Posted August 30, 2013
The U.S. Court of Appeals for the Fifth Circuit has reversed a $25 million damages award against Pilgrim’s Pride Corporation, ruling that it did not violate the Packers and Stockyards Act because its actions were neither “illegitimate nor anticompetitive”, as reported by Reuters. According to the Reuters article, available here, the court also said that PPC’s “unilateral” attempt to raise prices was not anticompetitive and was “merely the legitimate response of a rational market participant to changes in a dynamic market.” An article on the case by MeatPoultry.com, is available here.
The text of the decision, Agerton v. Pilgrim’s Pride Corporation, No. 12-40085, (5th Cir. August 27, 2013), is available here.
In 2008, PPC faced severe economic difficulties and the business was no longer profitable. Id. at *2. PPC concluded that it was “unnecessarily producing a surplus of commodity chicken at a great cost to itself.” Id. In an effort to “stem its losses and streamline operations, PPC closed or idled several processing and distribution facilities, divested assets, restructured supply contracts, and laid off a number of employees.” Id. These efforts, however, “proved ineffective and PPC ultimately filed for Chapter 11 bankruptcy relief in December 2008.” Id. Its processing complex in El Dorado, Arkansas was one of the facilities “most affected by the company’s financial challenges” and was “officially idled in May 2009” after PPC was unable to solicit an acceptable offer on the facility. Id. at *3. As a result, PPC rejected Poultry Grower Agreements with 163 contract chicken growers. Id.
In response to the termination, a group of the growers filed suit under the Packers and Stockyards Act, 7 U.S.C. §§ 181 et seq. and arguing that PPC engaged in a course of business for the purpose of “manipulating or controlling prices” in violation of PSA § 192(e). Id. A magistrate judge for the Eastern District of Texas found that one of PPC’s goals in the idling of the El Dorado facility was to “reduce the supply of commodity chicken and thereby pressure prices upward.” Id. Since this action was likely to result in competitive injury, the judge held that PPC’s actions violated PSA § 192(e) and awarded the growers over $25 million. Id. at *4.
In its reversal, the Fifth Circuit stated that PPC had overextended itself into the commodity chicken market, was producing more chicken than the market needed, and as a result, was “driving the market price of chicken down at a great cost to itself.” Id. at 8. PPC’s decision to stop flooding the market with unprofitable chicken was a “unilateral” decision that “had nothing to do with competition.” Id. The court concluded that PPC’s conduct was “merely the legitimate response of a rational market participant to changes in a dynamic market” and held that PPC did not violate PSA § 192(e) by reducing its commodity chicken output. Id. at 9.
For more information on the Packers and Stockyards Act, please visit the National Agricultural Law Center’s website, here.