Pickett v. Tyson Fresh Meats, Inc., No. 04-12137.

• Decision Date: 16 August 2005
• Docket Number: No. 04-12137.
• Citation: 420 F.3d 1272
• Parties: Henry Lee "Leroy" PICKETT, Mike Callicrate, et al., Plaintiffs-Appellants, v. TYSON FRESH MEATS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

420 F.3d 1272

Henry Lee "Leroy" PICKETT, Mike Callicrate, et al., Plaintiffs-Appellants, v. TYSON FRESH MEATS, INC., Defendant-Appellee.

No. 04-12137.

United States Court of Appeals, Eleventh Circuit.

August 16, 2005.

Joe R. Whatley, Jr., Andrew C. Allen, Peter H. Burke, Whatley Drake, L.L.C., Birmingham, AL, Randy Beard, Beard & Beard, Guntersville, AL, David A. Domina, Attorney at Law, Omaha, NE, for Plaintiffs-Appellants.

Cassidy Kesler Pinegar, Carter G. Phillips, Jay Thomas Jorgensen, Kristin Graham Koehler, Thomas C. Green, Sidley, Austin, Brown & Wood, LLP, Washington, DC, Richard H. Gill, Copeland, Franco, Screws & Gill, Montgomery, AL, Nathan A. Hodne, Tyson Foods, Inc., Springdale, AR, for Defendant-Appellee.

Susan Elayne Stokes, Farmers' Legal Action Group, Inc., St. Paul, MN, Roger A. McEowen, Attorney at Law, KSU, Manhattan, KS, for Fifty Leading Scholars, Amicus Curiae.

Roy T. Englert, Jr., Alison C. Barnes, Robbins, Russell, Englert, Orseck & Untereiner

LLP, Washington, DC, for American Meat Institute & Nat'l Meat Ass'n, Amicus Curiae.

A. Bruce Jones, Holland & Hart LLP, Denver, CO, for Cattle Producing, Cattle Marketing, and Beef Packing, Amicus Curiae.

Brad P. Rosenberg, Michael E. Lackey, Jr., Mayer, Brown, Rowe & Maw LLP, Washington, DC, for American State Bank & Trust Co., Amicus Curiae.

Edward M. Mansfield, Belin, Lamson, McCormick, Zumbach, Flynn, Des Moines, IA, for Nat'l Pork Producers Council, Amicus Curiae.

Appeal from the United States District Court for the Middle District of Alabama.

Before CARNES and COX, Circuit Judges, and MILLS^*, District Judge.

CARNES, Circuit Judge:

Henry Lee Pickett is the owner of a cattle-producing farm located thirty-five miles south of Montgomery, Alabama. In this class action lawsuit he is the lead plaintiff representing a national class of cattle producers who sell their fed cattle — cows raised specifically for slaughter — to meat-packing plants exclusively on the cash market.

Tyson Fresh Meats, Inc., formerly Iowa Beef Processors, Inc. (IBP), is the largest meat-packing company in the United States. It processes thirty-five to forty percent of the steaks, hamburgers, and other consumer beef products sold in restaurants and supermarkets nationwide. Tyson purchases some cattle on the cash market from producers like Pickett. Since 1994 Tyson has also purchased a significant portion of its cattle through marketing agreements with cattle producers instead of from the cash market.

Pickett contends that Tyson has used marketing agreements to deflate the price of fed cattle on the cash market and the market as a whole in order to reap the benefits of lower prices. To stop Tyson from using marketing agreements and to recover for losses incurred from the lower prices that resulted on the cash market, Pickett sued Tyson. He brought the lawsuit on behalf of all cash market sellers claiming that Tyson had engaged in unfair practices and manipulated prices in violation of the Packers and Stockyards Act of 1921, 7 U.S.C. § 181 et seq.

The issues this case raises, and its procedural history, are best understood after a discussion of the cattle and meat-packing industries and the market where they meet.

I.

"Fed cattle" are born, raised, and marketed exclusively for slaughter. The process begins with the birth of a calf on a cattle-producing farm which exists solely to breed and raise cattle, feed them, and then sell them to meat-packing plants for processing into beef products. The first 200 days of a calf's life are spent feeding from her mother. After that, the calf is weaned and spends the next 200 days eating feed, grass, or wheat.

After the calf has been fed for 400 days, the producer sends it along with all the other calves being raised at the same time to a feed yard. The feed yard is a farm specifically designed to feed the calves intensively so they are in peak condition when sold to the meat packers. Some producers have feed yards on their farms while others send their calves to third party feed yards which not only finish feeding them but also broker the cattle to the meat packers on the producer's behalf.

