Fifth Circuit reverses $25 million chicken price fixing lawsuit under PSA § 192(e)

On August 27, 2013, the U.S. Fifth Circuit Court of Appeals issued an opinion reversing a judgment in excess of $25 million in favor of more than 90 contract poultry growers who alleged that Pilgrim’s Pride Corporation attempted to manipulate chicken prices in violation of Section 192(e) of the Packers and Stockyards Act, 1921 (“PSA”) by idling certain chicken processing plants and terminating the growers’ poultry grower agreements. The Fifth Circuit’s decision, styled Agerton, et al. v. Pilgrim’s Pride Corporation, No. 12-40085, 2013 WL 4523500 (5th Cir. Aug. 27, 2013), reverses and renders judgment in Pilgrim’s Pride’s favor nearly two years after a magistrate judge issued findings of fact and conclusions of law imposing liability on the company because the plant idlings and concomitant termination of the growers’ contracts presented the likelihood of an anticompetitive effect.

The growers’ Section 192(e) claims stem from Pilgrim’s Pride’s restructuring efforts after seeking voluntary bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in December 2008. According to the Agerton opinion, “[t]he primary reason” for the company’s weak financial condition “appeared to be the company’s over-extension into the commodity chicken market,” of which Pilgrim’s Pride apparently “held an estimated 50% market share.” Id. at *1. Pilgrim’s Pride targeted for idling operations “unnecessarily producing a surplus of commodity chicken at great cost to itself.” Id. As Pilgrim’s Pride idled the facilities, it also terminated the poultry grower agreements of local poultry growers who raised poultry for processing at the plants. Id. Despite evidence demonstrating that “the total domestic supply of commodity chicken actually increased” after the idlings (id. at *4 n. 11), liability was imposed under Section 192(e) on the grounds of a likelihood of harm to competition. Id. at *2.

On appeal, the Fifth Circuit characterized the magistrate judge’s analysis as “simple” because it imposed liability under the PSA merely because Pilgrim’s Pride “hoped to increase chicken prices by reducing the quantity of chicken offered on the market.” Id. at *2. The Agerton court wrote that “Section 192(e) does not forbid all conduct which might affect prices, but only conduct that is designed to manipulate or control prices.” Id. at *3. According to the panel, “[t]he relevant question” was whether Pilgrim’s Pride’s reduction of its chicken output “was improper and anticompetitive.” Id. Ultimately, the Fifth Circuit concluded that Pilgrim’s Pride’s “conduct was merely the legitimate response of a rational market participant to changes in a dynamic market. If a firm inadvertently overproduces a good and drives down prices, it does not break the law by cutting production so that prices may recover.” Id. at *4. Consequently, the Court held that Pilgrim’s Pride did not violate PSA Section 192(e) by reducing its commodity chicken output. Id.

This opinion marks the second time in less than four years that the Fifth Circuit addressed poultry grower claims under the PSA. In December 2010, the Fifth Circuit, sitting en banc, held in Wheeler v. Pilgrim’s Pride Corporation, 591 F.3d 355 (5th Cir. 2009) that proof of an anticompetitive effect or likelihood thereof is necessary to prevail under PSA Subsections (a) and (b). Notably, in addressing how to determine whether Pilgrim’s Pride’s conduct in Agerton resulted in harm to competition or likelihood thereof, the Fifth Circuit applied a “rule of reason” analysis to the poultry growers’ PSA Section 192(e) claims. Agerton, 2013 WL 4523500, at *3.

This update is courtesy of Clayton E. Bailey of Bailey Brauer PLLC, who served as Pilgrim’s Pride Corporation’s trial and appellate counsel in Agerton v. Pilgrim’s Pride Corporation and Wheeler v. Pilgrim’s Pride Corporation.

Advertisements

2 responses to “Fifth Circuit reverses $25 million chicken price fixing lawsuit under PSA § 192(e)

  1. 3tomt | September 12, 2013 at 2:22 am | Reply

    It is clear that the court did not read the full bill or in particular Section 202 d):
    which prohibits
    (d) Sell or otherwise transfer to
    or for any other person
    ,
    or buy or
    otherwise receive from or for any
    other person
    ,
    any article for the pur-
    pose of or with the effect of manipu-
    lating or controlling prices
    ,
    or of cre-
    ating a monopoly in the acquisition
    of
    ,
    buying
    ,
    selling
    ,
    or dealing in
    ,
    any
    article
    ,
    or of restraining commerce

    Clearly the shutting of these complexes by Pilgrim’s Pride to JBS did this and the liability follows to JBS in their purchase of Pilgrim’s Pride.

