F I L E D
United States Court of Appeals
Tenth Circuit
PU BL ISH
July 31, 2007
UNITED STATES CO URT O F APPEALS Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
CHARLES BEEN, individually and d/b/a
Creekside Farm, Inc.; DO NA LD FRO ST;
ED W IN JOHNSTO N; BO B FIELD S,
individually and dba Okie Blue Sky Farm,
Inc.; GENE BLACKW ELL, Class
Representatives,
Plaintiffs - Appellants,
No. 05-7079
v.
O.K. INDUSTRIES, INC.; O.K. FOODS,
INC.; O.K. FA RM S, INC., all Arkansas
corporations, individually and as
administrators of health and benefit plans;
O.K. BRO ILER FARM S LIM ITED
PA RTNERSH IP, an Arkansas limited
partnership, individually and as
administrator of health and benefit plans;
COLLIER W ENDEROTH, JR.;
RANDA LL GOINS; TOM W EBB,
individually and as trustees of health and
benefit plans; OK INDU STRIES, INC.
EM PLO Y EE B EN EFIT PLA N ; OK
IND USTRIES, INC . EM PLOYEE
FUND ED GROUP HEALTH CARE
PLAN; OK IND USTRIES, INC . AN D ITS
SUBSIDIAR IES EM PLOYEE FUND ED
H EA LTH CA RE PLA N ; O K
IND USTRIES, INC . AN D A FFILIATES
FLEXIBLE BENEFITS/HEALTH CARE
PLA N ; O K IN D U STR IES, IN C. AND
AFFILIATES FLEXIBLE BEN EFITS
PLA N ; R ETIR EM EN T SA V IN GS PLAN
O F O K IN D U STR IES, IN C. A ND
SU BSID IA RIES; R ETIR EM ENT
SAVINGS PLA N OF OK INDUSTRIES,
INC.; GROUP LONG TERM
DISABILITY PLA N; GRO UP LIFE
H EA LTH IN SU RA N CE PLA N ; GROUP
VOLUNTARY TERM LIFE INSURANCE
PLAN; KEN PRIM M ,
Defendants - A ppellees.
A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
FO R TH E EASTERN DISTRICT O F O K LAH O M A
(D. Ct. No. 02-CV-285-W )
Charles B. Goodwin and Harry A. W oods, Jr. (M ack J. M organ, III, Christopher
B. W oods, and Amanda L. M axfield, with them on the briefs), Crowe & Dunlevy,
P.C., Oklahoma City, Oklahoma, appearing for the A ppellants.
M atthew Horan, Smith, M aurras, Cohen, Redd & Horan, PLC, Fort Smith,
Arkansas (James M . Sturdivan and Ronald N. Ricketts, Gable & Gotw als, P.C.,
Tulsa, Oklahoma, and Don A. Smith, Smith, M aurras, Cohen, Redd & Horan,
PLC, Fort Smith, Arkansas, with him on the briefs), appearing for the A ppellees.
Before TA CH A, Chief Circuit Judge, BR ISC OE, and HA RTZ, Circuit Judges.
TA CH A, Chief Circuit Judge.
This appeal presents a matter of first impression for this Circuit, namely
whether § 202(a) of the Packers and Stockyards Act (“PSA ”), 7 U.S.C. § 181 et
seq., requires a plaintiff to prove that an allegedly “unfair practice” injures or is
likely to injure competition. The District Court held that such proof is required
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and, finding that the Plaintiffs had failed to present any evidence of a competitive
injury, granted summary judgment in favor of the D efendants. The court also
granted the Defendants’ motion for summary judgment on the Plaintiffs’ state law
claim of unconscionability. W e take jurisdiction under 28 U.S.C. § 1291, and for
the reasons that follow, we affirm in part and reverse in part, remanding to the
District Court for further proceedings consistent with this opinion.
I. BACKGROUND
Defendants-Appellants OK Industries, OK Farms, Inc., and OK Foods, Inc.
(collectively “OK”) constitute a vertically integrated poultry producer operating
in Arkansas and Oklahoma. OK is involved in almost every stage of the
production and wholesale of poultry and poultry products: it breeds, hatches,
provides feed for, transports, slaughters, and processes poultry. One aspect of
poultry production OK does not handle is the raising of broiler chickens to
slaughtering age. OK enters into contracts w ith various “growers” who handle
that part of the production process.
The Plaintiffs-A ppellants (“Growers”) are a class of growers operating in
Oklahoma under contract with OK. In addition to alleging that the process by
which OK and its growers enter into contracts is unconscionable under Arkansas
law, the G row ers argue that the terms of the contracts, as w ell as O K’s
performance under the contracts, violate the Packers and Stockyards Act, 7 U.S.C.
§ 181 et seq. Their claims hinge on the following undisputed facts.
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OK is the largest poultry integrator in O klahoma. W ith limited exceptions,
no other integrators operate in the geographic markets in which OK operates. At
the time of this lawsuit, OK had a waiting list of over 130 persons desiring to
become growers for OK or to expand their existing operations. W hen OK needs
to expand its production, it contacts persons on the waiting list to determine
whether they are still interested, and if so, whether they will be suitable growers.
Prior to entering into a contract with a grower, OK requires the grower to first
obtain financing and build chicken houses to specifications set by OK. In
exchange for a grower’s expenditure of money to build the requisite chicken
houses, OK signs a letter of intent, agreeing to enter into a broiler contract with
the grower upon satisfactory completion of the chicken houses. One chicken
house can cost a grower nearly $160,000, not including the cost of land and
equipment.
All the broiler contracts are materially identical; they are standard contracts
drafted by OK and are not subject to negotiation. Under the standard contract, a
grower agrees to use only chicks, feed, and medicine supplied by OK. OK is not
liable, however, for any loss a grower incurs as a result of OK’s failure to provide
feed and supplies; nor is OK liable for birds condemned due to certain diseases.
The contract also provides that a grow er may not sell its chickens to poultry
integrators other than OK and may not transfer its broiler contract to other
potential growers w ithout OK’s prior approval. Under the terms of the contract,
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OK agrees to provide the grower with only one flock of chicks, which typically
takes a grower seven weeks to raise. 1 Thereafter, OK may provide the grower
with replacement flocks “from time to time.” In addition to deciding when to
deliver replacement flocks, OK determines the breed of chicken, the number of
chicks per flock, and the number of flocks. Furthermore, at the end of each
grow ing cycle, OK may require that a grower update its houses to meet OK’s
most recent specifications before it will place another flock of chicks with the
grower. These required changes result in significant costs to growers.
The contract also details the method OK uses to calculate a grower’s pay.
OK uses a “competitive ranking” system to reward growers who produce chickens
at the least cost to OK. Under OK’s system of payment, OK first calculates the
production cost per pound 2 of each grower’s flock and labels this production cost
the grower’s “flock prime cost.” It then lists the flock prime cost of each grower
in order from lowest to highest. The flock prime cost of the grower that is
numerically in the middle of the list is designated as the “average prime cost.” If
any individual grower’s flock prime cost is less than the average prime cost, then
OK pays that grower a higher rate per pound than those whose flock prime cost is
1
Because of the large capital comm itments needed to become a grower for
OK, growers must typically raise chickens for fifteen to twenty-five years to
recover their initial investment.
2
The production cost per pound takes into account the weight of the
chickens raised by growers, as well as the cost for chicks, medicine, and feed.
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higher than the average prime cost. In other words, a grower’s pay is based on
how grow ers in a group rank against each other, not on the individual grower’s
production.
