Frutarom Secures Second Circuit Dismissal of Securities Fraud Class Action

September 30, 2022

Cleary Gottlieb represented Frutarom Industries Ltd. (Frutarom) in successfully obtaining the affirmance of the dismissal of a putative securities fraud class action before the U.S. Court of Appeals for the Second Circuit.

On September 30, 2022, the Second Circuit affirmed Judge Naomi Reice Buchwald’s March 2021 decision dismissing in full the securities class action filed against Frutarom, International Flavors & Fragrances Inc. (IFF) (which had acquired Frutarom in 2018), and certain officers of both companies. The lawsuit was filed after IFF disclosed that preliminary results of investigations indicated that Frutarom businesses operating principally in Russia and Ukraine had made improper payments to representatives of customers, and Plaintiffs alleged that the defendants made materially misleading statements and/or omitted material information concerning IFF’s acquisition of Frutarom, the integration of the two companies, and the companies’ financial reporting and results. Plaintiffs pursued the appeal only against Frutarom and its former officers.

A unanimous Second Circuit panel – Judges Park, Nardini and Pérez – held that Plaintiffs, who were investors in IFF, lack standing under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 to sue Frutarom based on alleged misstatements that Frutarom made about itself. The majority (Judges Park and Nardini) further held that “purchasers of a security of an acquiring company do not have standing under Section 10(b) to sue the target company for alleged misstatements the target company made about itself prior to the merger between the two companies,” answering a question that the Second Circuit had previously left open in Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Corp., 369 F.3d 27 (2d Cir. 2004). Judge Pérez wrote a separate concurrence, in which she agreed with the majority’s decision.