Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 1 of 17
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
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`Civil Action No. 1:20-CV-01966-RM-MEH
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`UNITED FOOD AND COMMERCIAL
`WORKERS INTERNATIONAL UNION
`LOCAL 464A, THE TRUSTEES OF
`WELFARE AND PENSION FUNDS OF
`LOCAL 464A – PENSION FUND, THE
`TRUSTEES OF RETIREMENT PLAN
`FOR OFFICERS, BUSINESS
`REPRESENTATIVES AND OFFICE
`EMPLOYEES OF LOCAL 464A, THE
`TRUSTEES OF LOCAL 464A FINAST
`FULL TIME EMPLOYEES PENSION
`PLAN, THE TRUSTEES OF LOCAL
`464A WELFARE AND PENSION
`BUILDING INC., and THE TRUSTEES
`OF NEW YORK-NEW JERSEY
`AMALGAMATED PENSION PLAN FOR
`ACME EMPLOYEES, Individually and on
`Behalf of All Others Similarly Situated,
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`Plaintiffs,
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`v.
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`PILGRIM’S PRIDE CORPORATION,
`JAYSON J. PENN, WILLIAM W.
`LOVETTE, and FABIO SANDRI,
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`Defendants.
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`WILLIAM W. LOVETTE’S MOTION TO DISMISS LEAD PLAINTIFF’S
`CONSOLIDATED AMENDED CLASS ACTION COMPLAINT
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 2 of 17
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`Defendant William W. Lovette respectfully moves to dismiss the Consolidated Amended
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`Class Action Complaint dated May 26, 2021, (ECF No. 54, the “AC”) filed by Lead Plaintiff
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`New Mexico State Investment Council (“Plaintiff”), alleging claims under Sections 10(b) and
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`20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). The AC fails to state a
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`claim against Mr. Lovette under the heightened pleading standards required by Rule 9(b) of the
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`Federal Rules of Civil Procedure (“FRCP”) and the Private Securities Litigation Reform Act of
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`1995, 15 U.S.C. § 78u-4 et seq. (“PSLRA”). As such, Mr. Lovette moves to dismiss the AC
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`pursuant to FRCP 12(b)(6).
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`PRELIMINARY STATEMENT
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`The AC is virtually devoid of allegations involving Mr. Lovette, rendering the claims
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`against him insufficient to sustain a private cause of action under the Exchange Act. Plaintiff
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`ignores its heightened burden to plead survivable claims against each Defendant on a stand-alone
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`basis and instead relies on group pleading and insinuations that do not suffice. The AC against
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`Mr. Lovette should be dismissed.1
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`With the allegations specific to Mr. Lovette sifted from the AC, as they must be in
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`determining whether Plaintiff pleads a valid claim against him, the AC’s inadequacies are laid
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`bare. To support its claims, Plaintiff tries to tie generic public statements made by Mr. Lovette
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`to two pre-2017 conversations involving Mr. Lovette, which Plaintiff speculates related to
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`alleged anticompetitive behavior occurring before the class period. In an attempt to mask this
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`1 On July 13, 2021, all parties telephonically met and conferred pursuant to Judge Moore’s Practice
`Standard IV.N.2.a to resolve the issues identified in this motion, but the parties were unable to
`resolve the dispute.
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`2
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 3 of 17
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`deficiency, Plaintiff baldly alleges that Defendants were “legally obligated” to disclose to
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`shareholders that Pilgrim’s Pride Corporation’s (“Pilgrim’s”) increase in profitability was
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`“driven by an unsustainable and illegal bid-rigging scheme, not by legitimate, sustainable
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`business practices,” such as efficient operations, a broad product portfolio, and strong
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`relationships with key customers. (AC ¶ 9 (emphasis omitted).) But Plaintiff offers no support
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`for this conclusion, and such group pleading and speculation do not satisfy Plaintiff’s heavy
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`burden to plead that Mr. Lovette himself committed an Exchange Act violation. Moreover,
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`Plaintiff does not allege a single fact to suggest that any of Mr. Lovette’s affirmative statements
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`about Pilgrim’s were actually untrue, let alone that Mr. Lovette knew of the falsity of these
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`statements or the existence of the alleged underlying bid-rigging scheme at the time the
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`statements were made.
