Fifth Circuit reverses earlier decision on Stockyards Act in Pilgrim's Pride case

Michelle Massey, East Texas Bureau Dec. 21, 2009, 6:00am

TEXARKANA, Texas -- Reversing its own previous decision as well as a lower court's, the U.S. Court of Appeals for the Fifth Circuit has ordered it is necessary to show an adverse effect on competition under the Packers and Stockyards Act.

The decision came after the appeals court granted a petition by Pilgrim's Pride for an oral rehearing challenging the previous decision in favor of poultry growers. Oral arguments were held the week of Sept. 21.

To handle the questions of law surrounding the Packers and Stockyards Act plaintiffs Cody Wheeler, Don Davis and Davey Williams filed litigation against Pilgrim's Pride Corp. on Jan. 4, 2006, in the Texarkana Division of the Eastern District of Texas.

The case involves chicken farmers that are in a contractual relationship with Pilgrim's Pride. Under the contract, Pilgrim's Pride retains ownership but assigns 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.

Pilgrim's Pride compensates the chicken farmers using a "tournament system" in which the growers are competitively ranked against one another and then compensated based on the quality and survival rate of the chicks and amount of supplies used.

However, Lonnie "Bo" Pilgrim operates under a different system. The founder and chairman of Pilgrim's Pride purchases chicks, feed and supplies from the company instead of allowing them to be assigned to him. Pilgrim's Pride pays him the lesser of a 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 the "tournament system" and that Pilgrim's Pride refuses to offer the same system to them.

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 act.

Pilgrim's Pride responded to the allegations, arguing that the Packers and Stockyards Act requires the plaintiffs to show that a defendant's actions adversely affect competition. Pilgrim's Pride denies the variances in pay systems have any negative effect on competition.

The defendant filed a motion for summary judgment based on the argument that the Packers and Stockyards Act was inapplicable because there was no effect on competition, but the district court denied the motion.

The district court held that the language of the act was plain, clear and unambiguous and that it does not require the growers to prove an adverse effect on competition.

Pilgrim's Pride appealed to the Fifth Circuit to decide whether a plaintiff must prove an adverse effect on competition to prevail in a suit alleging violation of the Packers and Stockyards Act.

Agreeing with the district court, the Fifth Circuit wrote that the language of the act is "plain, clear and unambiguous, and that it does not require the growers to prove an adverse effect on competition."

Further, the court acknowledged that the decision conflicts with "nearly every decision of our sister circuits on this issue." The Fifth Circuit wrote that the previous decisions went beyond the "clear and unambiguous text" by delving into the acts legislative history.

Pilgrim's Pride argued that the appeals court should follow the "great weight of authority" provided by the sister circuit courts which has repeatedly held that the act's legislative history requires the plaintiff to prove an adverse effect on competition to prevail in a lawsuit.

The en banc hearing was held in September and the ruling was issued on Dec. 15. The appeals court held that the "purpose of the Packers and Stockyards Act of 1921 is to protect competition, and therefore, only those practices that will likely affect competition adversely violate the Act."

The en banc court concluded that "an anti-competitive effect is necessary for an actionable claim under Packers and Stockyards Act in light of the act's history in Congress and its consistent interpretation by the other circuits."

The judges decided that that the failure to include the likelihood of an anti-competitive effect goes against the meaning of the statute. To support a claim of violation there "must be proof of injury, or likelihood of injury, to competition," the ruling states.

In a dissenting opinion, Judge Emilio M. Garza joined with six other circuit judges and wrote that the district court was correct in its ruling and on appeal that it is not necessary to delve into the legislative history as the act's language is clear.

Garza wrote that the majority and the circuits which rely on the historical circumstances of the passage of the act and forsake the plain language are directly opposing case law.

"Because history and policy considerations lend support to conflicting interpretations, such an approach 'creates more confusion than clarity about the congressional intent,'" Garza wrote.

The Fifth's Circuit's majority opinion follows recent decisions from the Tenth and Eleventh Circuits holding that competitive injury is required under the act.

Case No: 07-40651

More News