RAFI-USA
Agriculture
Production Contracts and Corporate Concentration Watch
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Bulletin #2, November/December
2001
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Farm Bill Must Deal with
Arbitration Clauses in Production Contracts
Rare Poultry Grower Victories in
the Courts
Lessons learned
****************************************************
Arbitration clauses in production
contracts must be banned or be made voluntary
Mandatory and binding arbitration
clauses in agricultural production contracts have become common in the past few
years. As a dispute resolution
procedure in contracts of adhesion, such as the poultry grower contracts,
mandatory arbitration is unfair and inequitable for the following reasons:
Mandatory arbitration clauses in
ag production contracts -
1) confuse “settling disputes” with “seeking
justice” in situations involving violations of state and/or federal laws
2). require growers to waive any
right to a jury trial
3) are promoted as a way to save time and money for the
companies when actually they are a way for the companies to avoid having to go
to court where the case would be aired in public. This was admitted to by Perdue Farms, Inc. in a meeting with
growers in DeFuniak Springs, Florida in 1999 when the company explained that
they were recalling all former contracts and offering a new contract containing
a binding arbitration clause in order “to prevent future lawsuits”
such as the one they were then involved in with growers of that complex.
4) pit a grower already in financial distress (huge mortgage on
home and farm, possibly delinquent on mortgage payment after delays in flock
placement while trying to rectify the problem earlier) against a large, powerful corporation.
Grower has little or no time to raise the money for the procedure.
5) are much more costly to the grower than the cost of filing a
court claim. Arbitration filing fees of up to $2,750 plus $1,000 case service
fee, plus $1,000 per day for each of three arbitrators, plus costs of an
attorney to advise the grower, etc. adding up to $10,000 to $25,000 or more
depending on how many arbitrators are required and how long the arbitration
takes..... while federal court costs $100 for filing fee - period. Growers can often find an attorney to
take the case on a contingent fee basis .
"Many of these
arbitration clauses require poultry growers to waive any right to a jury trial
and also contain cost laden provisions that make arbitration inaccessible. In
other words, the litigation forum is taken away by contract and the arbitration
forum is taken away by economics, thereby leaving the grower with no forum in
which to bring his dispute. These clauses are forced upon the growers because
they have no other recourse than to accept these provisions under duress. They
owe large sums of money on their farm and have no other way to repay the loans
but to receive chickens from the poultry companies. Therefore, I feel that the
arbitration clauses are being used as a weapon not a dispute resolution device.
" Attorney and
Arbitrator Dudley Butler, Yazoo, Mississippi in testimony to U.S. Senate
Appropriations Subcommittee on Agriculture, May 17, 2001
See NCPGA website for
complete testimony by Butler: http://www.web-span.com/pga.
6) severely limit a grower’s opportunity to rights of
discovery of matters relevant to his claims.
7) require the growers to relinquish their statutory right to
have federal claims heard in federal court
8) fail to provide the grower the
right to seek immediate injunctive relief if unlawful acts are committed by the
company. Long delays without birds
in the grower’s houses lead to severe financial harm to the grower. Current arbitration clauses in poultry
contracts force growers to wait until all of the arbitrators are named before
requesting this relief - usually 30 to 60 days. The poultry contract does not include arbitration language
for “immediate” relief for the grower.
9) are forced upon growers who
must sign or either not receive any more poultry or in some cases must accept
being paid less than the growers who do sign. Typically, there is only one company operating in an area
within 50 miles of an existing poultry farm so the grower cannot apply to
another company for a contract to grow birds.
10) put farmers in front of
arbitrators who usually understand very little about how the poultry industry
and growout arrangements work.
Much time is used trying to explain the grower settlement sheets,
ranking system, etc. to the arbitrators.
11) provide no recovery for
attorney fees
12) do not require the arbitration
panel to state their reasons for their decision
The arbitration panel’s
decision is unlikely to be overturned in appeal to a federal court since there
is no “finding of fact” and “no conclusions of law”
13) severely shorten the time that
a grower has to bring a claim (from years to just a few months)
14) are being used with growers
who are unsophisticated business people and have little knowledge of how
arbitration works.
Possible Solutions :
Expose the true intent of the arbitration clauses in ag production
contracts. Treat the arbitration clauses as “unfair and deceptive trade
practices” and make them illegal in these types of agricultural
contracts.
or
Make binding arbitration voluntary
on the part of both parties to a dispute after the dispute arises.
This is the only way to guarantee that the agreement to arbitrate is
made knowingly and voluntarily.
**********************************************
In rare poultry lawsuits, growers have been victorious -
rare because many cases with good documentation cannot get to court because
the grower is forced to sign a contract containing an arbitration clause.