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`Plaintiff’s entire proffer against Mr. Lovette is that: (1) he participated in two brief
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`conversations with other alleged co-conspirators over the span of seven years and before the
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`putative class period; (2) he left his corporate roles at Pilgrim’s before charges were brought
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`against Pilgrim’s; (3) he signed routine Sarbanes-Oxley (“SOX”) certifications; and (4) he
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`regularly sold some of his shares of Pilgrim’s stock as they vested. Without more, these
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`allegations cannot adequately support a colorable violation of either Section 10(b) of the
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`Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, or Section 20(a) of
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`the Exchange Act, 15 U.S.C. § 78t(b). And the allegations do not meet the PSLRA’s heightened
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`pleading standard, which requires Plaintiff to establish a “strong inference” of scienter as to Mr.
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`Lovette.
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`3
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`To survive dismissal, Plaintiff must plead sufficient facts to support the notion that Mr.
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`Lovette was aware of a bid-rigging scheme that rendered his generic public statements
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`knowingly false and materially misleading to purported class member investors in Pilgrim’s at
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`the time he made the statements, including adequate pleading to show his conduct caused their
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`losses. It fails to do so on all fronts. For these reasons, as discussed below, and for the reasons
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`set forth in Defendants Pilgrim’s Pride Corporation and Fabio Sandri’s Motion to Dismiss
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`Plaintiff’s Amended Class Action Complaint and Incorporated Memorandum of Law (the
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`“Pilgrim’s Pride Motion”), ECF No. 63, which Mr. Lovette joins and adopts herein,2 Plaintiff’s
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`claims against Mr. Lovette should be dismissed.
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`STATEMENT OF FACTS AND PROCEDURAL HISTORY
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`Mr. Lovette adopts the Statement of Facts and Procedural History as stated in the Pilgrim’s
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`Pride Motion. See ECF No. 63, at 4–9.
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`ARGUMENT
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`Plaintiff fails to plead adequately that Mr. Lovette made material misrepresentations, that
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`Plaintiff’s loss was causally connected to any of Mr. Lovette’s alleged misrepresentations, or that
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`Mr. Lovette was involved in a scheme to defraud as explained in Argument Sections I, III, and IV
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`of the Pilgrim’s Pride Motion. In addition to those failures, Plaintiff fails to meet the PSLRA’s
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`tall standard for pleading that Mr. Lovette acted with the requisite scienter.
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`I.
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`THE PSLRA IMPOSES A HEAVY PLEADING BURDEN ON PLAINTIFF.
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`2 On July 16, 2021, the Court granted Mr. Lovette’s motion to incorporate by reference the
`Pilgrim’s Pride Motion. See ECF No. 60.
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`4
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`A plaintiff alleging securities fraud must satisfy the heightened pleading requirements of
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`FRCP 9(b) and the PSLRA. See Smallen v. W. Union Co., 950 F.3d 1297, 1305 (10th Cir. 2020).
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`FRCP 9(b) requires a party to “state with particularity the circumstances constituting fraud or
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`mistake.” Fed. R. Civ. P. 9(b). The PSLRA requires a plaintiff to “specify each statement alleged
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`to have been misleading [and] the reason or reasons why the statement is misleading.” 15 U.S.C.
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`§ 78u-4(b)(1). Plaintiff also must “state with particularity facts giving rise to a strong inference
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`that the defendant acted with the required state of mind.” Id. at § 78u-4(b)(2)(A).
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`In the Tenth Circuit, a plaintiff must establish that “the defendant acted with scienter, that
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`is, with the intent to defraud or recklessness.” In re Zagg, Inc. Sec. Litig., 797 F.3d 1194, 1200
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`(10th Cir. 2012) (emphasis omitted) (internal quotation marks and citation omitted). “Intentional
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`misconduct is easily identified since it encompasses deliberate illegal behavior.” City of Phila. v.
