Opinion ID: 3025920
Heading Depth: 2
Heading Rank: 4

Heading: Pennexx-Smithfield Foods Relationship

Text: Winer challenges statements made in Pennexx’s February 8, 2002 press release about the business relationship between Pennexx and Smithfield Foods. Queen stated Pennexx’s common stock registration resulted from “the $36 million commitment that Smithfield Foods, Inc., the leading processor and marketer of fresh pork and processed meats in the U.S., made to our company in June 2001.” Winer contends that a 21 prior venture between Smithfield Foods and Pennexx had been disastrous because Smithfield Foods had supplied Pennexx with water-injected pork products. Winer maintains the failure to disclose this prior venture in the February 2002 press release was misleading. The District Court held defendants had no duty to disclose the previous business relationship. Liability may exist under Rule 10b-5 for misleading or untrue statements, but not for statements that are simply incomplete. Brody v. Transitional Hospitals Corp., 280 F.3d 997, 1006 (9th Cir. 2002) (“Rule 10b-5 . . . prohibit[s] only misleading and untrue statements, not statements that are incomplete . . . . Often, a statement will not mislead even if it is incomplete or does not include all relevant facts.”) (emphasis in original and internal citation omitted); Blackman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en banc) (“[The duty to disclose rule] does not mean that by revealing one fact about a product, one must reveal all others that, too, would be interesting, market-wise, but means only such others, if any, that are needed so that what was revealed would not be so ‘incomplete as to mislead.’”) (quoting SEC v. Texas Gulf Sulfur Co., 401 F.2d 833, 862 (2d. Cir. 1968)). Winer fails to specify why the assertion that the equity investment made by Smithfield Foods helped facilitate Pennexx’s registration of its common stock was misleading or untrue. Accordingly, the amended complaint did not sufficiently allege facts giving rise to a strong inference that Queen acted with scienter in making the statements at issue. See 15 U.S.C. § 78u-4(b)(2). 22 Moreover, Winer’s allegation that Queen made the February 8, 2002 statement while cognizant of the prior Smithfield Foods-Pennexx relationship does not satisfy the scienter requirements because Queen’s statement does not give rise to a strong inference that he acted with the required state of mind. Queen stated the $36 million commitment made Pennexx’s stock listing possible—a statement which was true. Winer fails to sufficiently allege facts supporting a strong inference that Queen knew or recklessly disregarded the possibility that his statement was misleading. The District Court properly held Winer failed to adequately plead scienter for the February 8, 2002 statement.