Appeals court breaks from precedent on Stockyards Act ruling in Pilgrim's Pride case

TEXARKANA -- A group of chicken farmers claim Pilgrim's Pride founder Bo Pilgrim is being unfairly compensated for the chicks he raises for the company, and an appeals court made a bold decision that could make it easier for the farmers to argue their case.

Contrary to other circuit court decisions, the U.S. Fifth Circuit Court of Appeals found that the Packers and Stockyards Act does not require parties to show an adverse effect on competition.

The opinion affirms a district court's denial of a motion for summary judgment by Pilgrim's Pride Corp. The poultry company argued that under the act, plaintiffs have the burden of showing that the defendant's actions affected competition.

To handle the questions of law surrounding the act, the issue was severed into a new litigation by plaintiffs Cody Wheeler, Don Davis, and Davey Williams against Pilgrim's Pride Corporation on Jan. 4, 2006, in the Texarkana Division of the Eastern District of Texas.

The case involves poultry farmers who are contracted to raise chickens for Pilgrim's Pride. The company provides growers with the chicks, feed and supplies. The growers care for the chicks until they mature and are turned back over to Pilgrim's Pride.

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

However, at least one grower operates under a different system.

Pilgrim's Pride's founder and chairman Bo Pilgrim purchases chicks, feed and supplies that he chooses from the company instead of allowing the company to assign the chicks and supplies to him.

As compensation, Pilgrim's Pride pays him the lesser of a weekly quoted market price or 102 percent of his costs.

The other farmers 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 alternative payment system to them.

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

Previous courts have repeatedly held that to prevail in a lawsuit under the act, the plaintiff had to prove that there had been a negative impact on fair competition.

But this time, the Fifth Circuit Court of Appeals 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 believes that the previous decisions went beyond the "clear and unambiguous text" by delving into the act's legislative history.

Pilgrim's Pride argued that the appeals court should follow the "great weight of authority" provided by the previous decisions of sister circuit courts which put the burden of proof on the plaintiff.

Pilgrim's Pride denies that the variances in pay systems negatively affect competition.

The case will continue with a pretrial conference date April 6, 2009.

U.S. District Judge David Folsom is presiding over the litigation.

Case No: 5:2006cv00004