The Justice Department has initiated a civil lawsuit against Koch Foods Incorporated, a major player in the U.S. poultry processing industry, under the Sherman Act and Packers and Stockyards Act. The lawsuit, filed today, alleges that Koch Foods engaged in anticompetitive practices by imposing unfair termination penalties on chicken farmers, also known as growers, who sought to switch to rival processors.
Simultaneously with the lawsuit, the department has proposed a consent decree aimed at rectifying these alleged violations. This decree would prevent Koch Foods from penalizing growers for changing processors and mandate the company to reimburse growers for expenses and penalties unlawfully charged when they attempted to work with competitors.
Deputy Assistant Attorney General Michael Kades of the Justice Department’s Antitrust Division emphasized the importance of competition laws in protecting growers’ rights. He stated, “Antitrust and competition laws protect growers’ right to benefit from competition for their products, their services and their labor.” Kades also highlighted this action as a significant step in the division’s collaboration with the Department of Agriculture (USDA) to foster fair competition and strengthen the enforcement of the Packers and Stockyards Act.
Echoing this sentiment, Senior Advisor for Fair and Competitive Markets Andy Green of the USDA underscored the commitment to fairness embodied in the Packers and Stockyards Act. “The Packers and Stockyards Act stands for fairness, and that’s what this enforcement action today delivers,” Green remarked. He further noted the joint dedication of the USDA and Justice Department to promote competitive markets and safeguard growers’ rights.
Allegations Against Koch Foods: Termination Penalties as Anti-Competitive Measures
The core of the complaint against Koch Foods centers around its use of termination penalties. Koch Foods, which operates processing plants across Alabama, Georgia, Mississippi, and Tennessee, allegedly deterred farmers from switching to competitors by requiring them to pay a substantial penalty upon contract termination. This penalty, as detailed in the complaint, could exceed half of a grower’s annual income and sometimes even surpass their entire yearly earnings.
It is alleged that Koch Foods leveraged this termination penalty to discourage growers from seeking opportunities with rival processors. The company reportedly took legal action or threatened lawsuits against over a dozen family farmers who attempted to switch to a competitor, effectively using the penalty as a tool to stifle competition.
The Justice Department argues that this termination penalty acted as an anticompetitive non-compete clause, violating the Sherman Act. Furthermore, they contend that the penalty constitutes an unfair practice under the Packers and Stockyards Act, legislation enacted in 1921 to protect livestock and poultry producers from unfair market practices.
Proposed Consent Decree: Restoring Fair Practices
To address these competitive concerns, the Antitrust Division has put forward a proposed consent decree. If approved by the court, this decree would impose several key requirements on Koch Foods:
- Notification to Growers: Koch Foods would be required to inform all current growers with contracts containing termination penalty clauses that these provisions will no longer be enforced.
- Reimbursement: The company would need to reimburse growers for all termination penalty payments and any associated legal expenses incurred due to Koch Foods’ enforcement of these penalties.
- Prohibition of Future Penalties: For the next seven years, Koch Foods would be prohibited from including termination penalty obligations in any grower contracts and from attempting to collect any such penalties.
- Protection Against Retaliation: The decree would prevent Koch Foods from retaliating against, intimidating, or harassing any grower involved in disputes over termination penalties or who cooperated with the Justice Department or USDA in their investigations.
- Compliance and Reporting: Koch Foods would be subject to specific reporting and compliance obligations, including an annual certification for seven years confirming adherence to the final judgment.
This lawsuit and proposed consent decree represent the second recent enforcement action related to the Packers and Stockyards Act referred to the Justice Department by the USDA. In June, a similar consent decree was entered in the U.S. District Court for the District of Maryland concerning Wayne-Sanderson Farms’ “tournament system” for compensating chicken farmers, which was found to violate the Packers and Stockyards Act.
The proposed consent decree, along with a competitive impact statement, will be published in the Federal Register as mandated by the Tunney Act. The public is invited to submit written comments on the proposed decree within a 60-day period to the Department of Justice. Following this period, the U.S. District Court for the Northern District of Illinois will determine whether to enter the final judgment, based on public interest considerations.
Individuals with information regarding anticompetitive conduct in agricultural industries or antitrust law violations are encouraged to contact the Antitrust Division’s Citizen Complaint Center or the USDA’s and Justice Department’s Agricultural Markets Enforcement Partnership via www.farmerfairness.gov.
View the complaint here.
View the memo here.