Bunting vs. Perdue Farms
Poultry grower Benny Bunting and his son, Jason, won their
case against Perdue Farms in September 2001 when a North Carolina jury ruled
that the poultry company engaged in unfair and deceptive trade practices,
negligent misrepresentation and fraud.
The Buntings filed the suit against the poultry company
when Perdue officials refused to contract with the family after the father and
son had worked in good faith with a company representative (flock supervisor)
and bankers to buy and renovate a neighboring broiler farm. The Buntings were in constant contact
with the company personnel during the two months of difficult renovations. As the project neared completion, the
Perdue District Supervisor let it be known to the former owners that he didn't
want to work with the Buntings and advised them to find another buyer.
Benny Bunting
had settled out of court with Perdue several years ago when he found that the
company feed truck drivers had been stealing feed from poultry farms including
his. The bad feed conversion was
earlier attributed to Bunting's "poor management" and his contract
with Perdue was terminated. When
Perdue discovered the thefts, the company fired the drivers, but never
compensated the farmers for their losses nor reinstated Bunting's contract.
The company felt that the settlement in that earlier case
included an agreement prohibiting any future business relationships with the
Buntings. Judge Malcum Howard and the 10 member jury
disagreed with Perdue attorneys and found the poultry company guilty as
charged.
"Perdue has tried to ruin my family financially not
once, but twice," said Benny.
"But this time, the victory for us is sweet indeed, and we feel
vindicated."
Burger vs. Cagle's Farms
When Chris Burger, a Georgia poultry farmer and 18 year
veteran of the Georgia State Police Department, began meeting with other
poultry growers to discuss their farm problems and to find ways to lower their
costs, Cagle's poultry company warned Chris that this would only lead to
"problems" and went to the other growers to advise them not to attend
any more meetings. The company
sent their servicemen to sit outside of the meetings to record the names of
those attending and sent someone inside to find out what they were discussing.
To teach Burger a lesson and frighten off the other growers
who continued to meet, Burger was sent a flock of birds which had cholera. Another time he was given only half as
many birds as usual, for which the company finally partially compensated him.
Over an eight year period, Burger's chickens were given the
wrong feed causing severe drops in egg production and accompanying losses in
income.. He was required to make $30,000 worth of unneeded repairs to his
poultry houses and equipment. Then
he experienced another enormous drop in egg production which led him to call a
meeting with the company where he was informed that his contract was
terminated.
When Burger tried to sell his farm, prospective buyers were
told by Cagle's that it would take over $100,000 to get the houses ready for
birds. His farm was sold at
auction.
Attorney Cindy Johnson of Dalton, Georgia charged Cagle's
with violating the Agricultural Fair Practices Act by actions intended to
prevent poultry growers from organizing for their own benefit. A jury found the company guilty and the
11th Circuit Court of Appeals upheld the verdict.
During all these years of battles with the poultry company,
Chris Burger lost two farms, his home, his family (through divorce), and his
health. He was homeless for a time
and had to sleep and dress at the state troopers' barracks. However, he never lost his sense of justice or his
determination to stay in the struggle.
Even now, he plans to do whatever he can to see that all poultry growers
enjoy basic American freedoms someday.
Court avoided by Fieldale Farms in Georgia
Faced with legal action, Fieldale Farms of Georgia
"discovered" a mistake in their grower computations and has now put
birds back on Clelland Tyson's farm in Lavonia, Georgia. Clelland had been labelled a high cost
grower by Fieldale and fell in a
category to be put on probation and eventually had his contract
terminated.
***********************************************
Lessons learned
Six lessons to be learned from the cases described above:
1. Poultry companies are paranoid about contract growers
meeting to work for improvements in the contract system. Rather than meet with
a delegation of grower leaders to discuss solutions to their on-farm problems,
companies prefer to engage in the kinds of tactics described above.
2. An arbitration clause in Cagle or Fieldale contracts
would have prevented these important cases from ever going to trial. Attorneys know of even better cases
with more documentation in favor of the growers which they cannot get to court
due to the arbitration clauses the growers were forced to sign.
3. Poultry companies do indeed target some growers with
sick birds, bad or inappropriate feed, and requirements for unneeded and
expensive upgrades all for the purpose of forcing unwanted growers out of the
business. Growers understand that
the company has a huge investment in the broiler chicks as they come from the
hatchery and will need to salvage as much as they can from these flocks, but
the growers would like to see these birds distributed evenly among the grower
farms or to be compensated fairly (sq. footage of barn space or a 5 flock ave.
payment) for raising them.
4. Companies do interfere with sales of farms in order to
further punish particular growers for doing no more than insisting on fair
business dealings.