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`Fleming Cos., 264 F.3d 1245, 1260 (10th Cir. 2001). Recklessness “is a particularly high standard,
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`something closer to a state of mind approximating actual intent.” Zagg, 797 F.3d at 1206 (internal
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`quotation marks and citations omitted). A court will draw a “strong inference” of scienter “only if,
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`based on plaintiff’s allegations, ‘a reasonable person would deem the inference of scienter cogent
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`and at least as compelling as any opposing inference one could draw from the facts alleged.’” In
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`re Level 3 Commc’ns Sec. Litig., 667 F.3d 1331, 1343 (10th Cir. 2012) (emphasis added) (quoting
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`Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007)). In the context of a
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`securities fraud case, “allegations of negligence or even gross negligence fall ‘below the high
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`threshold for liability under Section 10(b) of the Exchange Act.’” Smallen, 950 F.3d at 1305
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`(quoting Dronsejko v. Thornton, 632 F.3d 658, 668 (10th Cir. 2011)).
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`5
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`II.
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`PLAINTIFF HAS NOT ALLEGED WITH PARTICULARITY THAT MR.
`LOVETTE MADE ANY ACTIONABLE MISREPRESENTATIONS OR
`OMISSIONS.
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`For the reasons stated in Argument Section I of the Pilgrim’s Pride Motion, see ECF No.
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`63, at 11–15, the AC fails to allege any actionable misrepresentation or omission made by Mr.
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`Lovette in his capacity as Pilgrim’s CEO. Moreover, even setting aside the clear timing disconnect
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`between Plaintiff’s allegations of Mr. Lovette’s wrongdoing and the commencement of the
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`putative class period, see infra Section III, the alleged misstatements attributed to Mr. Lovette
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`simply do not rise to the level of material misstatements upon which a securities case can be built.
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`Most notably, Plaintiff fails to allege any particularized facts showing that Mr. Lovette’s
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`statements about the success of Pilgrim’s operations, its strategic acquisitions, effective
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`management, and relationships with key customers were contradicted by contemporaneous
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`evidence. See SEB Asset Mgmt. S.A. v. W. Union Co., No. 13-cv-03325-MSK-MJW, 2015 U.S.
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`Dist. LEXIS 131387, at *13–14 (D. Colo. Sep. 29, 2015) (dismissing claims where complaint
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`failed to allege particularized facts showing how purported misrepresentations were misleading).
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`For example, the AC does not contain a single allegation that Mr. Lovette ever addressed any
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`alleged bid-rigging scheme or commented on the merits of the publicly disclosed antitrust litigation
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`that was pending. Indeed, the statements made by Mr. Lovette in earnings calls and SEC filings
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`regarding Pilgrim’s performance and competitive edge, see, e.g., AC ¶ 153, 159, 163, 165, are the
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`exact types of “vague statements of corporate optimism” that the Tenth Circuit finds are “incapable
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`of objective verification” and thus cannot stand as a basis for a Section 10(b) violation. See
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`Grossman v. Novell, Inc., 120 F.3d 1112, 1122 (10th Cir. 1997); Level 3, 667 F.3d at 1340.
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`Plaintiff does not plead a material misrepresentation made by Mr. Lovette that is cognizable under
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`Section 10(b), warranting dismissal.
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`III.
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`THE AC FAILS TO ALLEGE PARTICULARIZED FACTS SUPPORTING A
`STRONG INFERENCE THAT MR. LOVETTE ACTED WITH SCIENTER.
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`Plaintiff also does not adequately plead scienter in its allegations against Mr. Lovette. To
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`establish scienter, Plaintiff must allege that Mr. Lovette knew about the bid-rigging and its material
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`impact on Pilgrim’s success at the time he made the alleged misrepresentations, and that Mr.
