WASHINGTON — The US Department of Justice (DOJ) filed a civil lawsuit and a proposed consent decree to prohibit Koch Foods Inc., the fifth largest poultry processor in the United States, from requiring chicken producers to pay a penalty for working with Koch’s competitors. The agency filed the lawsuit in the US District Court for the Northern District of Illinois, Eastern Division.

“Raising chickens is a bet-the-farm proposition,” the court document begins. “Many chicken farmers must borrow hundreds of thousands of dollars to finance the construction of chicken houses — huge structures that hold over 50,000 chickens each. A farmer is largely beholden to a poultry processor, which owns the chicks, feed, antibiotics, and other inputs for raising chickens. Without a loan from the bank, there is no farm; without a contract with a processor, there is no loan; and without the processor’s fair dealing, the farm may fail.

“To secure better working conditions or pay, a chicken farmer’s only recourse often is switching processors.”

But Koch Foods, 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, the DOJ alleged. Koch’s termination penalty varies across chicken growers, and in some cases amounted to more than half of most growers’ total annual take-home income and sometimes more than a year’s entire take-home earnings, according to the complaint.

“The company 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,” the agency said. “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 and deceptive act in violation of the Packers and Stockyards Act, a landmark unfair competition statute passed in 1921.”

Deputy Assistant Attorney General Michael Kades of the Justice Department’s Antitrust Division said, “This enforcement action marks another important step in the division’s renewed partnership with the Department of Agriculture to promote free and fair competition and reinvigorate enforcement of the Packers and Stockyards Act.”

In addition to the lawsuit, the DOJ filed a proposed consent decree that, if approved by a court, requires Koch Foods to:

  • Inform all current growers with contracts containing a termination penalty provision that Koch will not enforce the provision;
  • Reimburse growers for all termination penalty payments and out-of-pocket legal expenses incurred as a result of Koch enforcing the termination penalty;
  • Refrain from including a termination penalty obligation in any grower contracts and from taking any steps to collect any termination penalty payments for the next seven years;
  • Refrain from retaliating against, intimidating or harassing any grower who is involved in any dispute involving a termination penalty payment or obligation, or who cooperated with the Justice Department or USDA in their investigations of Koch’s termination penalty practices; and
  • Meet certain reporting and compliance obligations, including an annual certification for the next seven years that Koch is complying with the proposed final judgment.

The proposed consent decree, along with the competitive impact statement, will be published in the Federal Register. Any person may submit written comments concerning the proposed consent decree during a 60-day comment period.

The DOJ’s lawsuit and proposed consent decree are the second recent Packers and Stockyards Act enforcement action referred to the Justice Department by the USDA. In June, the US District Court for the District of Maryland entered a consent decree to resolve an action alleging that the “tournament system” used by Wayne-Sanderson Farms to compensate chicken farmers violated the Packers and Stockyards Act stemming from a DOJ lawsuit filed in July of 2022.