UPDATE: June 27, 2019: A federal judge ruled the U.S. government could intervene in the lawsuit. U.S. District Judge Thomas Durkin in Chicago issued a three-month stay in the case, falling short of the six months the Department of Justice initially requested.
The U.S. Justice Department's decision to intervene in a major price-fixing lawsuit against the chicken industry could indicate that the government is on the verge of bringing criminal charges, legal experts told Food Dive.
The investigation was disclosed after DOJ attorneys made a motion to intervene in a lawsuit first filed back in 2016. It accused chicken companies, including Pilgrim's Pride, Perdue Farms, Tyson Foods and Sanderson Farms, of conspiring to inflate broiler chicken prices. The department asked the U.S. District Court for the Northern District of Illinois to stop discovery, claiming in the motion that "a limited stay is needed to protect the grand jury's investigation." On Thursday, U.S. District Judge Thomas Durkin ordered a three-month stay on part of the litigation, including depositions and subpoenas.
Claims of price-fixing against chicken producers have been surfacing for years. The poultry companies have faced multiple similar lawsuits, as well as an investigation by the U.S. Securities and Exchange Commission and the scrapping of the controversial Georgia Dock price index. But the Justice Department's latest move could escalate the situation if criminal charges come next.
"The intervention clearly indicates that they are considering it, and this is not tea leaf reading, it quite literally means they are considering whether they should be bringing a case themselves," Robert Steinbuch, a law professor at the University of Arkansas at Little Rock, told Food Dive.
Why would DOJ intervene now?
Allegations of price-fixing and collusion in the chicken industry surfaced three years ago when the first case was filed by Maplevale Farms. It alleged the poultry companies worked together to manipulate the chicken supply to maintain higher prices and profits, and keep records on competitors' activity through Agri Stats, an industry information service. So why is the DOJ announcing its involvement now?
Braden Perry, a litigation, regulatory and government investigations attorney with Kennyhertz Perry, told Food Dive that the timing is significant because the case has been on file since 2016. He said it’s likely due to the pending depositions of fact witnesses.
In the motion to intervene, the DOJ said "the government has a significant interest in ensuring the integrity of the grand jury's investigation and if charges are filed, minimizing the extent to which civil discovery can be used to circumvent criminal discovery."
Perry said this means "the DOJ does not want testimony and business records public that would hinder their criminal investigation pre-indictment."
A DOJ spokesperson declined to comment further beyond the motion.
"The intervention clearly indicates that they are considering it, and this is not tea leaf reading, it quite literally means they are considering whether they should be bringing a case themselves."
Law professor, University of Arkansas at Little Rock
The companies involved have strongly denied the allegations, and did so again after the criminal probe became public.
A spokesman for Pilgrim's Pride told Food Dive in an email that the company denies any allegations of anti-competitive conduct and "welcomes the opportunity to defend itself against these claims through the legal process." While a Perdue Farms spokeswoman told Food Dive in an email that the company is going to vigorously defend against these allegations.
Sanderson Farms said in a public statement that the company has not been subpoenaed in connection with a Department of Justice investigation and they continue to believe the civil plaintiffs' claims are "wholly without merit." Tyson told CNBC that "there is simply no merit to the allegations that Tyson Foods colluded with competitors."
But in the meantime, the potential of a criminal investigation will likely impact the companies. Shares of Tyson, Pilgrim's Pride and Sanderson all declined Wednesday as the news of the probe spread and mixed results continued on Thursday.
"With the DOJ surfacing, they will likely be spending heavy amounts on the investigation and their stock prices will likely take a hit as well," Perry said.
How could this impact companies in the long-term?
After an investigation into price-fixing on tuna, Chicken of the Sea settled with Walmart, and Bumble Bee pleaded guilty as part of the DOJ's investigation. Earlier this year, StarKist announced it also had settled antitrust claims with Walmart for $20.5 million. Steinbuch said the tuna case would be a "fair comparison" to what could happen with large chicken producers.
"If the government decides to bring a criminal case, then the chicken companies will face both significant criminal fines, and if particular individuals are strongly implicated, they could face jail time and for a corporate executive, that's got to be pretty scary."
Antitrust expert, University of Wisconsin-Madison’s Law School
But this case isn't exactly the same and criminal charges have not yet been filed. John Lopatka, a professor of law at Penn State University and a leading antitrust scholar, told Food Dive it is a little unusual that the civil plaintiffs brought charges first and DOJ asked for a stay of discovery before bringing criminal charges. But there is an indication the department will decide whether to bring charges within three months. This would impact the civil cases.
"If criminal charges were tried and various companies were found to have engaged in price fixing, then civil plaintiffs could take that judgment and say 'that establishes the conspiracy, so all we have to do is establish how we were injured by that conspiracy'," Lopatka said.
Although the DOJ had originally requested a six-month stay, Lopatka said the department was giving itself some leeway when it asked for that.
"The three-month stay tightens things up and creates more urgency than DOJ had wanted, but I doubt it changes their underlying calculous," he said. "I would guess that the DOJ will now make a concentrated effort to finish in three months."
Peter Carstensen, a professor of law emeritus and an antitrust expert at the University of Wisconsin-Madison's Law School, also said the DOJ will likely figure out whether to charge the companies within months since they aren't starting with an initial investigation after years of the case. If the government decides it has enough to bring charges, the consequences to the companies could be severe.
"If the government decides to bring a criminal case, then the chicken companies will face both significant criminal fines, and if particular individuals are strongly implicated, they could face jail time and for a corporate executive, that's got to be pretty scary," Carstensen said. "That would also make the settlement of these cases a lot easier for the plaintiffs on the merits."