© 2013 The Texas Lawbook.
By Mark Curriden
Senior Writer for The Texas Lawbook
Grilled, deep-fried or baked, chicken producing contracts are all about the specific words on the agreement and not about secret, whispered side deals, according to the US Court of Appeals for the Fifth Circuit.
The New Orleans-based court, in a long-awaited opinion by the poultry industry and other meat producers, gave a huge win to Pilgrim’s Pride and a potentially crippling defeat for hundreds of chicken growers from Texas, Louisiana and Arkansas who have been fighting for five years over the terms of their contractual agreement.
Lawyers for Pilgrim’s Pride, which was founded in Pittsburgh, Texas in 1946 and is now a subsidiary of Brazilian food giant JBS, say the company has an ironclad written contract with nearly 4,000 chicken farmers across the US to grow baby chicks to full grown chickens, selling them to Pilgrim’s Pride by the pound.
The unanimous three-judge panel in Clinton Growers v. Pilgrim’s Pride agreed, saying that while individual growers signed their own contracts, each agreement covers what is described as “flock-to-flock,” which means the four to nine week period that it takes for the chickens to mature and be ready for processing.
Each contract also included a section that allowed Pilgrim’s Pride to cancel the agreement for “cause or economic necessity,” the judges ruled.
Pilgrim’s Pride started struggling financially in 2007 when the price of corn, oil and other commodities skyrocketed. The company filed for Chapter 11 Bankruptcy protection in Fort Worth in 2008 amid decisions to terminate contracts with about 500 independent chicken farmers located across the region, including many in Nacogdoches, Texas.
A couple hundred of the poultry growers filed promissory estoppel claims against Pilgrim’s Pride, arguing that the company made off the book promises and long-term financial commitments to them. They seek tens-of-millions of dollars in actual damages plus punitive damages.
Many of the chicken farmers say they made about $150,000 in investments in their property based on those oral commitments from Pilgrim’s Pride.
Lawyers for the growers put their cases on two tracks: some filed claims against them as part of the bankruptcy proceedings, including the 106 growers in the Clinton Growers case, while others sued. The lower federal courts in Texas differed on their findings and now both cases are on appeal separately before the Fifth Circuit.
The plaintiffs pointed to a 2002 Arkansas Supreme Court decision called Tyson Foods v. Davis (66 S.W. 3d 568) as the guiding word on the controversy. In Tyson, the hog processing company entered into a contract with their hog growers similar to the Pilgrim’s Pride agreements. One hog grower claimed that he built new facilities based on Tyson officials’ oral promise that he could “grow hogs all his life if he wanted to” and that Tyson would financially support him.
“These companies, be they chickens or pork or cattle, enter into written contracts where the details are clearly spelled out,” says Bailey, who leads Baker’s litigation practice in Dallas. “In this case, the Fifth Circuit properly found that the contracts were flock-to-flock.”
In the second case, a Texas federal district court ruled that Pilgrim’s deal – and thus its damages – cover more than six years and not just the flock-to-flock cited in the contract. In this second case, which has been brought by 92 chicken growers in El Dorado, Texas, the damages could be tens-of-millions of dollars.
A separate three-judge panel from the Fifth Circuit is handling that appeal, though Bailey argues that the second panel should take judicial notice of the decision by the first panel, which included Circuit judges Stephen Higginson, Leslie Southwick and Harold DeMoss Jr.
Besides Bailey, other Baker & McKenzie lawyers who are working on the case for Pilgrim’s Pride include Dave Parham, Jennifer McCollum and Matt McCrary.
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