October 15, 2010
On October 13, in the case Been v. O.K. industries, Inc., the U.S. Tenth Circuit Court of Appeals upheld a jury award of damages under the Packers & Stockyards Act (PSA) of over $14,000,000 to a group of poultry farmers. The farmers had contracts with OK Farms, one of the nation’s largest poultry processors, to grow out chickens provided by the company. Under the contracts, the farmers could not sell the chickens to other processing companies.
The farmers showed that the company had committed unfair and deceptive practices as defined by the PSA when the company: (1) exercised extensive control over almost all aspects of production and pay; (2) stretched out the time between providing flocks of chickens to the growers; (3) reduced the number of chickens provided; (4) required that farmers make costly upgrades to chicken houses not specified in the original agreement; and (5) shared information with other vertically integrated poultry processing companies that was not made available to the farmers, resulting in a severe asymmetry of information about the poultry market.
OK Farms appealed the jury verdict to the Court of Appeals raising a number of issues, including the claim that the poultry growers had not shown that the each of the alleged unfair practices could result in a competitive injury to the market for poultry that would raise the price of chicken to consumer. The company argued that even if it had used unfair or deceptive practices in its business relations with the farmers, the company did not have a sufficient share of the poultry market for its actions to result in higher consumer prices for chicken.
The appeals court ruled that the testimony of Dr. C. Robert Taylor, a professor of agricultural economics, was sufficient to establish that over time the company’s practices toward growers could increase consumer prices. On many of the issues raised by the company, the court ruled that procedures had not been followed that would reserve those claims for review by an appeals court.
The decision in this case is a relatively rare victory for farmers. The PSA has no explicit requirement that farmers who have shown that they have been injured by deceptive and unfair practices under the Act must also show that the practices will result in a competitive injury to the entire market for the products the farmers produce. But over the years some federal Circuits, including the Tenth Circuit, have adopted this “competitive injury test.” This judicially-created barrier has prevented many farmers from obtaining legal remedies for harms, even though the primary purpose of the PSA is to assure fair competition and fair trade practices in livestock and poultry marketing and to safeguard farmers against receiving less than the true market value of their livestock or poultry.
This unjust judicially created barrier should be removed. Congress in the 2008 Farm Bill directed USDA to use its authority under the PSA to establish the criteria for determining whether the PSA has been violated. USDA has issued a proposed rule that clarifies the numerous deceptive and unfair practices that are likely to result in a competitive injury. USDA also emphasized that farmers and ranchers are not necessarily required to show a competitive injury in order to show that there is a violation of the PSA. The proposed rule has other important measures to level the playing field between farmers and ranchers and large-scale packing and processing companies.
Farmers and ranchers need your help. USDA is taking public comments on the proposed rule until November 22, 2010. Farmers and ranchers need you to tell USDA that you support rules that will curb corporate control over farmers and ranchers. For more information and instructions on how you can submit a comment in support of the proposed rule, go to our NSAC Action Alert website on the proposed rule by clicking here.
Categories: Competition & Anti-trust