The Growers in this case filed suit in the United States District Court for
the Eastern District of Oklahoma. They obtained class certification to challenge
the following conduct: (1) OK deducts from the Growers’ pay certain charges for
medicine and supplies; (2) OK sometimes delivers dead chicks to the Growers and
causes the Growers to pay for them because OK counts chicks to be delivered at
the hatchery, rather than at the Growers’ premises; and (3) OK has reduced the
number of birds placed per year with the Growers, causing a substantial decrease
in the Growers’ income. The Growers also challenged OK’s competitive ranking
system, arguing it is unfair and unconscionable because (1) OK uses the median
flock prime cost as the average prime cost, which alters the rankings in a way that
benefits OK to the detriment of the Growers; (2) OK exercises control over
factors affecting the Growers’ performance; and (3) OK calculates the weight of
condemned birds, for which OK will not pay Growers, based on the weight of
healthy birds, even though condemned birds can weigh up to 50% less than
healthy birds. The Growers alleged that OK’s conduct constitutes a breach of
contract and violates § 202(a) of the PSA, 7 U.S.C. § 192(a). They also alleged
that the broiler contract is unconscionable and therefore unenforceable under state
law .
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OK moved for judgment on the pleadings, arguing, inter alia, that proof of
an injury to competition is a required element of a claim brought under § 202(a)
of the PSA . The district court judge denied OK’s motion, holding that § 202(a)
does not require proof of an injury to competition. Approximately eighteen
months later, in a motion for summary judgment before a different district court
judge, OK re-raised the issue. The Growers argued that the doctrine of the law of
the case bound the District Court to its prior ruling and that § 202(a) did not
require proof of an injury to competition. In the alternative, they argued that they
had presented sufficient evidence of an injury to competition to withstand
summary judgment. The court disagreed with all three arguments. After
concluding that the law of the case did not bind the court to the prior ruling, the
District Court held that § 202(a) requires proof that a practice injures or is likely
to injure competition and that the Growers had failed to establish a genuine issue
of material fact concerning competitive injury. Consequently, the court entered
summary judgment in favor of OK on the G row ers’ PSA claim. The G row ers
then moved to reopen discovery for the purpose of determining whether OK’s
conduct injured or was likely to injure competition. The District Court denied the
motion.
Subsequently, in response to a motion filed by the Growers for an
interlocutory appeal, the District Court supplemented its summary judgment
ruling disposing of the PSA claim. It held that, even if § 202(a) does not require
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a competitive injury, whether particular conduct is “unfair” within the meaning of
§ 202(a) is a question of law, and OK’s conduct in this case was not “unfair” as a
matter of law.
In yet another order, the District Court entered summary judgment in favor
of OK on the Growers’ unconscionability claim. W ith respect to the broiler
contracts governed by Oklahoma law , 3 the court concluded that Oklahoma would
not recognize an affirmative claim for damages based on unconscionability. W ith
respect to the broiler contracts governed by Arkansas law, the court concluded
that, although Arkansas recognizes an affirmative cause of action for
unconscionability, the Arkansas courts have not specifically addressed an
affirmative claim for damages, and in any event, these contracts were not
unconscionable under A rkansas law.
Following these rulings, the parties settled the pending class claims for
breach of contract. The Growers now appeal the District Court’s rulings on their
PSA and unconscionability claims.
II. D ISC USSIO N
A. The Packers and Stockyards Act § 202(a)
1. Law of the Case
3
Beginning in 1997, OK’s broiler contracts included a choice-of-law
provision designating the law of Arkansas as the governing law. The District
Court therefore applied Arkansas law to those contracts and Oklahoma law to the
contracts pre-dating 1997.
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The Growers first contend that the District Court’s initial ruling that
§ 202(a) does not require proof of an injury to competition represents the law of
the case, which should not be disturbed except in very narrow circumstances not
present here. W e disagree. Generally, the “law of the case” doctrine dictates that
prior judicial decisions on rules of law govern the same issues in subsequent
phases of the same case. See Homans v. City of Albuquerque, 366 F.3d 900, 904
(10th Cir. 2004). W e have acknowledged, however, that “the rule is a flexible
one that allows courts to depart from erroneous prior rulings, as the underlying
policy of the rule is one of efficiency, not restraint of judicial power.” Prairie
Band Potawatomi Nation v. Wagnon, 476 F.3d 818, 823 (10th Cir. 2007) (internal
citation omitted). That is, the doctrine is merely a “presumption, one whose
strength varies with the circumstances.” Avitia v. M etro. Club of Chicago, Inc.,
49 F.3d 1219, 1227 (7th Cir. 1995); see also Homans, 366 F.3d at 904 (“[T]he
doctrine is discretionary rather than mandatory.”). If the original ruling was
issued by a higher court, a district court should depart from the ruling only in
exceptionally narrow circumstances. See McIlravy v. Kerr-M cGee Coal Corp.,
204 F.3d 1031, 1035 (10th Cir. 2000). 4 On the other hand, district courts
4
This Court had recognized three “exceptionally narrow” grounds
supporting a district court’s departure from an appellate court’s earlier ruling:
“(1) when the evidence in a subsequent trial is substantially different; (2) when
controlling authority has subsequently made a contrary decision of the law
applicable to such issues; or (3) when the decision was clearly erroneous and
would work a manifest injustice.” M cIlravy, 204 F.3d at 1035 (quotation
(continued...)
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generally remain free to reconsider their earlier interlocutory orders. Harlow v.
Children’s Hosp., 432 F.3d 50, 55 (1st Cir. 2005); see also United States v. Smith,
389 F.3d 944, 949 (9th Cir. 2004) (explaining that a district court may review its
prior rulings so long as it retains jurisdiction over the case).
Finding no Supreme Court or Tenth Circuit authority interpreting § 202(a)
to require proof of a competitive injury, the first district court judge denied O K’s
motion for judgment on the pleadings. In reviewing OK’s motion for summary
judgment eighteen months later, however, the second judge found persuasive
authority from other circuits holding that such proof is required. In light of these
circumstances and the interlocutory nature of the initial ruling, the D istrict Court
did not abuse its discretion in reconsidering the prior ruling. See Harlow, 432
F.3d at 55–56 (reviewing a district court’s reconsideration of a prior interlocutory
order for abuse of discretion).
2. Interpretation of “Unfair Practices” under § 202(a)
Section 202 of the PSA makes it unlawful for a “live poultry dealer” 5 to
(a) Engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device; or
4
(...continued)
omitted).
5
It is undisputed that OK is a “live poultry dealer,” defined as “any person
engaged in the business of obtaining live poultry by purchase or under a poultry
growing arrangement for the purpose of either slaughtering it or selling it for
slaughter by another.” 7 U.S.C. § 182(10).
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(b) M ake or give any undue or unreasonable preference or advantage
to any particular person or locality in any respect whatsoever, or
subject any particular person or locality to any undue or
unreasonable prejudice or disadvantage in any respect whatsoever; or
(c) Sell or otherwise transfer to or for any other packer, swine
contractor, or any live poultry dealer, or buy or otherwise receive
from or for any other packer, swine contractor, or any live poultry
dealer, any article for the purpose or with the effect of apportioning
the supply between any such persons, if such apportionment has the
tendency or effect of restraining comm erce or of creating a
monopoly; or
(d) Sell or otherwise transfer to or for any other person, or buy or
otherwise receive from or for any other person, any article for the
purpose or with the effect of manipulating or controlling prices, or of
creating a monopoly in the acquisition of, buying, selling, or dealing
in, any article, or of restraining comm erce; or
(e) Engage in any course of business or do any act for the purpose or
with the effect of manipulating or controlling prices, or of creating a
monopoly in the acquisition of, buying, selling, or dealing in, any
article, or of restraining commerce; or
(f) Conspire, combine, agree, or arrange with any other person (1) to
apportion territory for carrying on business, or (2) to apportion
purchases or sales of any article, or (3) to manipulate or control
prices; or
(g) Conspire, combine, agree, or arrange with any other person to do,
or aid or abet the doing of, any act made unlawful by subdivisions
(a), (b), (c), (d), or (e) of this section.
7 U.S.C. § 192.
At issue in this case is only what constitutes an “unfair” practice within the
meaning of § 202(a). The District Court held that an “unfair” practice is one that
“injures or is likely to injure competition.” The Growers contend that this
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interpretation of the statute is belied by the United States Department of
Agriculture’s (“USD A”) interpretation, as well as the statute’s plain language and
purpose.
