Wheeler v. Pilgrim's Pride Corp.

Decision Date15 December 2009
Docket NumberNo. 07-40651.,07-40651.
Citation591 F.3d 355
PartiesCody WHEELER; Don Davis; Davey Williams, Plaintiffs-Appellees, v. PILGRIM'S PRIDE CORP., Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

David A. Balto, Law Office of David A. Balto, Washington, DC, for 54 Farming, Ranching, and Consumer Organizations, Amicus Curiae.

Appeal from the United States District Court for the Eastern District of Texas.

Before JONES, Chief Judge, and REAVLEY, JOLLY, DAVIS, SMITH, WIENER, BARKSDALE, GARZA, BENAVIDES, STEWART, DENNIS, PRADO, OWEN, ELROD, SOUTHWICK and HAYNES, Circuit Judges.*

REAVLEY, Circuit Judge:

Once more a federal court is called to say 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. That is this holding.

This appeal is concerned only with § 202 of the Packers and Stockyards Act ("PSA") enacted in 19211 to cope with market control of the meat packing industry by five companies. That section as it stands today, codified as 7 U.S.C. § 192, is set forth in the appendix and referred to hereafter as codified. Congress has amended the PSA multiple times since its passage, including additional provisions and refining much of its scope, changing jurisdiction of federal agencies and bringing additional industries under protection, standing today as 7 U.S.C. § 181-§ 229c. The language at issue in this case in § 192(a) and (b) remains as originally enacted without any significant change.

This Appeal

Plaintiffs "grow" chickens for the defendant poultry producer and brought this suit with several claims that included the defendant's "deceptive, unlawful, unfair, capricious, arbitrary and discriminatory" conduct in violation of § 192(a) and (b). A specific complaint was that another grower was given a contract on preferable terms, violating the PSA because it was an unfair and deceptive trade practice. The defendant moved for summary judgment, arguing in part that the PSA requires a showing that the alleged practices have an adverse effect on competition. The district court denied the motion, holding that no showing of adverse effect on competition is necessary under § 192(a) or (b) of the PSA. That court then allowed an interlocutory appeal under 28 U.S.C. § 1292(b) to decide the question of "whether a plaintiff must prove an adverse effect on competition in order to prevail under 7 U.S.C. §§ 192(a)-(b)." This court granted permission to appeal.

A panel of this court held that a plaintiff need not prove an adverse effect on competition to prevail under the statute. Wheeler v. Pilgrim's Pride Corp., 536 F.3d 455 (5th Cir.2008). The en banc court granted rehearing and disagrees with the panel and district court.

Judicial History
The Supreme Court in 1922

The lengthy history in the courts began immediately after the PSA's enactment with an effort to enjoin its enforcement because of unconstitutionality. The following year the Supreme Court upheld the PSA in Stafford v. Wallace.2 Chief Justice Taft, author of the opinion for the Court recounted efforts of the government to protect sellers of cattle and purchasers of meat from the control of the purchase of live stock and preparation, distribution, and sale of meat products by the five great packing companies. As the Chief Justice said, "[i]t is helpful for us in interpreting the effect and scope of the Act in order to determine its validity to know the conditions under which Congress acted."3

The Chief Justice introduced the PSA as regulating "the business of the packers done in interstate commerce and forbid[ding] them to engage in [using words of subsection (a)] unfair, discriminatory, or deceptive practices in such commerce, or to subject any person to unreasonable prejudice therein, or to do any of a number of acts to control prices or establish a monopoly in the business."4 He observed that the object of the PSA was to secure the flow of livestock from the farms and ranges to the slaughtering center and into meat products unburdened by collusion that unduly lowered the prices to the shipper and unduly increased the price to the consumer.

Then the opinion turns to previous cases, particularly the 1905 case of Swift & Co. v. United States,5 where the Court enjoined violations of an anti-trust act of 1890 by those who refrained from bidding against each other in buying livestock and in fixing prices for the sale of fresh meat.

The Supreme Court concluded: "It is manifest that Congress framed the Packers and Stockyards Act in keeping with the principles announced and applied in the opinion in the Swift case."6

We read this 1922 opinion of the Supreme Court to decide the PSA to be constitutional because it protects competition and opposes combinations in restraint of interstate trade.

The Seventh Circuit

The Seventh Circuit, where great packing companies have resided, has fielded most of the early cases applying the PSA. In 1939 it set aside an order of the Secretary of Agriculture against preferential discounts and trades allowed to some customers and not to others. Swift & Co. v. Wallace.7 The Secretary had declared that the fact of competition was not material, but the court held that the decision had to take into consideration the effect that this disparate treatment had upon competition between customers and between Swift and others. In 1961 that court upheld the Secretary's order against a meat packer that had cut its prices to lessen or destroy competition with its competitor. Wilson & Co. v. Benson,8 In reply to Wilson's argument that its price-cutting was not for the purpose of acquiring a monopoly or eliminating a competitor, and that the PSA did not prohibit a mere competitive injury or lessening of competition, the court said that the legislative history of the PSA supported a wider power to prohibit unfair methods of competition than did antecedent anti-trust legislation. In 1962 the Seventh Circuit held that an agreement to allow a competitor to bid to purchase hogs for itself and another violated § 192(a) of the PSA because the result was to eliminate competition, whereas the packer's dissemination of price information to its dealers did not violate the PSA because the purpose was to consummate a sale rather than to compete. Swift & Co. v. United States.9

In 1968 the Seventh Circuit set aside an order of the Secretary of Agriculture stopping Armour and Company from giving consumers of its bacon a 50-cent refund.10 The Secretary deemed the practice to be unfair and a violation of § 192(a) of the PSA because its return on bacon sales was less than its costs. The court held that lack of fairness and an unreasonable preference did not prove a violation of (a) and (b) of the PSA because Armour's refund program would not violate the Act absent an intent to eliminate competition or unless the effect might be to lessen competition. Lastly, the Seventh Circuit rejected a claim under the PSA for an "unfair and knowingly deceptive scheme" to sell "off-condition" hams, because there could be no legal claim under (a) of the PSA unless there was some intent to eliminate competition or unless the effect might lessen competition. Pac. Trading Co. v. Wilson & Co.11

Five Other Circuits

The Eighth Circuit in Farrow v. United States Department of Agriculture held that a practice which is likely to reduce competition may be an unfair practice in violation of the PSA, even in the absence of evidence that it had that result.12 A later decision of that court, while affirming that rule, held that an agreement by feedlot owners to give a packing company a first refusal on the price for sale of cattle did not potentially suppress competition sufficiently to violate the PSA. IBP, Inc. v. Glickman.13

The Ninth Circuit upheld the Secretary's order against the practice of a group of packers who required auction stockyards to sell cattle subject to the cattle passing government inspection, holding that this was a conspiracy that created a likelihood that competitive harm would occur. Judge Sneed would have remanded for a further determination of the competitive effects. De Jong Packing Co. v. United States Dep't of Agric.14

In Been v. O.K. Industries,15 the Tenth Circuit had before it an appeal with the same question as the one before us: does § 192(a) require proof that a practice injures or is likely to injure competition? That court recognized that Congress had listed specific acts in subsections (c), (d) and (e) that expressly restrain competition whereas the same is not true of subsections (a) and (b), but concluded that this meant it was left to the courts to determine what anti-competitive practices could be unfair, unjustly discriminatory or deceptive. The Tenth Circuit...

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