RICHMOND, Va.–(BUSINESS WIRE)–Quick Resolution Saves Smithfield Years of Litigation and Keeps Pork Competitive.

Separate but similar allegations by independent producers of cattle and hogs against the largest beef and pork producers, IBP, Inc. and Smithfield Foods, Inc. met different fates in federal courts in Montgomery, Alabama and Norfolk, Virginia.

Both cases involve allegations that vertical integration of meat packers into livestock production by direct ownership or supply contract violates the Packers & Stockyards Act, 7 U.S.C. 181, et seq. (the “PSA”), an early 20th century trade regulation statute governing the relationship between farmers/ranchers and meat packers. The Alabama court certified a national class of cattlemen who sold their livestock to IBP on a cash basis in a case pending since 1995, while the Virginia court, sometimes known as the “rocket docket,” disposed of the Smithfield case on summary judgment after requiring the parties to conduct focused discovery and enter stipulations.

Both cases challenged the practices of modern meat packers who own or contract for their supply of livestock. The independent livestock producers asserted that their sales of livestock on “cash” markets yield lower prices because of the so-called “captive supply” procurement practices of the defendants. In the IBP case, cattlemen claimed that IBP violated the PSA by buying packer-owned cattle and livestock committed to packers under long term contracts. In the Smithfield case, farmers asserted that hog procurement contracts or ownership practices of both IBP and of Smithfield’s pork packing and hog production subsidiaries had the effect of manipulating “cash” hog prices, or constituted an unreasonable “preference” to contract producers. Both plaintiff groups sought damages and injunctions ordering the return to cash, spot or auction procurement. According to Thomas G. Slater, Jr., of Hunton & Williams, counsel to Smithfield, “Such a reversal in the current evolution of the pork and beef packing industry toward vertical integration, long accepted in the poultry industry, would be a devastating blow to the ability of pork and beef packers to compete for space on the American dinner plate by providing high quality meat at a reasonable price.” Plaintiffs were represented in both cases by Joe Whatley of Whatley Drake, Birmingham, Alabama, and several others.

Ironically, both the Smithfield and IBP cases originated in the Middle District of Alabama and were brought by some of the same plaintiffs’ attorneys. After Smithfield and IBP’s motions to transfer or dismiss the Alabama case were granted, the Smithfield case was voluntarily dismissed and re-filed in federal court in Georgia. After defendants filed motions to transfer in the Georgia court, the case was transferred to the Eastern District of Virginia, Norfolk Division, near Smithfield’s headquarters. Subsequently, the claims against IBP were voluntarily dismissed for lack of personal jurisdiction. As Slater observed, “It is extraordinary what a difference mundane, but meritorious, early procedural motions may have in a case, and what impact the outcome of those motions may have on the time, expense and distraction of a particular case.”

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In the IBP case in Alabama, on December 26, 2001, Judge Lyle Strom certified a nationwide class of cattle producers and owners. Although recognizing that it was necessary to look beyond the pleadings on class certification, Judge Strom indicated that the Court would “consider the evidentiary materials…but only with respect to the very narrow issue of whether the plaintiffs have satisfied the requirements of Rule 23.” IBP Opinion at 3. Judge Strom certified the class proposed by plaintiffs of producers who sold cattle to defendant exclusively on a cash-market basis. Those plaintiffs alleged that they were adversely impacted by defendant’s use of “captive supply” because they would have received a higher price for their cattle if the market been truly competitive. See Id. at 11. IBP is represented by Sidley & Austin, Chicago, Illinois.

In contrast, in the Eastern District of Virginia, the Smithfield case moved quickly to conclusion. Judge Henry Coke Morgan granted the summary judgment motion of Smithfield Foods, Inc. and a packer subsidiary against four hog farmers purporting to represent a class of cash basis hog producers. On the afternoon of September 11, 2001, as other courthouses across the nation closed, Judge Morgan heard Smithfield’s motion to dismiss the complaint for failure to state a claim, which argued that the complaint alleged only that Smithfield’s vertical integration practices had the “effect” of causing lower prices on “cash markets.” In denying the motion, the Court declined to take judicial notice of economic studies by various economists, some associated with the U. S. Department of Agriculture, which undermined plaintiffs’ causation arguments. Nevertheless, Judge Morgan noted that many of the material facts, such as Smithfield’s hog procurement and contracting practices, were not disputed. He also observed that any disputed facts could be discovered promptly. Then, he ordered the parties to stipulate undisputed facts and to conduct focused discovery to facilitate consideration of a possible motion for summary judgment. Approximately two months later, after intense discovery, Smithfield argued its summary judgment motion in late November 2001. As Slater said, “At first, we were disappointed that our motion to dismiss was denied, but the good news was that an able judge seized the opportunity to become familiar with the case, distill it to its essence, and discern a course of action that would be fair to both parties and bring the matter to a posture for quick resolution. Conducting focused discovery in a complex case in sixty days or so and negotiating stipulations under the court’s scrutiny is not easy, but the result here saved both parties time, money and effort by bringing a clear dispute to a head promptly.”

By Order dated January 2, 2002, Judge Morgan granted summary judgment for Smithfield, finding that Smithfield’s “motivation in moving toward a vertically integrated system of hog acquisition was plainly efficiency.” Smithfield Opinion at 7. The Court continued: “Smithfield, in order to compete more effectively in the meat market decided they required a more stable supply of consistently high quality hogs.” Id. Furthermore, the Court concluded that the plaintiffs’ “evidence does not demonstrate their economic woes were caused by any action or wrongdoing of Smithfield under the PSA or any other theory.” Id. at 10.

SOURCE: Smithfield Foods, Inc.