W e first address the Grow ers’ suggestion that we must defer to the U SDA’s
reasonable interpretation of the statute because the agency is authorized to make
rules and regulations necessary to carry out the PSA. See Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 843 (1984) (holding that when
Congress has implicitly delegated legislative authority to an agency, “a court may
not substitute its own construction of a statutory provision for a reasonable
interpretation made by the administrator of an agency”). To that end, the
Growers claim that the USDA “has consistently taken the position that in order to
prove that any practice is ‘unfair’ under [§] 202(a) . . . of the Act, it is not
necessary to prove predatory intent, competitive injury, or likelihood of injury;
and that it is the Department’s duty to stop unlawful practices in their incipiency
prior to actual injury.” In re Ozark County Cattle Co., Inc., 49 Agric. Dec. 336,
365 (1990), 1990 W L 320312. They also note that the USD A filed an amicus
brief before the Eleventh Circuit in London v. Fieldale Farms Corp., 410 F.3d
1295 (11th Cir. 2005), cert. denied, 126 S.Ct. 752 (2005), stating that the
Secretary of A griculture’s position is that the PSA prohibits all unfair practices,
regardless of whether a practice causes a competitive injury.
Although we generally defer to an agency’s interpretation of an ambiguous
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statute that it implements, “[d]ifferent types of agency pronouncements are
entitled to different degrees of deference.” Newton v. FAA, 457 F.3d 1133, 1136
(10th Cir. 2006). As the Supreme Court has explained:
[A]dministrative implementation of a particular statutory provision
qualifies for Chevron deference when it appears that Congress delegated
authority to the agency generally to make rules carrying the force of law,
and that the agency interpretation claiming deference was promulgated in
the exercise of that authority. Delegation of such authority may be shown
in a variety of ways, as by an agency’s power to engage in adjudication or
notice-and-comment rulemaking, or by some other indication of a
comparable congressional intent.
United States v. M ead Corp., 533 U.S. 218, 226–27 (2001).
Regulations promulgated by an agency exercising its congressionally
granted rule-making authority are clearly entitled to Chevron deference. Newton,
457 F.3d at 1137. So too is an agency’s adjudication of matters over which it has
the authority to adjudicate, as such decisions carry the force of law. See id.;
Southern Ute Indian Tribe v. Amoco Prod. Co., 119 F.3d 816, 832 (10th Cir.
1997) (recognizing the rule that an agency “may establish binding policy either
through rule-making procedures or through adjudications that create binding
precedents” (quotation omitted)), rev’d on other grounds, Amoco Prod. Co. v.
Southern Ute Indian Tribe, 526 U.S. 865 (1999). Here, however, the Secretary
has not promulgated a regulation applicable to the practices the Growers allege
violate § 202(a), and the USD A has no authority to adjudicate alleged violations
of § 202 by live poultry dealers. See London, 410 F.3d at 1304 (citing
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administrative complaint procedures under 7 U.S.C. § 193(a)); Jackson v. Swift
Eckrich, Inc., 53 F.3d 1452, 1456–57 (8th Cir. 1995) (holding that the only means
of enforcing § 202 against live poultry dealers is to file suit in federal district
court under § 308, 7 U.S.C. § 209(a)). 6 M oreover, we afford the USD A’s position
as stated in its amicus brief before the Eleventh Circuit little to no deference. See
Shikles v. Sprint/United M gmt. Co., 426 F.3d 1304, 1315 (10th Cir. 2005)
(“[A]micus briefs . . . do not reflect the deliberate exercise of interpretive
authority that regulations and guidelines demonstrate.” (quotation omitted)). The
agency’s view s so stated “may be accepted by a court only as they have power to
persuade.” First Am. Kickapoo Operations, L.L.C. v. M ultimedia Games, Inc.,
412 F.3d 1166, 1174 (10th Cir. 2005) (citing Skidmore v. Swift, 323 U.S. 134, 140
(1944)). As we explain below , we are not persuaded by the U SDA’s
interpretation of the statute. 7
6
Under 7 U.S.C. § 209, any person subject to the PSA may be held liable
for damages. Liability may be enforced either by complaint to the Secretary of
Agriculture “as provided in section 210 of this title,” or through proceedings
instituted in federal district court. 7 U.S.C. § 209(b). Under 7 U.S.C. § 210,
however, only stockyard owners, market agencies, and dealers (not including live
poultry dealers) may be found liable in proceedings before the Secretary of
Agriculture. In addition, the Secretary may issue cease and desist orders and
assess civil penalties against packers and swine contractors, but not poultry
dealers, under 7 U.S.C. § 193. In other words, the Secretary has no adjudicative
authority over live poultry dealers. Hence, the only way to enforce § 202 of the
PSA against a live poultry dealer is to file suit in federal district court under 7
U.S.C. § 209.
7
In addition, we emphasize that we are interpreting the meaning of
(continued...)
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Having concluded that we need not defer to the agency’s interpretation of
the statute, we turn to the District Court’s construction of § 202(a). W e review
issues of statutory construction de novo, “interpret[ing] the words of the statute in
light of the purposes Congress sought to serve.” Wright v. Fed. Bureau of
Prisons, 451 F.3d 1231, 1233–34 (10th Cir. 2006) (quotation omitted). In so
doing, we begin with “the language employed by Congress,” and we “read the
words of the statute in their context and with a view to their place in the overall
statutory scheme.” Id. at 1234 (quotation omitted).
As the Growers note, nothing in the plain language of § 202(a) indicates
that a practice is unfair only if it adversely affects competition or is likely to do
so. But neither does the statute otherwise define an unfair practice. Enacted in
1921, the “primary purpose of [the PSA] is to assure fair competition and fair
trade practices in livestock marketing and in the meatpacking industry” and “to
safeguard farmers . . . against receiving less than the true market value of their
7
(...continued)
unfairness solely in the context of the PSA. Consequently, the Supreme Court’s
decision in FTC v. Sperry and Hutchinson Co., 405 U.S. 233 (1972), which
addresses similar language in § 5 of the Federal Trade Commission Act, 15
U.S.C. § 45(a)(1), does not dictate a particular interpretation in this case. Unlike
the case before us, the question in Sperry and Hutchinson was one of agency
jurisdiction, namely whether § 5 empowered the FTC to define “unfair practices”
to include practices without anticompetitive effects and of a noncompetitive
nature. Id. at 239. Conversely, as we note above, the present case does not
involve the USDA’s interpretive or enforcement authority under the statute.
Instead, we are faced with the task of construing a statute that only the federal
courts may enforce against live poultry dealers.
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livestock.” H.R. Rep. No. 85-1048, at 1 (1957), reprinted in 1958 U.S.C.C.A.N.
5213, 5213. The “chief evil” Congress feared was the monopolistic practices of
the packers, “enabling them unduly and arbitrarily to low er prices to the shipper,
who sells, and unduly and arbitrarily to increase the price to the consumer, who
buys.” Stafford v. Wallace, 258 U.S. 495, 514–15 (1922). Although intended to
be broader than antecedent antitrust legislation, § 202 “nonetheless incorporates
the basic antitrust blueprint of the Sherman A ct and other pre-existing antitrust
legislation.” D e Jong Packing C o. v. USDA, 618 F.2d 1329, 1335 n.7 (9th Cir.
1980).
Against this backdrop, other circuits have concluded that “unfair[ness]”
under § 202(a) requires evidence that the challenged practice will likely lead to a
competitive injury. The issue is most thoroughly treated in Armour & Co. v.