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`Lovette intentionally or recklessly chose to withhold this information from investors. See In re
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`Weinstein, 757 F.3d 1110, 1113 (10th Cir. 2014). Plaintiff does neither. Instead, Plaintiff simply
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`relies on Pilgrim’s isolated anticompetitive conduct from 2012–2017 and a litany of conclusory
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`allegations that statements in Pilgrim’s SEC filings and related public statements by Mr. Lovette
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`were “materially false and misleading” because Mr. Lovette omitted that Pilgrim’s was allegedly
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`“exposed . . . to substantial criminal penalties and reputational harm.” (See, e.g., AC ¶¶ 140–86.)
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`Fatally absent from the AC is a cogent explanation as to how a scheme that took place from 2012
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`through early 2017 renders forward-looking statements made from February 2017 through June
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`2020 false. Such pleading is insufficient in the Tenth Circuit to survive dismissal.
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`Read in the light most favorable to Plaintiff, the sole support that Mr. Lovette’s alleged
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`involvement in anticompetitive conduct somehow tied in with his public statements is that he
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`participated in two isolated conversations, taking place nearly two years apart, nearly three years
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`prior to the putative class period. (AC ¶¶ 98, 112.) Given the threadbare nature of its specific
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`allegations, Plaintiff resorts to throwing theories against the wall in hopes of surviving dismissal.
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`But Plaintiff’s remaining allegations that Mr. Lovette retired in 2019 (Id. ¶ 246); signed SOX
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`certificates as required of him due to his corporate role (Id. ¶ 247); and routinely sold shares of
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`Pilgrim’s stock as they vested throughout the putative class period (Id. ¶ 115) fail to give rise to
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`the “strong inference” of scienter required by the PSLRA, and replicate the very pattern of pleading
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`that the Tenth Circuit routinely dismisses.
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`A. Mr. Lovette’s Participation in Two Conversations Prior to the Class Period Do Not
`Support a Strong Inference of Scienter.
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`Far from plausibly alleging that Mr. Lovette knew of, participated in, and covered up the
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`alleged bid-rigging scheme when he made statements during the putative class period, the AC does
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`not contain a single allegation establishing that Mr. Lovette’s knew of alleged bid-rigging when
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`the statements at issue in this case were made. The allegations in the AC evidence Plaintiff’s
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`attempt to convert a discrete violation of antitrust laws by Pilgrim’s prior to the putative class
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`period into a claim for securities fraud in the years following the violation. Pilgrim’s
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`anticompetitive conduct before the putative class period is insufficient to establish that Mr. Lovette
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`knew his public statements during the class period were false when made. See Smallen, 950 F.3d
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`at 1314 (pre-class period statement “fails to support the inference [an executive] knew about or
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`consciously disregarded ongoing legal violations during the Class Period”); accord Emps. Ret. Sys.
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`v. Embraer S.A., No. 16 Civ. 6277-RMB, 2018 U.S. Dist. LEXIS 56895, at *14 (S.D.N.Y. Mar.
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`30, 2018) (“[P]re-class period allegations of misconduct are insufficient where ‘there is scant else
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`from which to infer that this was the company’s practice at any pertinent time.’” (quoting Cats v.
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`Prot. One, Inc., Nos. CV 99-3755 DT (Rcx), CV 99-3798 DT (RCx), CV 99-4147 DT (RCx), CV
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`99-5534 DT (RCx), 2001 U.S. Dist. LEXIS 25726, at *15 (C.D. Cal. June 4, 2001))). Indeed, the
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`AC contains only two alleged interactions between Mr. Lovette and supposed co-conspirators,
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`both of which occurred before the putative class period, to support the notion that Mr. Lovette ever
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`knew about alleged big-rigging: (1) a fifteen-minute phone call in 2014 between Mr. Lovette and
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`a Vice President at Pilgrim’s with no content or description (AC ¶ 98); and (2) a 2016 e-mail from
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`a Koch employee related to a customer’s request to extend payment terms for certain lines of credit.
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`(Id. ¶ 112.) As a threshold matter, because the 2014 phone call occurred six years before Plaintiff
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`filed its AC, any claims premised on that allegation are barred under the applicable five-year statute
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`of repose. 28 U.S.C. § 1658(b)(2); see Hogan v. Pilgrim’s Pride Corp., No. 16-cv-02611-RBJ,
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`2021 U.S. Dist. LEXIS 74317, at *20 (D. Colo. Apr. 16, 2021) (finding continuing fraud exception
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`does not toll statute of repose and barring claims for misrepresentations made more than five years
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`before operative complaint was filed); Althaus v. Broderick, No. 15-cv-00164-JNP, 2016 U.S.
