By Mark Curriden, JD
Senior Writer for The Texas Lawbook

(August 28) – More than 500 chicken growers in Arkansas, Louisiana and Texas claim that Pilgrim’s Pride Corporation (PPC) violated a 92-year-old federal law when it closed some of its chicken processing plants in 2009 in order to reduce chicken supplies in an effort to increase prices. Two years ago, a federal magistrate in Marshall agreed and awarded about one-third of them $25 million in damages, ruling that Pilgrim’s Pride illegally attempted to manipulate and control poultry prices by improperly shutting down some of its operations.

But on Tuesday, the U.S. Court of Appeals for the Fifth Circuit reversed that decision, ruling that the poultry business founded in Pittsburgh, Texas in 1946 was within its legal rights to close the processing facilities in an effort to stem its losses and streamline operations. “PPC’s conduct was merely the legitimate response of a rational market participant to changes in a dynamic market,” Judge Eugene Davis and Judge Jerry Smith wrote in a unanimous opinion. “If a firm inadvertently over- produces a good and drives down prices, it does not break the law by cutting production so that prices may recover.”

Judge Edith Jones participated in oral argument but did not participate in the decision. No explanation is given in the decision for her absence, which usually means a judge has discovered a conflict of interest and voluntarily recused themselves from the proceedings. Alex Brauer and Clayton Bailey of Dallas-based Bailey Brauer were the lead lawyers representing Pilgrim’s Pride. Other lawyers involved in the case include Dave Parham, Jennifer McCollum, Mike Pollard and Bill Roppolo of Baker McKenzie. Dallas plaintiff’s lawyer Mark Bordeur represents the chicken growers.

Pilgrim’s Pride, which is now a subsidiary of Brazilian food giant JBS, started experiencing financial problems in 2008 when it realized that it over-extended in the commodity chicken market. To correct the problem, the company filed for bankruptcy and started idling some of its operations in 2009. That meant ceasing to do business with more than 500 contractors who grew chickens for Pilgrim’s Pride. The locations of the operations closed ranged from Nacogdoches, Texas to El Dorado, Ark. The individual chicken growers lost tens-of-millions in revenues.

The chicken growers filed three separate federal lawsuits claiming that Pilgrim’s Pride had violated anti-competition provisions of the Packers and Stockyards Act of 1921, which was signed by President Warren Harding for the purpose of regulating interstate commerce by those involved in live stock, dairy products, poultry products and eggs.
In the first lawsuit to be heard, 163 of the plaintiff’s convinced a federal magistrate in Marshall that PPC’s actions likely led to a competitive injury under the PSA and awarded the growers $25 million. The other two cases are on hold pending the outcome of this first case. The U.S. District Court upheld the magistrate’s decision. But Judge Davis and Judge Smith saw it differently. “The relevant question thus becomes whether PPC’s decision to reduce its chicken output was improper and anti-competitive,” they wrote in their nine-page decision. “When evaluating competitive injury, we ordinarily rely upon a “rule of reason” analysis: in light of all the relevant facts, an action is unlawful only if it is likely to suppress or destroy competition. “The growers’ alleged injury to competition stems entirely from PPC’s alleged intent to influence prices,” the ruling continued. “However, we remain conscious of the fact that laws against anti-competitive conduct seek to protect competition, not low prices. Competition, of course, is merely the existence of genuine commercial rivalry.” “Recognizing the damage inflicted by its own excess production, PPC wisely decided to stop flooding the market with unprofitable chicken. Not surprisingly, we have located no case finding such conduct to be unfair, illegal, or injurious to competition; in truth, PPC’s unilateral conduct had nothing to do with competition. Even if PPC hoped that chicken prices would respond to the output reduction by settling at a higher equilibrium price, that would not alter our conclusion,” the judges wrote.