United States, 402 F.2d 712 (7th Cir. 1968). Armour involved a meat packer’s
coupon promotion, which allegedly had the effect of diverting sales from
competitors to the defendant. After recognizing the PSA’s ancestry in antitrust
law, where Congress has expressed a “basic public policy distinguishing between
fair and vigorous competition on the one hand and predatory or controlled
competition on the other,” id. at 717, the court reasoned that the “fact that a given
provision does not expressly specify the degree of injury or the type of intent
required, does not imply that these basic indicators of the line between free
competition and predation are to be ignored,” id. Even though the test of
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unfairness under § 202(a) is “less stringent than under some of the anti-trust
law s,” the court still concluded that the coupon program at issue could not violate
§ 202(a) “absent some predatory intent or some likelihood of competitive injury.”
Armour, 402 F.2d at 717; 8 see also IBP, Inc. v. Glickman, 187 F.3d 974, 977 (8th
Cir. 1999)) (concluding that the challenged conduct did not “potentially suppress
or reduce competition sufficient to be proscribed by the [PSA]”); Parchman v.
U SD A, 852 F.2d 858, 864 (6th Cir. 1988) (“[The PSA ] does not require that the
Secretary prove actual injury before a practice may be found unfair. The
Secretary need only establish the likelihood that an arrangement will result in
competitive injury to establish a violation.” (alterations, internal quotation marks,
and citation omitted)); DeJong, 618 F.2d at 1337 (holding that “unfair practices
under § 202 are not confined to those where competitive injury has already
resulted, but includes those where there is a reasonable likelihood that the
purpose will be achieved and that the result will be an undue restraint of
competition”).
In a more recent case, based on facts similar to those at issue here, the
Eleventh Circuit similarly held that a claim brought under § 202(a) required
some showing of a competitive injury or the likelihood of competitive injury.
8
W e are not concerned here with predatory intent on the part of OK. That
issue was not raised by the parties, and we therefore express no opinion on
whether evidence of predatory intent can make an act “unfair” when there is no
concomitant showing of a likelihood of competitive injury.
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London, 410 F.3d at 1303. Like the case before us, London involved a vertically
integrated poultry company that entered into contracts with growers to raise
broiler chickens. Id. at 1298–99. One grower filed suit against the company,
arguing that the company violated the PSA when it terminated his broiler
contract. Id. at 1299. After a jury returned a verdict in favor of the grower, the
district court set aside the verdict and granted the defendant’s motion for
judgment as a matter of law. Id. at 1300. Relying in part on Armour, the
Eleventh Circuit held that to prevail under § 202(a), a plaintiff must show that the
defendant’s practice “adversely affects competition or is likely to adversely affect
competition.” Id. at 1304. In reaching this decision, the court identified the
policy implications of a contrary holding: “Eliminating the competitive impact
requirement would ignore the long-time antitrust policies which formed the
backbone of the PSA ’s creation. Failure to require a competitive impact showing
would subject dealers to liability under the PSA for simple breach of contract . . .
.” Id.
The Growers argue, however, that because § 202’s other subsections
contain language prohibiting acts that tend to restrain commerce or create
monopolies, see, e.g., 7 U.S.C. § 192(c), (d), (e), the absence of similar language
in § 202(a) conclusively means that proof of a competitive injury is not required.
W e disagree. Unlike subsections (c), (d), and (e), which list specific acts that are
unlawful only when they have the tendency or effect of restraining comm erce or
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creating a monopoly, subsection (a) is a general prohibition on “unfair, unjustly
discriminatory, or deceptive practice[s]” and provides no further guidance on
what type of act falls within its parameters. Not to require a showing of
competitive injury or the likelihood thereof would make a federal case out of
every breach of contract. Nothing in the PSA suggests that Congress intended
this result.
The Growers also argue that because other subsections require proof of a
competitive injury, limiting subsection (a) to anticompetitive acts w ould render it
superfluous and would therefore violate one of the “cardinal principle[s] of
statutory construction” to “give effect, if possible, to every clause and word of a
statute.” Williams v. Taylor, 529 U.S. 362, 404 (2000) (quotation omitted). To
the contrary, such an interpretation is far from rendering subsection (a)
superfluous because it serves as a catchall for acts that Congress could not, at the
time of enactment, have foreseen and specified. Cf. Excel Corp. v. USDA, 397
F.3d 1285, 1293 (10th Cir. 2005) (recognizing that new techniques and tools
utilized by covered entities can violate the PSA even if the USD A has not
previously declared them unlaw ful). W hile the other subsections make certain
acts explicitly unlaw ful, Congress acknowledged with subsection (a) that it could
not list the full panoply of unfair, unjustly discriminatory, or deceptive practices
or devices that a covered entity might utilize.
Although we have never expressly held that unfairness under § 202(a)
-19-
requires a likelihood of injury to competition, our circuit precedent is not to the
contrary. In resolving unfairness cases, we have often suggested that a showing
of competitive injury can be determinative. In Capitol Packing Co. v. United
States, 350 F.2d 67 (10th Cir. 1965), for example, we reviewed a decision issued
by the USD A’s Judicial Officer that various practices engaged in by the
defendants violated § 312(a) of the PSA, 7 U.S.C. § 213(a), “w hich makes it
unlaw ful for any market agency to engage in or use any unfair, unjustly
discriminatory, or deceptive practice or device in connection with the marketing
or selling of livestock.” Capitol Packing Co., 350 F.2d at 73 (quotation omitted).
The Judicial Officer found that a practice called “order buying” (i.e., the sale of
livestock before it arrives at the stockyards) violated the PSA because the
livestock had the misleading appearance of being for sale to the highest bidder by
virtue of its presence in the market. Id. at 74. But this Court concluded, as a
matter of law, that “order buying” was not a violation of § 312(a) in part because
the record lacked “evidence . . . tending to show [order buying] lessens
competition.” Id. (emphasis added).
In Excel C orp. v. U SD A, 397 F.3d 1285 (10th Cir. 2005), we reviewed the
USDA’s determination that Excel violated § 202(a) and one of the PSA’s
implementing regulations, 9 C.F.R.§ 201.99(a), by failing to disclose to hog
producers a change in its formula for computing the weight of carcasses.
Although it admitted that it had changed the formula, the meat packer argued that
-20-
it had not violated the act because, inter alia, “practices are not violative w here
they are required by the exigencies of the business.” Excel Corp., 397 F.3d at
1293. W e rejected this claim, stating that “Congress and the USD A are the
arbiters of what practices w ill impede competition.” Id. (emphasis added).
Hence, “the fact that a particular act is ‘required by the exigencies of the
business’ . . . has no impact on whether that act is violative of the [PSA] and the
implementing regulations.” Id. By failing to notify hog producers of the
changed formula, Excel prevented the producers from shopping their hogs to
other packers to determine if they could obtain a better price. In light of these
facts, we upheld the Judicial Officer’s conclusion that Excel’s practice “impeded
competition.” Id. at 1294.
In Hays Livestock Com mission Co. v. M aly Livestock Com mission Co., 498
F.2d 925, 929 (10th Cir. 1974), we reviewed the Secretary of A griculture’s
determination that a dealer’s refusal to honor a draft to pay for livestock was
“unjust and unreasonable” under 7 U.S.C. § 208. In upholding the Secretary’s
decision, we did not discuss what a plaintiff must show to establish that a practice
is unjust or unreasonable, but we did note that “dishonoring of drafts in this
context . . . placed an inordinate burden on the barns, contrary to the purpose of
the Packers and Stockyards Act to secure the free and unburdened flow of
livestock.” Hays Livestock Comm’n, 498 F.2d at 932 (emphasis added) (quotation
omitted). Like our decisions in Capitol Packing Co. and Excel Corp., our opinion
-21-
in Hays Livestock Com mission indicates that an impediment to competition,
though never expressly required, was implicit in our prior decisions.
