Federal Jury Finds Major Packers Violated Packers and Stockyards Act (PSA)

April 12, 2006 | Roger McEowen

 

There has been a lot of legal activity in recent months surrounding the conduct of the big meatpackers. In early 2004, a federal jury returned a $1.28 billion verdict against Tyson Fresh Meats in a nationwide class action case for violating the price manipulation provision in the PSA. That case involved Tyson’s use of private contracts (captive supplies) to acquire feeder cattle which allowed them to need not rely on auction-price purchases in the open market for most of their supply. Tyson was then able to use the leverage gained by such a practice to depress the market prices for independent producers on the cash and forward markets. The trial court judge later tossed the jury verdict because he said the PSA contained a “legitimate business reason” defense. The judge’s decision was upheld on appeal and the U.S. Supreme Court declined to hear the case.

Most recently, another federal jury in another class action case has found three major meatpackers to be in violation of the PSA. The case stems from the advent of mandatory price reporting in early 2001. Under that law, the packers were required to report twice daily to USDA information on cattle prices, including prices they received for boxed-beef cuts. The USDA would then release the price information to the public so that cattle producers and others in the market would have accurate information on cattle prices. Unfortunately, USDA issued reports containing faulty boxed beef cutout prices due to a flawed computer program which understated the actual amounts the packers had reported. During the same timeframe, fed cattle prices declined sharply. The plaintiffs claimed that there is a strong relationship between the prices the packers receive for boxed beef and the prices the packers pay for fed cattle, and that the reason for the low fed cattle prices was because the packers were knowingly using the faulty USDA data to their advantage in violation of the PSA’s provisions against unfair and deceptive practices and against controlling and manipulating prices. The jury agreed, hitting Tyson with $4 million in damages, Cargill with $3 million and Swift with $2.25 million. 

Tyson and Swift have announced that they will appeal the verdict. Watch this case as it winds through the appellate stage. It may have the effect of breathing some life back into the PSA. Schumacher, et al. v. Tyson Foods, Inc., et al., No. CIV 02-1027 (D. S.D. Apr. 12, 2006).