Thursday, October 14, 2010

Jury’s Verdict Against Poultry Producer for Engaging in Unfair Practices Upheld

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Court of Appeals in Denver yesterday upheld a jury’s determination that the largest poultry integrator in Oklahoma engaged in unfair practices in violation of the Packers and Stockyards Act (PSA). In 2008, the Oklahoma jury awarded a group of chicken farmers more than $21 million on their claims under the relatively obscure law. The amount was, however, ultimately reduced by the district court to approximately $14.5 million.

The integrator, O.K. Industries, Inc., engaged in almost every stage of the production and wholesale of poultry, expect the raising of broiler chickens to slaughtering age. It entered into non-negotiable contracts with the chicken farmers or “growers” who raised the chickens, using only chicks and supplies provided by the integrator.

Section 202 of the PSA provides: “It shall be unlawful . . . for any live poultry dealer with respect to live poultry, to: (a) Engage in or use any unfair . . . practice or device . . . .”

The growers alleged that the integrator engaged in a series of unfair practices that had the effect of reducing production, depressing grower pay, and increasing resale prices. According to the growers, the integrator: (1) exercised extensive control over them in almost every aspect of production and pay; (2) increased the number of days between chicken flocks that it placed with them; (3) reduced the number of chickens per square foot of housing space or “bird density”; (4) exercised control over the specifications for the chicken houses; and (5) shared detailed information with other integrators that it did not share with the growers. The growers’ expert concluded that the integrator underpaid the growers by up to $14,511,935.

After concluding that it had jurisdiction to hear the appeal—an issue raised sua sponte—the appellate rejected the integrator’s argument that several trial errors required that the judgment be reversed and dismissed, or in the alternative, that a new trial be granted. The court noted that the integrator failed to properly preserve some of the issues for appeal.

Among the other rejected arguments on appeal was the integrator’s assertion that the growers failed to state a claim based on the integrator’s “strained interpretation of the phrase ‘with respect to live poultry’” in the PSA. According to the integrator, the PSA applied only to unfair practices involving chickens that had actually hatched. A practice that reduces chick production by incubating fewer eggs is a practice “with respect to live poultry” as much as a practice that reduces chick production by destroying chicks that have already hatched, the court explained. The integrator’s practices ultimately reduced the price it paid to the growers for live poultry, according to the court.

The October 13, 2010, decision in Been v. O.K. Industries, Inc., No. 08-7078, will appear at CCH 2010-2 Trade Cases ¶77,188.

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