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.
