Chicken executives face prison in Denver price-fixing trial

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The defendants are charged with violating the Sherman Act, a law passed in 1890 to protect consumers and the economy. 

By Bob Van Voris and Michael Hirtzer

After years of rumors and allegations, Big Chicken is now on trial. 

A group of 10 executives and employees of top U.S. poultry companies -- including two former chief executives -- are facing criminal antitrust charges in a trial getting underway this week in Denver. They face prison and million-dollar fines if convicted for fixing prices and rigging bids over nearly a decade.

The trial, the first to result from a years-long investigation in the $95 billion U.S. market for chicken, has ensnared affiliates of Pilgrim’s Pride Corp. and Perdue Farms LLC among others. Together, the companies associated supply about a third of the chicken Americans eat. 

The move comes as the meat industry has been thrust into the spotlight amid soaring prices and after a wave of Covid-19 outbreaks at packing plants. The Biden administration has signaled it will act aggressively against alleged livestock cartels, charging that antitrust practices have saddled consumers with rising costs at a time when inflation is increasingly becoming a political concern. Chicken companies are also facing civil cases.

While the U.S. has imposed hefty fines on numerous companies in the last 20 years, the chicken trial is unusual because it’s individuals facing the jury. 

More than 30 lawyers and defendants crowded into a federal courtroom in Denver on Monday to select 12 jurors and two alternates. U.S. District Judge Philip Brimmer told them the case may run until Dec. 21, not counting deliberations. The jury will be asked to decide whether the executives agreed to coordinate pricing and bids to limit competition.

The defendants, who have all pleaded not guilty, are charged with violating the Sherman Act, a law passed in 1890 to protect consumers and the economy. 

Lawyers for the defendants didn’t immediately respond to phone messages and emails seeking comment on the charges. 

In a court filing last week, the defendants said their price discussions weren’t illegal and that the government can’t prove they agreed to participate in a single, overarching conspiracy. The charges include “a muddle of different sporadic communications over many years involving different people, different products, different customers, and different price outcomes,” the filing said. 

Former Pilgrim’s Pride CEOs Jayson Penn and William Lovette face charges they conspired with other industry employees and officials to fix prices and rig bidding from 2012 to early 2019.

In addition to Penn and Lovette, prosecutors charged Roger Austin, a former vice president of Pilgrim’s; Mikell Fries, the president of Claxton Poultry; Scott Brady, a Claxton vice president; Timothy Mulrenin, a Perdue executive who previously worked at Tyson Foods Inc.; William Kantola, a Koch Foods Inc. sales executive; Jimmie Lee Little, a former Pilgrim’s Pride sales director; Gary Brian Roberts, a Case Farms employee who had previously worked at Tyson; and Rickie Blake, a former director and manager at George’s Inc.

Greeley, Colorado-based Pilgrim’s Pride, a unit of Brazilian food giant JBS SA, pleaded guilty to price-fixing conspiracy in February and was sentenced to pay $108 million in fines. 

“Pilgrim’s has resolved this matter with the U.S. Department of Justice and is not a party to the trial, nor are any of the defendants current company employees,” the company said in an emailed statement. “We continue to cooperate with the government and remain focused on maintaining our commitment to fair and honest competition in compliance with U.S. antitrust laws.”

The other associated companies didn’t immediately return emails and phone messages seeking comment.

Prison Risk

All the defendants face charges of conspiring to restrain trade. Little is also charged with obstruction of justice for allegedly lying to federal agents. That charge has a top penalty of 20 years in prison if he’s convicted.

Most defendants aren’t sentenced to the maximum, particularly when they don’t have any previous convictions. But prison is a real risk. Former Bumble Bee Foods LLC chief executive officer Christopher Lischewski in 2020 was sentenced to more than three years in prison after he was convicted for leading a conspiracy to fix the price of canned tuna. 

While the details can be complicated, the law on price fixing is pretty simple, said John Francis, who practices antitrust law and teaches at the University of Colorado Law School in Boulder.

“Did you agree or did you not agree on price? And the whole thing just turns on that fact,” Francis said.

To qualify as illegal, the agreement doesn’t have to be written or even stated directly. It can be implied by conduct or indirect speech, he said.

The Justice Department charged Penn, then the CEO of Pilgrim’s Pride, and three others in June 2020, claiming Pilgrim’s Pride and Claxton Poultry Farms Inc. shared pricing information during the annual bidding process with big restaurant chains. Indictments against the remaining six defendants were announced in October 2020. 

Prosecutors have already released text messages, emails and phone transcripts showing how the executives colluded on prices, and the evidence presented to the jury could provide even more details.

Last year’s federal indictment against Penn showed how he interacted with coworkers and others. In one 2014 exchange, he asked an unnamed colleague about negotiations with a restaurant franchise. He noted that a competitor “did cave” to offering a lower rate to lock in a previous contract. The manager responded to say, “They are listening to my direction.”

“Who is they?” Penn asked. If “they” is illegal, he said, “don’t tell me.”

Four other Pilgrim’s Pride executives, charged separately in July, are expected to be tried next year. They’ve pleaded not guilty. 

Price-fixing can be extremely profitable, which is why a high potential penalty is needed, said Donald Mayer, a lawyer and professor at the University of Denver Daniels College of Business.

“It is essentially an offense against capitalism -- free-market, competitive capitalism,” he said.

Tyson, the biggest U.S. chicken producer, said in 2020 it was cooperating in the federal probe, taking advantage of a government policy to grant leniency to companies that are the first to disclose illegal price-fixing. At the time, the company declined to comment on how long it had been cooperating in the years-long investigation. 

Beyond the price-fixing allegations, the meat industry has been under fire after slaughter plants became an early hot spot in the Covid-19 outbreak -- tens of thousands of workers got sick and hundreds died. A labor squeeze since the outbreak has contributed to a bottleneck in which farmers receive relatively low prices for their cattle and chickens while consumers pay up for meat. Chicken prices now are higher than during the period when some of the alleged fixing schemes took place. 

That’s continued to fuel the Biden administration’s ire against the meat industry, which officials have said has engaged in “pandemic profiteering,” squeezing consumers and farmers. 

“Antitrust in general, and agriculture in particular, have finally made it to the front page,” Peter Carstensen, professor emeritus at the University of Wisconsin-Madison law school, said by phone.

“We have at least some hope to see some serious progress on establishing better rules and more active enforcement,” said Carstensen, who’s a former attorney in the DOJ’s antitrust division.

Court papers name industry employees who haven’t been charged, raising the possibility that additional companies and individuals could face prosecution. 

“We’re not sure if there’s another shoe yet to drop,” Carstensen said.

The case is U.S. v. Penn, 20-cr-00152, U.S. District Court, District of Colorado (Denver).

© 2021 Bloomberg L.P.
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