The U.S. Justice Department has filed a civil lawsuit against Koch Foods Incorporated, the fifth-largest poultry processor in the nation, alleging anticompetitive practices that unfairly penalized chicken farmers. The lawsuit, filed under the Sherman Act and Packers and Stockyards Act, accuses Koch Foods Inc. of imposing illegal termination penalties on farmers, or growers, who wanted to switch to working with rival chicken processors. Alongside the lawsuit, the department proposed a consent decree that aims to prevent Koch Foods Inc. from enforcing these penalties and to ensure restitution for farmers who were unfairly charged.
According to Deputy Assistant Attorney General Michael Kades of the Justice Department’s Antitrust Division, this legal action is crucial for protecting the rights of growers to benefit from a competitive market. He emphasized the renewed partnership between the Justice Department and the Department of Agriculture (USDA) to enforce fair competition and strengthen the Packers and Stockyards Act. Echoing this sentiment, Senior Advisor for Fair and Competitive Markets at the USDA, Andy Green, stated that the action underscores the commitment of both departments to ensuring open and competitive markets for agricultural producers.
The core of the complaint against Koch Foods Inc. is the termination penalty imposed on farmers in Alabama, Georgia, Mississippi, and Tennessee, where Koch operates processing facilities. This penalty, designed to deter farmers from switching processors, required them to pay back a significant portion of their income if they terminated their contracts with Koch. The Justice Department argues that these penalties could amount to over half of a farmer’s annual income, and sometimes even exceeded a year’s total earnings, effectively acting as a non-compete clause. It is alleged that Koch Foods Inc. used the threat of these penalties to prevent farmers from working with competitors, even resorting to lawsuits or threats of lawsuits against over a dozen family farmers who attempted to switch.
The Justice Department argues that this termination penalty is an anticompetitive practice that violates the Sherman Act. Furthermore, they assert it is an unfair practice under the Packers and Stockyards Act, legislation enacted in 1921 to protect livestock and poultry producers from unfair market practices.
To address these concerns, the proposed consent decree, if approved by the court, would mandate Koch Foods Inc. to take several corrective actions. Firstly, Koch Foods Inc. would be required to inform all current growers with contracts containing termination penalty clauses that these provisions will no longer be enforced. Secondly, the company would have to reimburse growers for all termination penalty payments and any legal expenses they incurred due to Koch enforcing these penalties. Looking forward, Koch Foods Inc. would be prohibited from including termination penalty obligations in any future grower contracts for the next seven years and from attempting to collect any existing termination penalties. The decree also includes protections for farmers who have disputed these penalties or cooperated with the Justice Department and USDA in their investigations, preventing Koch Foods Inc. from retaliating, intimidating, or harassing them. Finally, Koch Foods Inc. would be subject to reporting and compliance obligations, including annual certifications for seven years to ensure 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 to resolve issues with the “tournament system” used by Wayne-Sanderson Farms, another poultry processor, which was found to violate the Packers and Stockyards Act.
The proposed consent decree for Koch Foods Inc. will be published in the Federal Register, and the public will have a 60-day period to submit written comments. The final decision on the consent decree rests with the U.S. District Court for the Northern District of Illinois, which will assess whether it serves the public interest.
Individuals with information regarding anticompetitive practices in the agricultural sector or any 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.
For further details, the complaint can be viewed here and the memo here.