The Growers note, however, that we have also resolved cases under
§ 202(a) without any mention that the relevant practice injures competition. They
direct our attention to Peterm an v. USDA, 770 F.2d 888 (10th Cir. 1985), in
which we upheld the Secretary’s determination that a meat packer was guilty of
deceptive trade practices, including its “bait and switch” tactic, whereby the
packer would advertise one product and then convince customers seeking the
product to buy a more expensive one instead. Id. at 890. To the extent our
silence on the competitive injury requirement is relevant, this case is
distinguishable because it involved an act alleged to be deceptive, as opposed to
unfair. W e are concerned here only with whether unfairness requires a showing
of a likely injury to competition, not whether deceptive practices require such a
showing. W e therefore join the those circuits requiring a plaintiff who challenges
a practice under § 202(a) to show that the practice injures or is likely to injure
competition.
3. OK’s Alleged Violations of § 202(a)
After determining that § 202(a) requires proof of an injury or likely injury
to competition, the District Court concluded that the Growers had failed to raise a
genuine issue of material fact regarding competitive injury. W e review the
District Court’s grant of summary judgment de novo, Bryant v. Farmers Ins.
-22-
Exch., 432 F.3d 1114, 1124 (10th Cir. 2005), and will affirm its decision only if
the record “show[s] that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P.
56(c). In review ing the record, “w e must view the evidence and draw reasonable
inferences therefrom in the light most favorable to the nonmoving party.” Bryant,
432 F.3d at 1124.
In granting summary judgment in OK’s favor, the District Court held:
To prove monopoly power typically requires the wilful acquisition or
maintenance of such power as distinguished from growth or
development as a consequence of a superior product, business
acumen, or historic accident. M onopoly power includes power to
exclude competition. Plaintiffs have not presented evidence
demonstrating entry barriers or other circumstances which
improperly preclude other integrators from competing in this market
with defendants. The mere fact that the defendants are the sole
integrator does not demonstrate an illegal monopsony. M oreover, the
plaintiffs are not competitors of defendants. Thus, injury to them by
the allegedly “unfair” contract does not demonstrate injury to
competition.
(internal citations omitted). The Growers argue that the District Court erred
because it implied that (1) an injury to competition only arises in the context of
unlawful monopolization; and (2) an injury to competition only arises when a
competitor is injured.
W e agree that the District Court erred in its legal analysis of what
constitutes a competitive injury under § 202(a). As we noted above, Congress
intended the PSA to have a broader scope than the antitrust laws. The antitrust
-23-
requirement that monopoly power be acquired willfully and include the power to
exclude competitors does not apply in the context of the PSA . By holding that
§ 202(a) requires proof that a practice has injured or is likely to injury
competition, we have not required a showing that the defendant engaged in the
unfair practice with the intent to cause the injury or other unlaw ful effect. 9
Instead, the Growers need only prove that specific practices have the effect of
injuring competition or are likely to do so. M oreover, as we explain below, when
analyzing whether a buyer’s “monopsony” power injures competition, as in this
case, the inquiry is somew hat different from the inquiry into w hether a seller’s
monopoly power injures competition.
The record contains evidence that supports the Growers’ contention that
OK is a monopsony in the relevant regional market. A monopsony is “a condition
of the market in which there is but one buyer for a particular commodity.”
Telecor Commc’ns, Inc. v. Sw. Bell Tel. Co., 305 F.3d 1124, 1133 n.4 (10th Cir.
2002) (quotation omitted). Because the poultry market is vertically integrated, if
OK is the only integrator in the area, as the Growers suggest, it may constitute a
monopsony. The District Court’s characterization of this logic as a “non
sequitur” is therefore incorrect. We have previously acknowledged that a
9
Indeed, we have recognized that § 202(a) focuses on conduct and does not
require proof of wrongful intent: “Nothing in the language of [§ 202(a)] . . .
requires a showing of wrongful intent. To the contrary, the focus is solely on the
acts committed or omitted.” Excel Corp., 397 F.3d at 1294.
-24-
monopsony may exist when sellers are unable to find alternative buyers and must
sell to a single purchaser. Id. at 1135–36.
Furthermore, we have acknowledged that, like a monopoly, a monopsony
can threaten competition. Id. at 1135 (“Economists . . . have long recognized that
market inefficiencies created by anticompetitive restraints on input markets can
be as destructive of a free market economy (and therefore ultimately damaging to
consumers) as restraints on output markets.”). According to economists, without
competition from other buyers, a monopsonist will low er prices paid to sellers,
which over time results in higher consumer prices. 10 In other w ords, a poultry
processor with monopsony power can fix and manipulate prices resulting in injury
to both poultry producers (i.e., growers) and end-users (i.e., consumers). W e
explained why depression of prices potentially injures both producers and
consumers in Telecor: “Some producers will either produce less or cease
production altogether, resulting in less-than-optimal output of the product or
service, and over the long run higher consumer prices, reduced product quality, or
substitution of less efficient alternative products.” Id. at 1136.
In addition, in the vertically integrated poultry market, a processor with a
monopsony need not wait for poultry growers to produce less to increase prices
10
The danger of increased consumer prices is especially acute when the
monopsonist resells in a monopolized market. See P HILLIP E. A REEDA &
H ERBERT H OVENKAMP , 3 A NTITRUST L AW : A N A NALYSIS OF A NTITRUST
P RINCIPLES AND T HEIR A PPLICATION § 720a n.1 (2005).
-25-
on the wholesale market because the processor also controls the growers’ supply.
It may simply deliver fewer chicks to the growers, pay them the same low prices,
and resell at the same or a higher price. W hen this happens, both the growers and
the end-users are adversely affected. That is, by manipulating prices to suppliers,
a monopsonist threatens to injure the end-users. Id. at 1136 (“[M ]onopsonies fall
under antitrust purview because monopsonistic practices w ill eventually adversely
affect consumers.”); id. at 1134 (“Tenth Circuit case law . . . reject[s] the notion
that a m onopsony plaintiff must prove end-user impact.”); see also M andeville
Island Farms v. Am. Crystal Sugar Co., 334 U.S. 219, 235 (1948) (holding that
sugar beet growers had stated a valid monopsony claim under the Sherman Act
even though they did not allege end-user impact). Hence, to establish that the
practices of a monopsonist have injured or are likely to injure competition, a
plaintiff does not have to be a competitor of the buyer or demonstrate that the
buyer has improperly excluded other competitors. Instead, the plaintiff must
show that the monopsonist’s practices have caused or are likely to cause the
anticompetitive effect associated with monopsonies, namely the arbitrary
manipulation of market prices by unilaterally depressing seller prices on the input
market with the effect (or likely effect) of increasing prices on the output market.
As we noted above, shortly after the PSA’s passage, the Supreme Court
identified these very harms as the reason Congress passed the Act: the “‘chief
evil’” Congress sought to prevent was “‘the monopoly of the packers, enabling
-26-
them unduly and arbitrarily to lower prices to the shipper who sells, and unduly
and arbitrarily to increase the price to the consumer who buys.’” M ahon v.
Stowers, 416 U.S. 100, 106 (1974) (quoting Stafford v. Wallace, 258 U.S. 495,
514–15 (1922)); see also Swift & Co. v. United States, 393 F.2d 247, 254 (7th Cir.
1968) (“The lack of competition between buyers, w ith the attendant possible
depression of producers’ prices, was one of the evils at which the Packers and
Stockyards A ct was directed.”); Bruhn’s Freezer Meats of Chicago, Inc. v. USDA,
438 F.2d 1332, 1337 (8th Cir. 1971) (noting one of the purposes of the PSA was
“to assure fair trade practices in the livestock marketing and meat-packing
industry in order to safeguard farmers and ranchers against receiving less than the
true market value of their livestock”). Although Congress did not intend to
“‘upset the traditional principles of freedom of contract,’” see Pickett v. Tyson
Fresh M eats, Inc., 420 F.3d 1272, 1280 (11th Cir. 2005) (quoting Jackson, 53
F.3d at 1458), it did intend to prevent those practices that facilitate the packers’
arbitrary manipulation of prices and complete subversion of normal market
forces.
