The Justice Department (DOJ) has filed a civil antitrust lawsuit 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.

“The Packers and Stockyards Act stands for fairness, and that’s what this enforcement action today delivers,” said USDA’s Senior Advisor for Fair and Competitive Markets Andy Green. “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, the DOJ said.

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:

The lawsuit and proposed consent decree is 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.