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`Dist. LEXIS 96243, at *12 (D. Utah July 22, 2016) (same).
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`Setting aside the timing defect, the two events that Plaintiff contends establish Mr.
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`Lovette’s alleged involvement/knowledge of bid-rigging are insufficient to meet the PSLRA’s
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`heightened standards to plead a valid claim here. Specifically, Plaintiff alleges that in August
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`2014, Mr. Lovette had a fifteen-minute phone call with Roger Austin, a Vice President at Pilgrim’s,
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`on the same day that the alleged co-conspirators were discussing whether to lower prices on a
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`certain bid. (AC ¶ 98.) The AC’s silence as to the substance of that call renders it ineffectual in
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`establishing scienter. When evaluating whether a plaintiff properly has pleaded scienter, a
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`circumstantial call without more fails to meet the Tenth Circuit’s requirement that a plaintiff plead
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`exacting allegations regarding the underlying wrong. In Sorkin LLC v. Fischer Imaging Corp.,
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`No. 03-cv-00631-RPM, 2005 U.S. Dist. LEXIS 19934, at *22 (D. Colo. June 21, 2005), the court
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`found that the plaintiffs’ “allegations . . . describing meetings where there were discussions about
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`how to accelerate sales[] are also too general to support an inference of scienter.” Id. This is
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`because “[w]ithout specific facts about who was present and what information was presented, there
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`is no way to determine whether the matters discussed involved [the alleged misrepresentations].”
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`Id. Similarly here, the AC alleges no information about what Austin and Mr. Lovette discussed.
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`Next, Plaintiff alleges that nearly two years after the undescribed phone call with Austin,
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`Mr. Lovette received an email from a Koch employee related to a customer’s apparent request to
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`extend the payment terms of certain lines of credit. (AC ¶ 112.) Plaintiff does not allege that Mr.
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`Lovette agreed with anyone as to how Pilgrim’s would respond to that request, much less that any
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`discussions regarding a credit term—not prices—was in any way related to an eight-year bid-
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`rigging scheme or chicken pricing. (Id.) Indeed, Plaintiff specifically alleges that Mr. Lovette did
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`not initiate the exchange and does not allege that Mr. Lovette’s non-public representations to a
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`business competitor were acted upon. (Id. (alleging Koch employee initiated conversation).) An
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`isolated business communication that Plaintiff fails to connect to the pre-class period
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`anticompetitive conduct or forward looking statements is insufficient to create the inference that
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`Mr. Lovette had the requisite scienter to sustain the claims against him.
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`Plaintiff’s two allegations of specific misconduct, one of which is purely speculative and
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`extends beyond the statute of repose and the other of which specifically does not relate to chicken
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`pricing or bid-rigging at all, demonstrate that an inference of scienter based on this conduct is not
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`“cogent and at least as compelling as any opposing inference one could draw from the facts
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`alleged.” Level 3, 667 F.3d at 1343. In fact, looking at the totality of the allegations in the AC and
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`the dearth of allegations relating to Mr. Lovette, the far more compelling inference is that Mr.
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`Lovette had no knowledge of the bid-rigging scheme and, unremarkably, sporadically
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`communicated about routine business matters with lower-level employees at Pilgrim’s and others
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`in the industry.
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`B. Mr. Lovette’s Retirement More Than One Year Before Charges Against Pilgrim’s
`Were Announced Was Not Suspicious.
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`Plaintiff’s second basis for establishing scienter is a single, conclusory allegation that Mr.
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`Lovette was “let go” under “suspicious” circumstances in March 2019, more than a year before
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`the criminal indictment was unsealed (AC ¶ 246)—even though Plaintiff elsewhere acknowledges
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`that Mr. Lovette transitioned out of the President and CEO role into an advisory position (Id. ¶ 14).