Although other circuits have noted that supply contracts between producers
and processors of livestock can increase efficiency, they tend to focus on the
benefits to the processor, rather than the market as a whole. See Pickett, 420 F.3d
at 1283 (“[B]eing able to keep its processing plants operating at capacity has
increased [the processor’s] efficiency.”); IBP, Inc., 187 F.3d at 978 (concluding
-27-
that the terms of the contracts allowed the processor “to have a more reliable and
efficient method of obtaining a supply of cattle”). But even if supply contracts
increase a processor’s efficiency, they may threaten the efficiency of the relevant
market when a monopsony is able to manipulate the market by depressing
producers’ prices and increasing resale prices. 11 Hence, to demonstrate that a
monopsonist has engaged in “unfair practices” under § 202(a), a seller must show
that the buyer’s practices threaten to injure competition by arbitrarily decreasing
prices paid to sellers with the likely effect of increasing resale prices.
After reviewing the record in the case before us, we find that a genuine
issue of material fact exists as to whether O K engaged in unfair practices in
violation of § 202(a). In particular, we note that the record contains evidence of
the classic monopsony injury, namely that OK is depressing the prices it pays the
Growers and reselling at inflated prices. If OK does not compete with other
buyers and completely controls the supply to its growers, it may be able to
manipulate prices by controlling supply and demand. The record contains expert
11
Although this case does not involve horizontal price-fixing by a group of
buyers, OK’s alleged practices manipulate the market in a similar fashion:
“[M ]arket manipulation in its various manifestations is implicitly an artificial
stimulus applied to (or at times a brake on) market prices, a force which distorts
those prices, a factor which prevents the determination of those prices by free
competition alone.” United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223
(1940) (explaining price-fixing as a form of market manipulation). Like illegal
price-fixing agreements, a monopsonist’s use of supply contracts to manipulate
the market poses the risk that prices will be determined by artificial, rather than
market, forces.
-28-
testimony identifying specific practices that are likely to injure competition in
this way. For example, when wholesale prices are weak, OK delays delivery of
chicks to growers, thereby decreasing the production of broilers by growers and
causing prices to rise on the wholesale market (which eventually adversely affects
consumers). Growers are also adversely affected because they produce (and
therefore sell) fewer chickens. Furthermore, the record contains evidence that the
Growers are paid the same under OK’s pricing system during periods of reduced
production as they are during periods of average and above average production.
In other words, OK can decide to reduce production (to reap the benefits of higher
prices on the wholesale market), but it does not have to pay its growers the higher
prices that a reduction in supply would demand in a competitive market.
W e are not suggesting that uncompetitive prices alone are unlaw ful. Courts
have routinely noted that, short of predatory pricing, a monopolist’s
uncompetitive prices do not violate antitrust laws. See, e.g., Kartell v. Blue
Shield of M ass., Inc., 749 F.2d 922, 927 (1st Cir. 1984) (“Ordinarily . . . even a
monopolist is free to exploit whatever market power it may possess when that
exploitation takes the form of charging uncompetitive prices.”). 12 But if a
12
In acknowledging that an insurer could use its market power to “keep
prices down,” the court in Kartell noted that the lower prices the insurer paid
doctors for their services did not result in higher consumer prices, 749 F.2d at
930–31, and that both parties “sit on opposite sides of the bargaining table,” id. at
929 (quotation omitted). W e are confronted with a potentially different
arrangement in the case before us. The record contains evidence that OK’s
(continued...)
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monopsonist’s uncompetitive prices are a result not solely of its market power,
but also of practices that result in complete control of the input (supply) market,
the effect of the monopsonist’s practices may be an injury to competition.
M oreover, although PSA claims against processors for practices associated with
supply contracts have not enjoyed much success, these cases are factually
different from the one before us. See Pickett, 420 F.3d 1272; IBP, Inc., 187 F.3d
974. For example, the producers in these cases did not allege the existence of a
monopsony. In addition, the supply contracts guaranteed producers a price tied to
market prices, and overall, the arrangements created incentives and efficiencies
that benefitted consumers. Pickett, 420 F.3d at 1284 (“[I]t was undisputed . . .
that marketing agreements are a more efficient means for both meat packers and
cattle producers to operate in the market.”); IBP, Inc., 187 F.3d at 978 (explaining
that the marketing agreements “essentially ensure[] that the potential for undue or
arbitrary lowering of prices is eliminated”); see also Griffin v. Sm ithfield Foods,
Inc., 183 F. Supp. 2d 824, 827 (E.D. Va. 2002) (granting summary judgment in
favor of a defendant packer because the plaintiff producers had not identified any
specific practices that violated the PSA).
W e therefore conclude that, if the Growers prove that OK engaged in the
12
(...continued)
practices are likely to increase end-user prices. M oreover, the supply contracts
with the Growers give OK complete control over the input market (i.e., the
chickens available to OK for purchase), leaving the growers with little, if any,
ability to bargain.
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arbitrary price manipulation described above with the effect or likely effect of
depressing prices to the growers and reselling at increased prices, they may
establish that OK engaged in unfair practices in violation of § 202(a). W e are by
no means suggesting that vertically integrated markets will always violate the
PSA. Rather, we hold that § 202(a) is violated when a monopsonist engages in
specific practices that result in or are likely to result in the anticompetitive effects
the PSA was designed to prevent. To prove a violation, the Growers may not rely
on the sum total of various practices that individually are not likely to injure
competition, but must instead prove that specific practices have caused or are
likely to cause injury. Capitol Packing Co., 350 F.2d at 76–77 (“[S]pecified
methods of dealing which are not themselves violations of the [PSA] cannot,
when added together, become a violation.”). Because the record contains
evidence that OK may engage in specific practices that are likely to injure
competition, we reverse the District Court’s grant of summary judgment in favor
of OK and remand for further consideration in light of this opinion.
4. Discovery Ruling
Following the District Court’s adverse ruling on their PSA claim, the
Growers moved the court to reopen discovery for the limited purpose of
discovering information regarding the likelihood of an injury to competition. The
District Court denied the motion. The G rowers argue that, because of the first
judge’s ruling that such proof is not required and because discovery had closed in
-31-
the interim, the District Court erred in refusing to reopen discovery.
W e review a district court’s denial of a motion to reopen discovery for an
abuse of discretion. SIL-FLO , Inc. v. SFHC, Inc., 917 F.2d 1507, 1514 (10th Cir.
1990). “Under this standard, a trial court’s decision will not be disturbed unless
the appellate court has a definite and firm conviction that the lower court made a
clear error of judgment or exceeded the bounds of permissible choice in the
circumstances.” Id. (quotation omitted).
W hen OK moved for summary judgment on the Growers’ PSA claim, it
explicitly re-raised the issue in dispute. 13 The Growers therefore had fair warning
that the issue was back on the table for resolution. In fact, they addressed the
argument in their response to O K’s motion. They argued that the law of the case
bound the court to the prior ruling, but that in any event they had presented
sufficient evidence of an injury to competition to withstand summary judgment.
Only when the D istrict Court disagreed with both propositions did the Grow ers
seek to reopen discovery, arguing that they did not have an opportunity to
discover the relevant information.
“[T]he Supreme Court has held that, under Fed. R. Civ. P. 56(f), ‘sum mary
13
At this juncture, we would like to note that both parties flouted their duty
under this Circuit’s rules to include in the record the relevant motion for sum mary
judgment, supporting brief, and response. See 10th Cir. R. 10.3(D)(2). Though
w e are not required to do so, w e have obtained copies of the documents. But w e
advise that in the future the parties diligently adhere to the rules of the Circuit if
they wish to avoid unwittingly waiving arguments.
-32-
judgment [should] be refused where the nonmoving party has not had the
opportunity to discover information that is essential to his opposition.’” Dreiling
v. Peugeot M otors of Am., Inc., 850 F.2d 1373, 1376 (10th Cir. 1988) (alteration
in original) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 n.5
(1986)). Rule 56(f)’s protection is not absolute, however, as its protection “arises
only if the nonmoving party files an affidavit explaining why he or she cannot
present facts to oppose the motion.” Id. To benefit from the rule, a party “at a
minimum must ask the court to refrain from acting on the summary judgment
request until additional discovery can be conducted.” C.B. Trucking, Inc. v.