At the feed yards, each calf is put into a pen with fifty to 200 other calves for the intensive feeding program, which usually lasts 120 days. When the feeding program is finished, each animal ideally weighs 1250 pounds, the industry's target weight.

Once the cattle in a pen have been fed intensively for 120 days, and have hopefully reached the target weight, they must be sold to a meat-packing plant within two weeks. If the fed cattle are not sold within that time period, they become too expensive for the feed yard to maintain and also become less desirable to the meat packers. They become too expensive because cattle gain usable weight more slowly after reaching 1250 pounds and eventually stop gaining it at all, but they still must be fed. They become less desirable to meat packers because the cattle start to gain more fat and the market is for meat not fat. The point is that the two-week window for selling fed cattle after they have been at a feed yard for 120 days is critical to the producers, the feed yards, and the meat packers. (For ease of reference, from this point on we will refer to fed cattle as simply "cattle," except where quoting.)

Once a meat packer purchases a pen of cattle, it has those cattle hauled to its factory and slaughters them. The packer then processes the carcasses into different cuts of meat (e.g., hamburger, New York strip, and filet mignon), packages the different cuts, and sells them to meat wholesalers, restaurants, and grocery stores.

The process we have described has been used to prepare cattle for the market since packers began buying pens of cattle directly from producers on the cash market about sixty years ago. (Before that, the buying and selling of cattle was done through agents at stockyards in major cities in the Midwest with Chicago being the largest.) During all but the last decade or so, packers purchased cattle almost exclusively through the cash market.

This is how the cash market works. Buyers from the meat-packing companies spread out around the country to the different feed yards and inspect the pens of cattle that are ready to be sold. If the buyer likes the cattle in a pen, he makes an offer to the producer or feed yard operator. The producer or operator is free to accept or reject the packer's offer; in deciding whether to do so, he often considers offers being made for other pens of cattle around the country. (Much of this information is relayed over the telephone from one producer or operator to another.) Often, the producer or feed yard operator and the buyer from the packing plant haggle over the price. If they eventually agree on a price, the cattle in the pen are delivered to the packing plant seven days from the date of the agreement on price. The price the packer paid for the pen of cattle is reported to a central office and average prices are published each week.

In the mid-1980s a number of cattle producers began looking for a new method of marketing their cattle to packers, one that did not require as much time and hassle as negotiating every pen of cattle on the cash market. They came up with marketing agreements and eventually persuaded the packers, including Tyson, to begin using those agreements for some of their purchases. The use of marketing agreements spread slowly throughout the industry at first but began to pick up steam in the 1990s. By 1994 Tyson, among others, was using marketing agreements to procure a substantial part of the cattle it needed.¹

Under the typical marketing agreement, a feed yard operator will call and tell the meat packer's buyer that he has a pen of cattle at its peak and ready to be sold. The feed yard operator promises to have the cattle delivered to the factory for slaughter within two weeks, with the packer getting to pick the exact date of delivery within that two-week period. The price paid for the cattle under the marketing agreement is pegged at the publicly released average cash-market price for the week prior to when the agreement is made. The agreement commonly provides that after the cattle are processed the price will be adjusted up or down based on the quality or the yield of the carcasses. The adjustment is quickly and easily calculated by Tyson as a matter of course in processing the cattle.

To summarize, the difference is that with marketing agreements, unlike cash-market purchases, the price is set not through bidding but automatically at the cash-market price the week before the agreement is made, the price is usually adjusted based on post-slaughter quality or yield, and the packer picks the actual delivery date within the two-week period that begins when the agreement is made.

II.

Pickett, and the class members he represents, sell their cattle exclusively on the cash market.² They claim that through marketing agreements Tyson has been able to manipulate the price of cattle on the cash market.³ Tyson is the largest meat packer in the country. It processes forty percent of all hamburgers and steaks on American dinner tables. Tyson slaughters 10 million cattle each year, nearly one-half of the 25 million cattle that are purchased and slaughtered by meat-packing plants in this country.

Pickett's theory is that Tyson has used marketing agreements and its large market share to artificially reduce prices on the cash market. Prices for cattle on the cash market are responsive to supply and demand. Pickett claims that by using marketing agreements Tyson has withdrawn a large amount of demand from the cash market, thereby substantially decreasing price pressure there. The result, in Pickett's view, is that producers selling on the cash market have gotten a lower price for their cattle. A reduced cash-market price benefits Tyson in two ways. First, Tyson is able to obtain the cattle that it still purchases on the...