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`The Court should disregard this allegation as deficient on its face, as other Tenth Circuit courts
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`have done in similar circumstances. See In re Overstock Sec. Litig., No. 2:19-CV-709-DAK-DAO,
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`2020 U.S. Dist. LEXIS 179388, at *29 (D. Utah Sep. 28, 2020) (noting “Plaintiff never addresses
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`why [Defendant] resigned and its statement that his departure was suspicious is not based on any
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`supporting facts. These facts are not sufficient to plead scienter.”); see also Sorkin, 2005 U.S.
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`Dist. LEXIS 19934, at *23 (“Bald assertions and legal conclusions do not meet the pleading
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`requirements of Rules 9(b) and 12(b)(6), or the requirements of the PSLRA.”).
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`Additionally, public documents contradict Plaintiff’s self-serving recasting of events.3 The
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`2018 Proxy filed by Pilgrim’s notes that Mr. Lovette retired from his position after eight years of
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`service as CEO and remained employed as an advisor to Pilgrim’s. See Ex. A (2018 Proxy) at 36.4
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`Indeed, contrary to Plaintiff’s self-serving characterization of Mr. Lovette’s retirement as
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`“suspicious”, Pilgrim’s 2019 Proxy lays out the details of Mr. Lovette’s transition to a senior
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`advisor, including that Mr. Lovette received a “Transition Employment and Separation
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`3 On a motion to dismiss, the Court can take judicial notice of public SEC filings. See Emps.’ Ret.
`Sys. of R.I v. Williams Cos., 889 F.3d 1153, 1158 (10th Cir. 2018) (noting it is not unusual to
`consider public documents filed with the SEC in securities cases).
`4 All references to “Ex.” refer to Exhibits to the accompanying Declaration of John A. Fagg, Jr.
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`Agreement” which detailed Mr. Lovette’s compensation during the years following his resignation
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`as CEO and his employment as a senior advisor until 2020. See Ex. B (2019 Proxy), at 26–27.
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`Mr. Lovette’s amicable and transparent transition out of his role as President and CEO is in no
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`way suggestive of scienter.
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`C. Mr. Lovette’s Routine Execution of SOX Certifications Does Not Constitute
`Securities Fraud.
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`Plaintiff next alleges, again without any particularized facts in support, that Mr. Lovette
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`signed “false and misleading” SOX Certifications. (See AC ¶ 249.) The Tenth Circuit has found
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`the mere presence of SOX certificates unpersuasive because they are not accompanied by
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`“particularized facts to support an inference that [an individual defendant] knew [his] sworn SOX
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`statements were false at the time they were made.” Zagg, 797 F.3d at 1205; In re Gold Res. Corp.
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`Sec. Litig., 776 F.3d 1103, 1116 (10th Cir. 2015). Where, as here, a plaintiff only makes a
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`threadbare showing of conclusory allegations related to the fact that a defendant knew at the time
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`that his sworn SOX statements were false, such bare allegations are wholly unpersuasive, “add[]
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`nothing substantial to the scienter calculus,” Gold, 776 F.3d at 1116, and “at most, . . . support an
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`inference of negligence.” Zagg, 797 F.3d at 1205.
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`Ignoring the caselaw and its pleading obligations, Plaintiff invites the court to infer that,
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`because Mr. Lovette was Pilgrim’s President and CEO, Mr. Lovette must have known that his
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`statements about Pilgrim’s performance were false. (See, e.g., AC ¶¶ 235–38.) But, even if the
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`Plaintiff explained how these statements were false (which it failed to do), the Tenth Circuit has
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`“rejected the notion that knowledge may be imputed solely from an individual’s position within a
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`company.” Zagg, 797 F.3d at 1205 (internal quotation marks omitted) (quoting Wolfe v. Aspenbio
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`Pharma, Inc., 587 F. App’x 493, 497 (10th Cir. 2014)); accord Fleming, 264 F.3d at 1264
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`(“[A]llegations that a securities fraud defendant, because of his position within the company, must
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`have known a statement was false or misleading are precisely the types of inferences which
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`[courts], on numerous occasions, have determined to be inadequate . . . .” (internal quotation marks
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`and citation omitted)).