Waste M gmt., Inc., 137 F.3d 41, 44 (1st Cir. 1998); see also Allen v. Sybase, Inc.,
468 F.3d 642, 662 (10th Cir. 2006) (concluding that a party’s “footnote request in
its [response] brief for additional discovery time does not pass muster under rule
56(f)”). “[A] party ordinarily may not attempt to meet a summary judgment
challenge head-on but fall back on Rule 56(f) if its first effort is unsuccessful.”
C.B. Trucking, Inc., 137 F.3d at 44. The Growers, with full knowledge that the
District Court would be re-evaluating the competitive injury requirement under
§ 202(a), took no steps to request time for additional discovery; nor did they take
steps to fulfill the requirements of Rule 56(f). In such a case, we are not left with
a “definite and firm conviction that the lower court made a clear error of
judgment or exceeded the bounds of permissible choice in the circumstances.”
SIL-FLO , Inc., 917 F.2d at 1514 (10th Cir. 1990). W e note, however, that on
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remand the parties may seek to reopen discovery, and the District Court may, in
its discretion, grant such requests.
B. The Growers’ Unconscionability Claim
The Growers claim that the broiler contract is unconscionable because of
the gross imbalance of obligation borne by growers. For example, they point to
the fact that the contract guarantees only a single flock of chicks although a
grower must raise broilers for at least fifteen years to recoup its investment. They
also note that OK is not obligated to place a minimum number of chicks or flocks
with each grower, and growers are obligated to make improvements to chicken
houses before OK will place additional flocks with them.
W e must first address a threshold choice-of-law question. Beginning in
1997, OK’s broiler contracts included a choice-of-law provision, designating the
law of Arkansas as the governing law. Consequently, in its order granting
summary judgment, the District Court held that Oklahoma law governed the pre-
1997 contracts and Arkansas law governed the contracts entered into thereafter.
To decide the effect of the contractual choice-of-law clause, we look to the
forum state’s choice-of-law rules. See Dang v. UNUM Life Ins. Co. of Am., 175
F.3d 1186, 1190 (10th Cir. 1999) (“A federal court adjudicating state law claims
m ust apply the forum state’s choice of law principles.”). Under Oklahoma law,
“a contract will be governed by the laws of the state where the contract was
entered into unless otherwise agreed and unless contrary to the law or public
-34-
policy of the state where enforcement of the contract is sought.” Williams v.
Shearson Lehman Bros., Inc., 917 P.2d 998, 1002 (O kla. Civ. App. 1995).
Because we conclude that the Growers’ unconscionability claim fails under both
Oklahoma and Arkansas law, we need not decide whether the application of
Arkansas law would be contrary to Oklahoma’s law or public policy. In reaching
this decision, we review the District Court’s interpretation of state law de novo.
Steiner Corp. v. Johnson & H iggins of Cal., 135 F.3d 684, 690 (10th Cir. 1998)
(citing Salve Regina College v. Russell, 499 U.S. 225 (1991)).
As an initial matter, the Oklahoma Supreme Court has never addressed
whether Oklahoma common law would recognize an affirmative cause of action
seeking damages for unconscionability in contract. Nevertheless, Oklahoma’s
unconscionability standard is so onerous that the Growers cannot meet that
standard here. An unconscionable contract is one in which, “at the time of
making of the contract, and in light of the general commercial background and
comm ercial needs of a particular case, clauses are so one-sided as to oppress or
unfairly surprise one of the parties.” Barnes v. Helfenbein, 548 P.2d 1014, 1020
(Okla. 1976). “Unconscionability has generally been recognized to include an
absence of meaningful choice on the part of one of the parties, together with
contractual terms which are unreasonably favorable to the other party.” Id.
W hether the Growers lacked any meaningful choice is determined by “‘all
the circumstances surrounding the transaction.’” Id. at 1020 n.12 (quoting
-35-
Williams v. Walker-Thom as Furniture Co., 350 F.2d 445, 449–50 (D.C. Cir.
1965)). Relevant factors include whether the aggrieved party had a reasonable
opportunity to understand the terms of the contract and whether the important
terms were hidden “in a maze of fine print” or were “minimized by deceptive
sales practices.” Id. (quotation omitted). Generally, “one who signs an
agreement without full know ledge of its terms might be held to assume the risk
that he has entered a one-sided bargain.” Id. (quotation omitted). On the other
hand, if there is a gross inequality of bargaining power and the aggrieved party
signs a “commercially unreasonable contract with little or no knowledge of its
terms, it is hardly likely that his consent, or even an objective manifestation of his
consent, was ever given to all the terms.” Id. (quotation omitted).
Similar principles apply in A rkansas. In assessing whether a contract or a
particular provision is unconscionable, the court must “review the totality of the
circumstances surrounding the negotiation and execution of the contract,” taking
into consideration “whether there is a gross inequality of bargaining power
between the parties and whether the aggrieved party was made aware of and
comprehended the provision in question.” Jordan, 207 S.W .3d at 535.
Importantly, however, “it is [generally] not the province of the courts to
scrutinize all contracts with a paternalistic attitude and summarily conclude that
they are partially or totally unenforceable merely because an aggrieved party
believes that the contract has subsequently proved to be unfair or less beneficial
-36-
than anticipated.” Assoc. Press v. S. Ark. Radio Co., 809 S.W .2d 695, 697 (Ark.
Ct. App. 1991) (quotation and alteration omitted). Indeed, in Arkansas, “parties
are free to make contracts based on whatever terms and conditions they agree
upon, provided it is not illegal or tainted with some infirmity such as fraud,
overreaching, or the like.” Hancock v. Tri-State Ins. Co., 858 S.W .2d 152, 154
(Ark. Ct. App. 1993) (en banc).
None of these circumstances are present here. Although the D istrict Court
recognized the potential for some inequality of bargaining power, it was not a
“gross inequality of bargaining power.” The court noted that the availability of
the broiler contracts is well-know n in the region and has produced a waiting list
of people w ho wish to become growers under the contract— a contract which is
available for review prior to engaging in the capital investment needed to become
a grower.
The Growers argue that the inequality of bargaining power should not be
determined by reference to the availability of contracts and the fact that many
people want to become a grow er for OK. Rather, they suggest that the court
consider whether they lacked any meaningful choice as to the terms of the
contract and whether they had an alternative source for obtaining the desired
service or product. Although Arkansas case law does suggest that these are
relevant considerations, see Nat’l Union Fire Ins. Co. of Pittsburgh v.
Guardtronic, Inc., 64 S.W .3d 779, 783–84 (Ark. Ct. App. 2002), the G row ers are
-37-
incorrect in dismissing the fact that they initiated the contracting process with O K
(i.e., OK did not solicit their business) as irrelevant to the analysis.
In Jordan, the plaintiff was a landscaper who rented large equipment from
the defendant. 207 S.W .3d at 528. The rental agreement contained a boilerplate
provision excusing the defendant from liability for the consequences of its own
negligence in connection with the rental of the equipment. Id. at 531–32. After
the plaintiff was injured by the equipment, he sued, arguing that the exculpatory
clause was unconscionable and therefore unenforceable. The Arkansas Supreme
Court disagreed. The court found no evidence of a “gross inequality of
bargaining power” when the plaintiff “sought out the services” of the defendant
and “paid for the rental equipment after being shown how to operate it.” Id. at
536; see also Barnes, 548 P.2d at 1021 (applying Oklahoma law, court held that
defendant did not behave unconscionably when the plaintiff’s representative
sought out the defendant to enter into a contract).
Furthermore, the Growers do not suggest that they are unsophisticated
parties unable to evaluate the risks of the contract prior to entering into it. And
they do not suggest that they failed to read and understand the terms of the
contract prior to entering into it or even prior to building the chicken houses.
