Justice Department Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods from Imposing Unfair and Anticompetitive Termination Penalties in Contracts with Chicken Growers

The Justice Department filed a civil lawsuit under the Sherman Act and Packers and Stockyards Act today against Koch Foods Incorporated (Koch), the fifth largest poultry processor in the United States. The complaint alleges that Koch anticompetitively and unfairly required chicken farmers, or growers, to pay Koch a termination penalty to switch from working for Koch to a rival chicken processor. At the same time, the department filed a proposed consent decree that would prohibit Koch from penalizing growers for switching processors and require Koch to return certain expenses, fees and penalties it unlawfully imposed on growers who tried to work for other chicken processors.

“Antitrust and competition laws protect growers’ right to benefit from competition for their products, their services and their labor,” said Deputy Assistant Attorney General Michael Kades of the Justice Department’s Antitrust Division. “This enforcement action marks another important step in the division’s renewed partnership with the Department of Agriculture to promote free and fair competition and reinvigorate enforcement of the Packers and Stockyards Act.”

“The Packers and Stockyards Act stands for fairness, and that’s what this enforcement action today delivers,” said Senior Advisor for Fair and Competitive Markets Andy Green of the Department of Agriculture (USDA). “This action to protect growers’ right to compete signals the joint commitment of the USDA and Justice Department to open competitive markets.”

The complaint alleges that Koch, which operates processing facilities in Alabama, Georgia, Mississippi and Tennessee, deterred farmers from switching to other processors by requiring them to repay a substantial share of their income as a penalty if they terminated their contract. As alleged in the complaint, Koch’s termination penalty, which varies across chicken growers, amounted to more than half of most growers’ total annual take-home income and sometimes more than one year’s entire take-home earnings. Koch used the threat of the termination penalty to discourage growers from switching to Koch’s competitors and sued or threatened to sue more than a dozen family farmers who tried to switch to a Koch competitor. 

Accordingly, the termination penalty operated as an anticompetitive, de facto noncompete clause, in violation of the Sherman Act. The penalty provision is also an unfair practice or device in violation of the Packers and Stockyards Act, a landmark statute passed in 1921 that protects livestock and poultry producers.

At the same time, the Antitrust Division filed a proposed consent decree to address its competition concerns. If approved by the court, the proposed consent decree would require Koch to:

• Inform all current growers with contracts containing a termination penalty provision that Koch will not enforce the provision;
• Reimburse growers for all termination penalty payments and out-of-pocket legal expenses incurred as a result of Koch enforcing the termination penalty;
• Refrain from including a termination penalty obligation in any grower contracts and from taking any steps to collect any termination penalty payments for the next seven years;
• Refrain from retaliating against, intimidating or harassing any grower who is involved in any dispute over a termination penalty or who cooperated with the Justice Department or USDA in their investigations of Koch’s termination penalty practices; and
• Meet certain reporting and compliance obligations including an annual certification for the next seven years that Koch is complying with the proposed final judgment.

Today’s lawsuit and proposed consent decree are the second recent Packers and Stockyards Act enforcement action referred to the Justice Department by the USDA. In June, the U.S. District Court for the District of Maryland entered a consent decree to resolve an action alleging that the “tournament system” used by processor Wayne-Sanderson Farms to compensate chicken farmers violated the Packers and Stockyards Act.

As required by the Tunney Act, the proposed consent decree, along with the competitive impact statement, will be published in the Federal Register. Any person may submit written comments concerning the proposed consent decree during a 60-day comment period to Chief, Civil Conduct Task Force, Antitrust Division, Department of Justice, 450 Fifth Street NW, Suite 8600, Washington, D.C. 20530. At the conclusion of the 60-day comment period, the U.S. District Court for the Northern District of Illinois may enter the final judgment upon finding it is in the public interest.

Anyone with information about anticompetitive conduct in agricultural industries or any other violations of the antitrust laws is encouraged to contact the Antitrust Division’s Citizen Complaint Center at 1-888-647-3258 or antitrust.complaints@usdoj.gov. Information about anticompetitive practices in livestock and poultry markets can also be submitted to the USDA’s and Justice Department’s Agricultural Markets Enforcement Partnership at www.farmerfairness.gov.

View the complaint here.

View the memo here.