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`Plaintiff’s allegations related to Mr. Lovette’s SOX certifications do not assist Plaintiff in
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`meeting its burden.
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`D. Mr. Lovette’s Routine Disposition of Vested Stock Before and Throughout the Class
`Period Is Not Evidence of Motive; Instead, His Stock Sales Actually Rebut An
`Inference of Scienter.
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`Finally, Plaintiff points to Mr. Lovette’s stock trades as purported evidence of Mr.
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`Lovette’s motive to commit fraud. But “[c]ourts should not infer fraudulent intent based only on
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`the fact that some officers sold stock.” In re Qwest Commc’ns Int’l, Inc. Sec. Litig., 396 F. Supp.
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`2d 1178, 1195 (D. Colo. 2004). Rather, “[t]o create a strong inference of scienter, the plaintiff
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`must allege facts showing that the trades were made at times and in quantities that were
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`suspicious.” Sorkin, 2005 U.S. Dist. LEXIS 19934, at *30. Relevant to this inquiry is:
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`(i) whether the alleged trades were “normal and routine” for the insider; (ii) whether
`profits reaped “were substantial enough in relation to the compensation levels for
`any of the individual defendants so as to produce a suspicion that they might have
`had an incentive to commit fraud; and, (iii) whether, in light of the insider’s total
`stock holdings, the sales are unusual or suspicious.
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`Id.
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`Contrary to Plaintiff’s allegations, Mr. Lovette’s stock sales during the putative class
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`period were not unusual in timing or scope. The AC cherry-picks dates in support of its allegation
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`that Mr. Lovette and other individual defendants did not sell stock during a two-year period prior
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`to the putative class period. (See AC ¶ 244.) In fact, however, Mr. Lovette sold approximately
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 14 of 17
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`15% of his shares each year from 2014 to 2019, with the sole exception of 2016, which followed
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`a year in which Mr. Lovette did not have new stock options vest.5 Moreover, public documents
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`filed with the SEC demonstrate that Mr. Lovette received grants of restricted stock which vested
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`throughout his tenure as CEO of Pilgrim’s. See, e.g., Ex. C (2016 Proxy) at 25, 28, 29; Ex. A
`
`(2018 Proxy) at 38–39. Mr. Lovette’s publicly filed Form 4s show that he sold moderate portions
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`of his Pilgrim’s stock in yearly intervals as the RSUs vested. For example, SEC reports show the
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`following trades for Mr. Lovette:6
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`•
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`•
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`•
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`•
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`•
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`On November 4, 2014, Mr. Lovette sold 24,250 of his 211,000 shares (11.5%).
`Ex. E (2014 Form 4).
`On February 20, 2015, Mr. Lovette sold 90,690 of his 393,683 shares (23%). Ex. F
`(2015 Form 4).
`On February 17, 2017, Mr. Lovette sold 48,310 of his 464,953 shares (10.4%).
`Ex. G (2017 Form 4)
`On February 27, 2018, Mr. Lovette sold 100,000 of his 678,653 shares (14.7%).
`Ex. H (2018 Form 4).
`On February 20, 2019, Mr. Lovette sold 86,425 of his 578,653 shares (14.9%).
`Ex. I (2019 Form 4).
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`Crucial to the analysis, Mr. Lovette increased his aggregate holdings during the putative
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`class period. At the beginning of the putative class period, Mr. Lovette held 464,953 shares of
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`common stock. In Mr. Lovette’s most recent SEC disclosure, he held 504,974 shares of common
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`stock—representing a 8.6% increase from February 2017. See Ex. J (March 2020 Form 5). Rather
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`than suggesting Mr. Lovette engaged in misconduct, “[t]hese factors militate against an inference
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`5 Between December 2014 and December 2016, Lovette did not have any RSU’s vest. See Ex. D
`at 29–30 (2014 Proxy); Ex. C at 30 (2016 Proxy). As such, the fact that Lovette did not sell any
`shares of stock in 2016 is consistent with his trading activity before and during the class period.
