Cook County Record

Wednesday, April 1, 2020

Judge brushes aside 'cozy ties' between pension fund, lawyers in class action securities lawsuit vs TreeHouse Foods

Federal Court

By D.M. Herra | Mar 5, 2020

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A federal judge is allowing a public employee pension fund to represent a class of investors in a lawsuit against a massive food manufacturer, over the food company’s objections that the pension fund enjoys "cozy ties" to the lawyers leading the class action.

The Public Employees’ Retirement System of Mississippi, or MSPERS, is lead plaintiff in the class action against TreeHouse Foods, which produces packaged foods under grocery stores’ private labels. The plaintiffs claim TreeHouse misled investors between 2014 and 2016, while it was acquiring several competitors. While TreeHouse was in the process of acquiring competitor Private Brands in 2015, it made positive statements about future growth opportunities, the lawsuit says. Nine months after the closing, TreeHouse reported disappointing earnings and announced the resignation of its president. As a result, the stock price plummeted nearly 20 percent in a single day.

MSPERS, which owns stock in TreeHouse Foods, claims the company violated federal securities and exchange law by “painting a rosy picture” the company knew was false. It asked the court to certify a class of everyone who purchased TreeHouse common stock on the open market between Jan. 20 and Nov. 2, 2016.

TreeHouse argued the pension fund is an inappropriate representative for such a class, claiming it is subject to unique defenses that could “bog the case down in individualized questions.” MSPERS relied upon an outside investment manager to purchase the stock on its behalf, and the manager bought more after the company released its true earnings statement. This shows that MSPERS did not rely on the market price when buying the stock, TreeHouse said.

In certifying the class, Judge Robert M. Dow Jr. said relying on an outside broker does not constitute a unique defense and pointed out many of the class members probably relied on outside advice when making their purchase. Likewise, buying stock after a corrective disclosure is not evidence the pension fund or its broker disregarded the market price.

“Additionally, defendants question whether MSPERS, a frequent litigant with cozy ties to counsel, is sufficiently invested in the outcome of the case to adequately represent the absent class members,” Dow noted in his Feb. 26 ruling

The judge said he would not deny certification because of MSPERS’s relationship with its legal counsel. Institutional investors like pension funds often have sophistication and understanding of securities litigation that actually make them excellent lead plaintiffs in securities class actions, he wrote. The fund maintains non-exclusive agreements with several law firms and makes its own decisions about when to sue and which counsel to retain, he added, indicating he did not believe it likely that counsel pressured it into filing frivolous litigation.

In questioning the fund’s investment in the outcome of the case, TreeHouse pointed to indications that MSPERS’ chief investment officer and the state employee charged with overseeing the litigation did not have deep knowledge of the details of the case. Dow retorted that both individuals clearly understood the basics of the lawsuit and were sufficiently invested to be deposed as part of discovery.

Dow appointed Wolf Popper LLP, of Chicago, and Robinson Curley P.C., of Chicago, lead and liaison counsel and set the next court date for March 10.

TreeHouse is represented in the case by attorney James P. Smith III and others with the firm of Winston & Strawn LLP, of Chicago and New York. 

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Organizations in this Story

Winston and Strawn LLPU.S. District Court for the Northern District of IllinoisTreehouse Foods Inc.Robinson CurleyWolf Popper LLP