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KFC in crisis

Litigators licking their lips over Yum! class action

By RJ Whitehead , 30-Jan-2013
Last updated on 30-Jan-2013 at 09:24 GMT

Lawyers in the United States are queuing up to bring on board investors in KFC’s parent, Yum! Brands, for a class action lawsuit. The move follows nearly two months of questions concerning meat standards at the fast food chain’s Chinese operation.

As soon as Bronstein, Gewirtz & Grossman, a “corporate litigation boutique”, in New York, filed its own class action suit in the United States District Court for the Central District of California on behalf of investors who had purchased shares in Yum! between October 9 and January 7, the Atlanta chambers of Holzer, Holzer & Fistel immediately followed suit—no pun intended—with its own proceedings in the class action.

Alleged misrepresentation

At the centre of the action is the allegation that Yum! misrepresented its company’s position during a period of negative publicity surrounding the Chinese government’s review of Yum!’s poultry supply. 

Since November, Yum!‘s share price has taken a steep tumble as news emerged that poultry raised for KFC’s Chinese market contains “excessive” levels of steroids and antibiotics aimed at accelerating chicken growth.

The lawsuit alleges, among other things, that Yum! knew but failed to adequately disclose that: (a) slowing economic trends in China were stronger than reported and could not support the forecasted sales results for the company's China division nor the companywide increased EPS growth; and (b) the company's own food safety inspections had already found that Chinese chicken supplier Shandong Liuhe had sold the company chickens with high levels of antibiotics and other illegal drugs and/or chemicals,” Holzer, Holzer & Fistel said in its announcement.

Bronstein, Gewirtz & Grossman added: "Yum revealed in a filing with the SEC that the company lowered its China division's full-year 2012 guidance for same-store sales, due to publicity surrounding the Chinese government's review of Yum's poultry supply. As a result of these disclosures, on January 8, Yum! shares dropped 5% from $67.89 per share to as low as $64.40 per share."

Plaintiffs sought

Both law firms are currently in the process of soliciting Yum! investors to be part of the suit, and finding a lead plaintiff.

The Reuters news agency recently reported that Yum "has apologised to customers in China over its handling of the food scare." 

According to reports from the official Chinese news agency, Xinhua, health agencies in Shanghai have concluded that while levels of antibiotics and steroids in KFC chicken are not considered unsafe, the company had failed to keep a close-enough eye on its suppliers.

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