`6
`See SEC,
`Insider Trading Report
`for William W. Lovette, available at
`https://sec.report/CIK/0001340956/Insider-Trades. For the Court’s convenience, the Form 4 for
`each trade is attached as an exhibit to the Fagg Declaration.
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 15 of 17
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`of scienter.” Smallen, 950 F.3d at 1310–11; see Level 3, 667 F.3d at 1346–47 (noting that increased
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`holdings weakens an inference of scienter); see also Ronconi v. Larkin, 253 F.3d 423, 435–36 (9th
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`Cir. 2001) (finding sales of 10% and 17% of stock option holdings were not unusual).7 Thus, not
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`only does Mr. Lovette’s trading not support any inference that Mr. Lovette acted with fraudulent
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`intent, his trading rebuts such an inference.
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`IV.
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`PLAINTIFF FAILS TO PLEAD LOSS CAUSATION OR SCHEME LIABILITY AS
`TO MR. LOVETTE.
`
`For the reasons stated in Argument Section III of the Pilgrim’s Pride Motion, see ECF No.
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`63, at 19–23, Plaintiff does not plead any causal connection between the alleged misrepresentations
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`and its economic loss. Nor does Plaintiff plead the existence of scheme liability for the reasons
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`stated in Argument Section IV of the Pilgrim’s Pride Motion, further justifying dismissal. See id.
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`at 23–24.
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`V.
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`PLAINTIFF’S SECTION 20(A) COUNT FAILS TO STATE A CLAIM.
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`Because Plaintiff has failed to plead an underlying claim for securities fraud against
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`Pilgrim’s, its control person claim against Mr. Lovette under Section 20(a) of the Exchange Act
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`must also be dismissed. Smallen, 950 F.3d at 1315 (citing Adams v. Kinder–Morgan, Inc., 340
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`F.3d 1083, 1107 (10th Cir. 2003)).
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`7 Even were the Court to find that Mr. Lovette’s trades were suspicious, they are not, on their own,
`sufficient to support an inference of scienter. Smallen, 950 F.3d at 1310 (“While suspicious insider
`stock trading is evidence of motive and weighs in favor of inferring fraudulent intent, the amount
`of profit realized through executive stock sales, standing alone, is insufficient to support an
`inference of scienter.”); see also Level 3, 667 F.3d at 1346–47.
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 16 of 17
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`CONCLUSION
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`The allegations in the AC against Mr. Lovette are scant, untimely, and fall well short of
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`the heightened standard required to plead a valid securities claim against Mr. Lovette. Plaintiff
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`fails to allege facts to meet its burden to establish a strong inference that Mr. Lovette acted with
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`scienter under these heightened pleading standards. For the reasons stated herein and in the
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`Pilgrim’s Pride Motion, the claims against Mr. Lovette should be dismissed.
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`Respectfully submitted this 19th day of July, 2021.
`
`
`
`s/ John A. Fagg, Jr.
`John A. Fagg, Jr.
`Mark A. Nebrig
`Nicole E. Schiavo
`MOORE & VAN ALLEN PLLC
`100 North Tryon Street, Suite 4700
`Charlotte, NC 28202
`(704) 331-1000
`johnfagg@mvalaw.com
`marknebrig@mvalaw.com
`nicoleschiavo@mvalaw.com
`
`Attorneys for Defendant William W. Lovette
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`Case 1:20-cv-01966-RM-MEH Document 64 Filed 07/19/21 USDC Colorado Page 17 of 17
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`CERTIFICATE OF SERVICE
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`I hereby certify that on this 19th day of July 2021, I electronically filed the foregoing
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`WILLIAM W. LOVETTE’S MOTION TO DISMISS LEAD PLAINTIFF’S CONSOLIDATED
`
`AMENDED CLASS ACTION COMPLAINT with the Clerk of the Court using the CM/ECF
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`system which will send notification of such filing to all listed parties.
`
`s/ John A. Fagg, Jr.
`John A. Fagg, Jr
`
`
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