision will not insulate statements that convey present facts and are not accompanied by specific cautionary language.

Public Employees’ Retirement System of Mississippi v. Treehouse Foods