By Jonathan Randles

Law360, New York (August 28, 2013, 1:21 PM ET) — The Fifth Circuit on Tuesday struck down a $25 million judgment against Pilgrim’s Pride Corp., ruling the chicken producer’s decision to suspend operations at its Arkansas plant — a move intended to increase poultry prices — did not violate U.S. antitrust laws.

The ruling overturns a penalty issued in 2011 against Pilgrim’s Pride over its decision to cut costs by suspending operations at several of its facilities shortly after the company filed for bankruptcy. Pilgrim’s Pride was producing more chicken than the market demanded and “wisely” chose to scale back production to try and save the business, the Fifth Circuit said.

“PPC’s conduct was merely the legitimate response of a rational market participant to changes in a dynamic market,” the Fifth Circuit said. “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.”

Pilgrim’s Pride had been found liable under the Packers and Stockyards Act, which prohibits meat producers from manipulating market prices. The appeal stems from a former Texas federal judge’s finding that Pilgrim’s Pride had violated the law because the company had hoped by reducing its output it would increase chicken prices.

The Fifth Circuit said the lower court’s analysis was too simplistic. The PSA, as an antitrust statute, is intended to protect market competition, and not necessarily low prices, the appeals court said. Therefore, Pilgrim’s Pride’s attempt to raise prices, by itself, is not a violation of the law, the ruling said.

The Texas court needed to go deeper and determine whether the decision by Pilgrim’s Pride to idle its Arkansas plant was intended to control market prices or restrict competition, the Fifth Circuit said.

“While we agree that a goal of competition is lower price levels, a unilateral attempt to raise prices,without more, is not inherently illicit or anti-competitive,” the Fifth Circuit said.

In reaching its conclusion, the Fifth Circuit applied a “rule of reason” analysis in examining what led to the chicken producer’s decision to suspend operations at its Arkansas plant. The company had overextended itself by producing too much chicken which drove down prices “at great cost to itself,” the appeals court said.

The Pilgrim’s Pride facility in El Dorado, Ark., was greatly affected by the company’s financial problems. The El Dorado facility “struggled with high operating costs, poor performance and low-margin operations,” according to the ruling. In an effort to stem its losses, Pilgrim’s Pride laid off employees and suspended operations at several processing and distribution facilities.

Ultimately, those measure proved ineffective and the company filed for Chapter 11 bankruptcy in December 2008. Pilgrim’s Pride subsequently received permission from the bankruptcy court and the unsecured creditors committee to idle or sell three of its processing complexes, including the El Dorado facility.

The company was unable to get an offer “that even approached the El Dorado facility’s appraised value,” the Fifth Circuit said. Pilgrim’s Pride officially idled operations at the complex in May 2009, prompting the lawsuit by a group of chicken growers who lost work because of the closure.

The Fifth Circuit determined that the closure was in the company’s independent business interests. Higher prices that resulted from that reduction in supply do not violate the antitrust law, the appeals court said.

“Far from being a nefarious goal, higher prices are the natural consequence of a reduction in supply,” the Fifth Circuit said. “If it is lawful for a business to independently control its own output, then it is also lawful for the business to hope for the natural consequences of its actions.”

Attorneys representing Pilgrim’s Pride and the plaintiffs could not immediately be reached for comment on Wednesday.

The plaintiffs are represented by Brodeur Law Firm, Albritton Law Firm, Depper Law Firm and Dollar Law Firm, LLC.

Pilgrim’s Pride is represented by Clayton E. Bailey and Alexander Brauer of Bailey Brauer PLLC and Michael A. Pollard of Baker & McKenzie, LLP.

The case is Pilgrim’s Pride Corp. v. Gary Agerton et al., case number 12-40085, in the U.S. Court of Appeals for the Fifth Circuit.

–Additional reporting by Evan Weinberger. Editing by John Quinn.
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