Gordon Gamm v. Sanderson Farms, Inc.

Summary

In a securities fraud class action under Section 10(b) and Rule 10b-5, the Second Circuit held that when a complaint alleges that statements were rendered false or misleading through the nondisclosure of illegal activity (here, an antitrust conspiracy), the facts of those underlying illegal acts must be pleaded with particularity under Rule 9(b) and the PSLRA. The court affirmed dismissal because plaintiffs failed to allege the basic elements of an antitrust conspiracy—such as an agreement, restraint of trade, or effect on interstate commerce—with sufficient particularized facts, relying instead on conclusory allegations of parallel conduct and opportunities to conspire. The decision clarifies that the heightened pleading standard applies to predicate illegal conduct that forms the basis of the securities fraud claim.

Holdings

1. When a securities fraud complaint claims that statements were rendered false or misleading through the nondisclosure of illegal activity, the facts of the underlying illegal acts must be pleaded with particularity in accordance with Rule 9(b) and the PSLRA.

Questions Presented

1. Whether, in a securities fraud action based on the nondisclosure of illegal activity, the facts of the underlying illegal acts must be pleaded with particularity under Rule 9(b) and the PSLRA.
2. Whether appellants sufficiently pleaded the underlying antitrust conspiracy with particularity.

Disposition

affirmed