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From Antitrust Law Daily, August 29, 2013

Chicken supplier's efforts to reduce supply, increase prices not anticompetitive

By Jeffrey May, J.D.

One of the world’s largest suppliers of processed chicken did not violate Section 192(e) of the Packers and Stockyards Act of 1921 (PSA) by reducing its commodity chicken output in an ultimately unsuccessful attempt to avoid bankruptcy, the U.S. Court of Appeals in New Orleans has ruled. Section 192(e) of the PSA proscribes only anticompetitive conduct, and the defending supplier's conduct was “merely the legitimate response of a rational market participant to changes in a dynamic market.” A lower court's finding that Pilgrim’s Pride Corporation (PPC) idled chicken processing facilities in an unlawful attempt to manipulate or control poultry prices was reversed, and judgment was entered in favor of PPC (In the Matter of: Pilgrim’s Pride Corp., August 27, 2013, Per curiam).

Facing severe economic difficulties in 2008, PPC shut down several processing and distribution facilities and restructured supply contracts, among other things, to stem its losses. These measures proved ineffective, and PPC filed for Chapter 11 bankruptcy relief in December 2008.

Among the shuttered facilities was an El Dorado, Arkansas, processing complex. As a result of the facility’s closure, the husbandry services of some 163 contract chicken growers were no longer needed, and PPC rejected all related poultry grower agreements.

In response to the termination of their growing agreements, a group of the affected chicken growers filed suit under the PSA, alleging that PPC had engaged in a course of business for the purpose of “manipulating or controlling prices” in violation of PSA § 192(e). After the lower court found that PPC violated the PSA, the complaining chicken growers were awarded over $25 million (2011-2 Trade Cases ¶77,616). The Fifth Circuit has now reversed the decision.

On appeal, the growers argued that “violations of the PSA are not strictly limited to the traditional antitrust realms of price-fixing conspiracies and monopolization.” But the court sided with PPC’s position that Section 192(e) is an antitrust statute targeting anti-competitive conduct.

Section 192(e) of the PSA does not forbid all conduct which might affect prices, but only conduct that is designed to manipulate or control prices, the appellate court explained. The court focused on PPC's motive for reducing output to determine whether it was improper or anticompetitive. While lower price levels were a goal of competition, a unilateral attempt to raise prices, without more, was not inherently illicit or anticompetitive.

PPC merely decided to stop flooding the market with unprofitable chicken. Because it was lawful for PPC to independently control its own output, it also was lawful for PPC to hope for the natural consequences of its actions--higher prices--in the court's view.

The case is No. 12-40085.

Attorneys: Mark Crosby Brodeur for Gary H. Agerton. Clayton E. Bailey (Bailey Brauer, P.L.L.C.) for Pilgrim’s Pride Corp.

Companies: Pilgrim’s Pride Corp.

MainStory: TopStory Antitrust LouisianaNews MississippiNews TexasNews

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