Posted: Thursday, October 13, 2011 10:00 AM
Pilgrim's Pride shut operations to drive up prices, judge says; company to appeal
A major chicken packing company owes $25.8 million to farmers for unlawfully manipulating the poultry market, according to a federal judge.
U.S. Magistrate Judge Charles Everingham has ruled that the Pilgrim's Pride Corp. violated federal law by shutting down packing plants and refusing to sell the operations to other poultry companies.
"Given the length of time it would have taken other competitors to replace capacity, PPC's actions were likely to lead to a competitive injury," Everingham said.
Because Pilgrim's Pride controlled such a large portion of the national chicken market, idling certain packing plants while blocking other firms from acquiring the facilities violated a provision of the Packers and Stockyards Act that prohibits price manipulation, the judge said.
If the decision holds up on appeal, it may have repercussions on the beef and pork sectors of the livestock industry as well, said Peter Carstensen, a law professor who specializes in agricultural antitrust law at the University of Wisconsin.
The theory that packers can unlawfully influence retail prices by curtailing production would provide a new strategy for farmer plaintiffs, he said. "This opinion opens up a somewhat different door for these claims, a new way of thinking about those claims."
The lawsuit was initiated by 90 farmers who supplied a Pilgrim's Pride facility in El Dorado, Ark.
The growers were injured by the company's violation of the statute, which entitles them to damages ranging from about $10,000 to $865,000 per operation, according to the ruling.
The events underlying the case began in 2009, when Pilgrim's Pride filed for bankruptcy protection after losing nearly $1 billion the prior fiscal year. It was later taken over by the Brazil-based meatpacking giant JBS Swift.
After filing for bankruptcy, the company decided to idle plants in El Dorado, Ark.; Douglas, Ga.; and Farmerville, La.
When Louisiana Gov. Bobby Jindal tried to negotiate an acquisition of the Farmerville facility by a third party, the company threatened to shut down another plant in the state, according to the ruling.
Everingham said Pilgrim's Pride should not have been concerned about Jindal's actions unless it was trying to manipulate prices.
His ruling also points to an e-mail by a company executive that warned against selling the plant because it would enable a competitor "to flood the market with cheap chicken and foil our plans to restrict chicken in the area and allow prices to rise."
In a statement, Pilgrim's Pride CEO Bill Lovette said he disagreed with the judge's interpretation of the Packers and Stockyards Act and vowed to appeal the ruling.
"We completely reject the idea that we tried to manipulate the market," he said. "We tried to live in the market, not manipulate it."
In the past, several appellate courts have ruled against chicken farmers in other lawsuits against processors that alleged violations of the Packers and Stockyards Act.
Robert Depper, an attorney for the growers in this case, said he is confident the recent ruling will stand on appeal because the decision was based on anti-competitive conduct, rather than unfair or deceptive practices.
"The evidence is very strong on price manipulation," he said.
Pilgrim's Pride is afraid that Everingham's decision will set a dangerous precedent for the company, which still is one of the top packers in the poultry industry, Depper said.
The company fears being subjected to similar legal scrutiny in the event of future production curtailments, he said. "They're going to face this litigation if and when they close plants."