Fifth Circuit agrees to rehear Pilgrim's Pride arguments in grower's case

Michelle Massey, East Texas Bureau Aug. 5, 2009, 4:22am

U.S. Fifth Circuit Court of Appeals in New Orleans

TEXARKANA, Texas – The U.S. Fifth Circuit Court of Appeals has agreed to rehear oral arguments by Pilgrim's Pride Corp. over the court's decision in favor of chicken growers.

In its previous decision, the Fifth Circuit found that the Packers and Stockyards Act does not require parties to show any adverse effect on competition, a contrast to the way other circuit courts have historically interpreted the Act.

Plaintiffs Cody Wheeler, Don Davis and Davey Williams severed the questions of law surrounding the Stockyards Act into a new litigation against Pilgrim's Pride on Jan. 4, 2006, in the Texarkana Division of the Eastern District of Texas.

The case involves chicken farmers who are in a contractual relationship with Pilgrim's Pride. Under the contract, Pilgrim's Pride assigns the chicks, feed and supplies to the growers. The growers care for the chickens until maturity, when they are turned back over to Pilgrim's Pride.

The company compensates the chicken farmers using a "tournament system," in which the growers are competitively ranked against one another and then compensated based on quality, survival rate and amount of supplies used.

However, Lonnie "Bo" Pilgrim, the founder and chairman of Pilgrim's Pride, does not participate in the tournament system, and is allowed to purchase the chicks, feed and supplies directly from the company.

He is paid the lesser of the weekly quoted market price or 102 percent of his costs.

The plaintiffs argue that Bo Pilgrim's payment system allows him to earn more than those participating in the tournament system and that Pilgrim's Pride refuses to offer them the same payment system.

The growers sued Pilgrim's under the Packers and Stockyards Act, alleging that by refusing the other payment system, the insider, Bo Pilgrim, is receiving "undue and unreasonable preference or advantage" in violation of the PSA.

Pilgrim's Pride responded to the allegations, arguing that the PSA requires the plaintiffs to show that a defendant's actions adversely affect competition. Pilgrim's Pride denies that the variances in pay systems have a negative impact.

The defendant filed a motion for summary judgment based on the argument, which the district court denied.

The Fifth Circuit Court of Appeals in New Orleans affirmed the district court's decision and released an opinion on July 21.

The appellate justices wrote that the language of the PSA is "plain, clear and unambiguous, and that it does not require the Growers to prove an adverse effect on competition."

The court also acknowledged that its decision conflicts with "nearly every decision of our sister Circuits on this issue."

The Fifth Circuit justices stated that the other courts have gone beyond the "clear and unambiguous text" by delving into the act's legislative history.

"Legislative history creates more confusion than clarity about congressional intent," the opinion states.

But Pilgrim's Pride argued that the appeals court should follow the "great weight of authority" provided by the other circuit courts, which have repeatedly held that the act's history requiring the plaintiff to prove an adverse effect on competition must prevail in a lawsuit.

In support of a rehearing en banc, the Official Committee of Unsecured Creditors of Pilgrim's Pride Corp., National Pork Producers Council, American Meat Institute, Cargill Meat Solutions Corp., and Tyson Foods Inc. filed amicus briefs.

Pilgrim's Pride is scheduled to reargue before the Fifth Circuit during the week of Sept. 21.

Case No: 07-40651

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