Summary of a Recent
Judicial Development in
Livestock Marketing

Packers and Stockyards Act Claim
Against Pork Packer Dismissed

Harrison M. Pittman
Staff Attorney

The United States District Court for the Eastern District of Virginia has granted a pork packer's motion for summary judgment in an action brought by several hog producers under 7 U.S.C. Sec. 192 of the Packers and Stockyards Act of 1921 ("PSA"). Griffin v. Smithfield Foods, Inc., 183 F.Supp.2d 824 (E.D. Va. 2002). The district court determined that the packer's direct ownership and contractual purchases of hogs did not violate the PSA. See id. at 827-28. The court also determined that the packer implemented a vertically integrated system of hog purchasing for the purpose of promoting efficiency, rather than for the purpose of manipulating the market. See id. at 829.

The plaintiffs in this action were four hog producers from Alabama and Georgia. See id. at 825-26. The defendants were Smithfield Foods, Inc., and its wholly owned subsidiary, Smithfield Packing (referred to collectively as "Smithfield"). See id. at 825. Smithfield is the largest pork packer in the world. See id.

The district court explained that over the last decade Smithfield gradually increased the number of hogs it acquired through a system of contractual arrangements and direct ownership, commonly referred to as "vertical integration." See id. Smithfield also gradually decreased the number of hogs it purchased on the "cash market." See id. As Smithfield continued to vertically integrate and simultaneously exit the cash market, producers who sold their hogs on the cash market experienced substantial financial losses. See id.

The plaintiffs claimed that Smithfield's transition into vertical integration was "anti-competitive, discriminatory, and deceptive," and that it was "illegal because 'it is unfair and has the effect of manipulating or controlling prices or restraining commerce.'" Id. (quoting Plaintiff's Mem. in Op. to Sum. Jud. at 13) (emphasis supplied). The plaintiffs acknowledged that Smithfield's individual actions were not illegal, but alleged that "when these actions are viewed as an integrated strategy, it is apparent that they are unfair, discriminatory or deceptive practices" that violate the PSA. Id.

The PSA was passed in 1921 "'to regulate the business of packers by forbidding them from engaging in unfair, discriminatory or deceptive practices in [interstate] commerce, or subject any person to unreasonable prejudice therein, or to . . . control prices or establish a monopoly in the business.'" Id. at 827 (quoting Philson, et al. v. Cold Creek Farms, Inc., et al., 947 F.Supp. 197, 200 (E.D.N.C. 1996) and citing 7 U.S.C. Sec. 192(a)). The portions of the PSA applicable to the plaintiffs' claims prohibit a packer from engaging in "unfair and unjustly discriminatory or deceptive practices," making or giving "undue or unreasonable preferences or advantages," engaging in behavior that manipulates the market, or conspiring to manipulate the market. Id. (citing 7 U.S.C. Sec. 192).

The court stated that the plaintiffs' theory was "novel" and that no other action had been filed "with allegations that resemble the plaintiffs' complaint." Id. The court added, "[w]hile such a lack of precedent is not necessarily fatal to the plaintiffs' claim, it offers no support for the plaintiffs' interpretation of the PSA." Id.

The court also remarked that although the plaintiffs argued that Smithfield was "somehow internally collusive . . . [t]he PSA has [only] been used over the years to stop collusive activities among competing entities." Id. The court rejected this portion of the plaintiffs' argument, stating that "mergers and acquisitions are closely monitored and regulated" and "there is no evidence [that Smithfield's activities] were motivated by anything other than considerations of quality control and efficiency." Id. The court noted that Smithfield's motivation to vertically integrate was based on its desire to be more efficient, and that "the plaintiffs proffer[ed] no evidence to dispute that." Id.

Finally, the court stated that the plaintiffs' case was "further complicated by a remedy that is vague and unworkable." Id. at 829. The plaintiffs stated in their complaint that the amount of damages they were seeking was "undetermined." Id. During the course of discovery the plaintiffs claimed that damages were equal to "'the difference between what the cash market would have been absent the defendant's Captive Supply arrangements and ownership versus what the actual cash market price was during the class period.'" Id. (quoting Gray Disc. Resp. at 4; Littleton Disc. Resp. at 4; McDaniel Disc. Resp. at 5). The court stated that these requests lacked a legal basis on which damages could be calculated. See id.

The district court stated that "[t]he plaintiffs' evidence demonstrates that economic developments in their industry have overtaken them; their evidence does not demonstrate that their economic woes were caused by any actionable wrongdoing or Smithfield under the PSA or any theory." Id. at 830. The court concluded that "the plaintiffs have not proffered evidence that establishes a cause of action for damages against Smithfield Foods or Smithfield Packing for violating the PSA." Id.

The court also disagreed with the plaintiffs' contention that they only had to show that Smithfield's actions had an effect that was unfair, discriminatory, or deceptive that subjected them to undue prejudice in order to prove a violation of the PSA, and that it was not necessary to show that Smithfield acted with any improper intent. Id. at 828. The court disagreed, noting that the plaintiffs had not alleged any type of "collusive conduct among competing entities"-- as the PSA had been used for in previous actions-- but only that Smithfield's actions were "somehow internally collusive." Id. The court also stated that mergers and acquisitions were "closely monitored and regulated" and that there was no evidence to show that Smithfield's actions were done for anything other than quality control and efficiency.

This case summary was prepared in August, 2002.