5. Some state laboratories are not truly independent and
are influenced by the poultry industry.. These notes are from the Burger case
transcripts:
-the Georgia Poultry Improvement Board oversees the Georgia
Poultry Lab system
- the Georgia Poultry Lab System is a private agency funded
by the Georgia State Department. of Agriculture
- Johnny Burkett, executive with Cagle's, was a Poultry
Improvement Board member during the Burger episode.
-Burkett was with Fieldale Poultry Co. for 30 years before
coming to Cagle's in the early 90's
-1998, at the lab Christmas Party, Burkett told all lab
employees
not to test birds brought in by growers. "If a grower brings in a bird,
take it straight to the incinerator."
-a lab employee was told by Cagle's attorney not to discuss
the Burger case with anyone including Burger's attorney
-the Poultry Science lab took over 6 months to respond to
Burger attorneys with critical evidence
-Cagle's threatened to have lab employee (Dr. Miller) fired
for testing a grower’s birds
Lessons
learned
Six lessons to be learned from the
cases described above
1. Poultry companies are paranoid
about contract growers meeting to work for
improvements in the contract
system. Rather than meet with a delegation of
grower leaders to discuss
solutions to their on-farm problems, companies prefer to engage in the kinds of
tactics described above.
2. An arbitration clause in Cagle
or Fieldale contracts would have prevented
these important cases from ever
going to trial. Attorneys know of
even better cases with more documentation in favor of the growers which they
cannot get to court due to the arbitration clauses the growers were forced to
sign.
3. Poultry companies do indeed
target some growers with sick birds, bad or
inappropriate feed, and
requirements for unneeded and expensive upgrades all
for the purpose of forcing
unwanted growers out of the business.
Growers understand that the company has a huge investment in the broiler
chicks as they come from the hatchery and will need to salvage as much as they
can from these flocks, but the growers would like to see these birds
distributed evenly among the grower farms or to be compensated fairly (sq.
footage of barn space or a 5 flock ave. payment) for raising them.
4. Companies do interfere with
sales of farms in order to further punish
particular growers for doing no
more than insisting on fair business
dealings.
5. Some state laboratories are not
truly independent and are influenced by
the poultry industry.. These notes
are from the Burger case transcripts:
-the Georgia Poultry Improvement
Board oversees the Georgia Poultry Lab
system
- the Georgia Poultry Lab System
is a private agency funded by the Georgia State Department. of Agriculture
- Johnny Burkett, executive with
Cagle's, was a Poultry Improvement Board member during the Burger episode.
-Burkett was with Fieldale Poultry
Co. for 30 years before coming to Cagle's in the early 90's
-1998, at the lab Christmas Party,
Burkett told all lab employees not to
test birds brought in by growers.
"If a grower brings in a bird, take it
straight to the incinerator."
-a lab employee was told by
Cagle's attorney not to discuss the Burger case with anyone including Burger's
attorney
-the Poultry Science lab took over
6 months to respond to Burger attorneys with critical evidence
-Cagle's threatened to have lab
employee (Dr. Miller) fired for testing
a
grower's birds
6. AN IMPORTANT RULING FROM THE
JUDGE ABOUT THE AG FAIR
PRACTICES ACT
The Defendant (Cagle's) claimed,
among other things, that the Plaintiff
(Burger) failed to show evidence
that he belonged to an association of
producers as defined by the
Agricultural Fair Practices Act (AFPA) and that
only a member of such an
association would have the protections claimed by
Burger.
The Judge, the Honorable Harold
Murphy, however, explained in his statement
denying Cagle's appeal that
Cagle's attorneys were confusing the
requirements under the
Capper-Volstead Act and the Agricultural Marketing
Act which protect qualifying
agricultural associations from liability for
Antitrust violations with
association requirements under the AFPA.
Judge Murphy states, "A
narrow definition of the term 'association' is necessary for purposes of the
Capper -Volstead Act and the Agricultural Marketing Act to prevent unqualified
associations from taking advantage of those exemptions."
The Judge explained that the AFPA
does not deal with "an exemption from the
antitrust laws, but simply
precludes handlers (processors) from interfering
with producers' rights to join, or
to refrain from joining, associations."
"Nothing in AFPA, its
legislative history, or the case law interpreting the
AFPA even hints that a plaintiff's
AFPA claim fails if the association to
which the plaintiff belongs does
not satisfy the technical definition of an
association contained in the
Capper-Volstead Act or the Agricultural
Marketing Act."
" Further, the narrow
construction of the AFPA advanced by the Defendant
would be contrary to the AFPA's
purposes - preventing handlers from
discouraging, or 'chilling',
producers from joining associations. The focus
of AFPA is the handler's
motivation, not the producer's technical membership
in an association."
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