    One really has to wonder why these judges are allowed to sit on the bench when all they do is make excuses for meat processors.

    Section a) and b) of the Packers and Stockyards Act clearly regulates the relationship between the packer or poultry suppliers so the packer does not use its market power to capture the value of the poultry producers (farmers) and use it in the competition game or use that captured value to make monopoly profits. This court and others like it are allowing it to do both.
    The courts have been allowing a) and b) prohibited actions to occur if it is to the benefit of the meat packer when no such provisions are in the law. It is judicial activism at its worst. Poultry integrators are using the value and colluding with other market players to do the same which creates a barrier to entry for others who do not already have farmers whose value they can harvest.to. This will continue to concentrate the markets as it has in the last 15 years.. The courts, in some of their worst judicial opinions have decided to allow this behavior with a plethora of the best excuses money can buy, this most recent one being a prime example. By moving the standards every time there is a case, they make sure that the law can not or will not be enforced.

    The Packers and Stockyards Act came out of a time when market power was used to capture the value family farmers brought to the market and their collusion with other meat packers in the marketplace lead to both monopoly profits and control of the industry. The recent actions of the federal courts are returning us to these times despite one of the best written market laws the United States has produced.

    Section a) and b) regulate the activities between the meat packers and their suppliers and the other sections deal with other market factors and competition. Unlike the federal judges sitting on the bench today, those who who wrote and passed the bill into law knew the difference between “and” and “or”.

    There was real damage to the economy as a whole when corporations were allowed free reign in the economy. Before the Great Depression, most income flows in the economy were captured through the abuse of market power and financialized by Wall Street or private investors. These instruments and companies were then leveraged by the capitalists of the day until it crashed the economy and we went into the Great Depression. We are reentering that time even with the best laws that captured and bottled the faults of our capitalist system.

    Our federal judges are leading us back to that time because they seem to believe in the rule of gold over the golden rule. Traditional Judeo-Christian values of the law are giving way the worst vices of capitalism as our federal judges seek every excuse offered to them to deny justice.

  2. I mentioned above the role of our financial system prior to the Great Depression in their role in causing the Great Depression. Out of these abuses Congress and the President passed the Glass Steagall Act. It broke the cycle where banks and their depositors were used in capitalizing the economy to its breaking point. The Glass Steagall Act prevented banks with depositors from participating in these investment schemes that put the deposits of their depositors at risk. Prior to that time, banks would use the capital they acquired, including depositor’s money to leverage cash flows in risky investments. Banks would put at risk the banking system by risking their assets on investments and they lost on those risky practices when the market went bust.

    The Glass Steagall Act, which was undone by President Clinton and the Republican Congress with Phil Gramm and Senator Roberts from Kansas once again put our financial system at risk and the public had to bail them out through extraordinary actions of the Fed. Had the Glass Steagall Act still been the law of the land, it would have prevented investment banks from putting at risk depositor’s money. Since depositor’s money was at risk and a run on the banks seemed likely, the Fed used its extraordinary power to bail out the banks instead to prevent another run on the banks. It started with a guarantee of money market cash accounts and morphed into the taxpayers subsidizing the risky capital models of investment banks because of their tie ins with depositors.

    There can be no doubt that the recent market failures, due to the repeal of the Glass Steagall Act, that taxpayers via the Fed had to bail out the investment bank’s fraud in financializing riskier and riskier mortgage security portfolios that were put together by the Wall Street Banks wishing to cash in. Accountability to the frauds of Wall Street in putting together riskier and riskier loan portfolios that had previous adequate mortgage underwriting standards has been nothing more than lame. It was another sell out of our political elite to the wealthy Wall Street Bankers who had once again tied bank depositors to the fate of the Investment Banking’s risky and fraudulent side of their business model.

    Today we are seeing the power of Wall Street being reinserted in the rule making process of Dodd Frank that will set up the next bailout. Quite simply put, our current set of political elite are too prone to being bought out by big money to alter the rules that allow the public to once again be put at risk. More than ever the wisdom of he Glass Stegall Act’s policy of separating Wall Street gambling and fraud from being tied to our central bank and their role in protecting depositor’s from such actions.

    We had the best laws of the land to prevent such failures of capitalism but once again the quality of our current political elite has shown that political self interests via the power of money from Wall Street comes before the public interest.