Also worthy of note is that some of the named plaintiffs have been operating
under this allegedly “unconscionable” contract for nearly twenty years.
Generally, “[t]he fairness or unfairness, folly or wisdom, or inequality of
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contracts are questions exclusively within the rights of the parties to adjust at the
time the contract is made.” Id. W e therefore affirm the District Court’s grant of
summary judgment in favor of OK on the Growers’ unconscionability claim.
III. C ON CLU SIO N
Section 202(a) of the Packers and Stockyards Act requires a plaintiff who
claims that a defendant’s conduct was “unfair” to show that such conduct results
in or is likely to result in an injury to competition. Because the record contains
evidence that raises a genuine issue of material fact concerning the G rowers’
§ 202(a) claim, we REVERSE the D istrict Court’s order granting OK summary
judgment on this claim and REM AND for further proceedings consistent with this
opinion. The Growers have, however, failed to show that the contracts at issue
are unconscionable under state law. Accordingly, we AFFIRM the decision of the
District Court granting summary judgment in O K’s favor on the G rowers’
unconscionability claim. In addition, we AFFIRM the District Court’s denial of
the Growers’ motion to reopen discovery, but do so without prejudice to
subsequent requests to reopen discovery on remand. W e also deny the G rowers’
motion to file a second supplemental appendix because the document they seek to
add was not part of the record before the District Court.
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05-7079, Been v. O.K. Industries, Inc.
HA RTZ, Circuit Judge, concurring/dissenting
I join Chief Judge Tacha’s thorough and scholarly opinion for the panel
except for Part II.A.2, entitled “Interpretation of ‘Unfair Practices’ under
§ 202(a)” and Part II.A.3, entitled, “OK’s Alleged Violations of § 202(a).” I
arrive at almost the same destination regarding statutory interpretation, but
through a rather different route. In my view a practice may be “unfair” under
§ 202(a) of the Packers and Stockyards Act (PSA ) even though it causes no
competitive injury. In interpreting that provision we owe respect to the
longstanding view of the U nited States D epartment of Agriculture (USDA),
although I would reach the same interpretation even without reference to that
view. On the other hand, the majority opinion’s conception of com petitive injury,
which I do not share, appears to be broad enough that many, perhaps all, of the
practices that could properly be labeled unfair would satisfy its competitive-
injury requirement. Finally, I would affirm the district court’s decision that the
Growers failed to provide evidence showing that the practices challenged on
appeal were unfair.
I. D EFE RE NC E T O THE USDA
The deference issue in this case is a very interesting one. The majority
opinion appears to acknowledge that we would need to grant Chevron deference
to the U SD A ’s interpretation of PSA § 202(a), 7 U.S.C. § 192(a), if the USDA
had “authority to adjudicate alleged violations of § 202 by live poultry dealers.”
Op. at 13. See Chevron USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S.
837 (1984) (court should defer in certain circumstances to agency’s reasonable
interpretation of ambiguous statutory language). Certainly such deference would
appear to be required by the Supreme Court’s gloss on Chevron in United States
v. M ead Corp., 533 U.S. 218, 226–27 (2001):
[A]dministrative implementation of a particular statutory provision
qualifies for Chevron deference when it appears that Congress
delegated authority to the agency generally to make rules carrying
the force of law, and that the agency interpretation claiming
deference was promulgated in the exercise of that authority.
Delegation of such authority may be shown in a variety of ways, as
by an agency’s power to engage in adjudication or notice-and-
comment rulemaking, or by some other indication of a comparable
congressional intent.
As the majority opinion correctly notes, the USD A does not have
adjudicatory authority over § 202(a) violations by live-poultry dealers. The
USDA does, however, have authority to adjudicate § 202(a) violations by packers.
See 7 U.S.C. § 193. M ost of the judicial decisions cited by the majority opinion
involved packers, see, e.g., Armour & Co. v. United States, 402 F.2d 712 (7th Cir.
1968); IBP, Inc. v. Glickman, 187 F.3d 974, 977 (8th Cir. 1999), so we have the
peculiar situation of not granting Chevron deference to the USD A in this case but
relying on cases in which Chevron deference would have been proper.
I confess to having no idea how the Supreme Court would resolve this
conundrum. Perhaps it would avoid the issue as I do, by agreeing with the
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USD A’s interpretation. But at the least I would think that we owe respect to the
experience and expertise of the USDA regarding the PSA. See Skidmore v. Swift
& Co., 323 U.S. 134, 139–40 (1944). In that regard it is worth noting that 26
years ago a treatise could report that the USDA “has consistently taken the
position that in order to prove that a practice violates the broad prohibitions in
§§ 202(a) and (b) . . . of the [PSA], it is not necessary to prove predatory intent,
competitive injury, or likelihood of injury.” 1 John H. Davidson et al.,
Agricultural Law § 3.47, at 244 (1981). Such a longstanding view of an agency is
entitled to more respect than an ad hoc litigating position. Cf. INS v. Cardoza-
Fonseca, 480 U.S. 421, 446 n.30 (1987) (“An agency interpretation of a relevant
provision which conflicts w ith the agency’s earlier interpretation is entitled to
considerably less deference than a consistently held agency view.” (internal
quotation marks omitted)).
In any event, even if the USDA had never addressed the matter, I w ould
interpret the term unfair practices as not requiring competitive injury. I am
persuaded by the Supreme Court’s interpretation of the term unfair practices in
the Federal Trade Commission Act (FTCA), the relationship between the PSA and
that A ct, and an early Supreme Court decision explaining the purpose of the PSA .
In Federal Trade Commission v. Sperry & Hutchinson Co., 405 U.S. 233
(1972), the Supreme Court construed § 5(a)(6) of the FTCA, 15 U.S.C. § 45(a)(6),
which stated in pertinent part:
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The Commission is empowered and directed to prevent persons,
partnerships, or corporations . . . from using unfair methods of
competition in commerce and unfair or deceptive acts or practices in
commerce.
(amended and now recodified as 15 U.S.C. § 45(a)(2)). The Federal Trade
Commission (FTC) had held that Sperry & Hutchinson (S& H) had violated the
FTCA by attempting “to suppress the operation of trading stamp exchanges and
other ‘free and open’ redemption of stamps.” Sperry & Hutchinson, 405 U.S. at
234. S& H challenged the resulting cease-and-desist order, and the Fifth Circuit
agreed, holding that the FTC could halt only conduct that “violated either the
letter or the spirit of the antitrust laws.” Id. at 235. Before the Supreme Court
the FTC did not dispute that S& H’s conduct violated neither the letter nor spirit
of the antitrust laws; rather, it contended that its authority was not limited to such
conduct. Id. at 239. The Court held that the FTCA “empower[s] the [FTC] to
proscribe practices as unfair or deceptive in their effect upon consumers
regardless of their nature or quality as competitive practices or their effect on
competition.” Id.
The prior history of the Court’s interpretations of § 5(a)(6) and Sperry &
Hutchinson’s comments on that history have, as we shall see, particular
implications for interpreting the PSA . The original version of the FTCA, enacted
in 1914, did not include the language empow ering the FTC to prevent “unfair or
deceptive acts or practices in commerce”; the Act provided power only to prevent
-4-
“unfair methods of competition in commerce.” Federal Trade Commission Act,
Pub. L. No. 63-203, § 5, 38 Stat. 717, 719 (1914) (emphasis added). In 1920 (the
year before enactment of the PSA ) the Supreme Court, over the dissent of Justice
Brandeis, one of the FTCA’s drafters, adopted a limiting interpretation of “unfair
methods of competition,” restricting the covered practices to those “heretofore
regarded as opposed to good morals because characterized by deception, bad
faith, fraud or oppression, or as against public policy because of their dangerous
tendency unduly to hinder competition or create monopoly.” FTC v. Grata, 253
U.S. 421, 427 (1920); see Sperry & Hutchinson, 405 U.S. at 241. Later, in
Federal Trade Commission v. Raladam Co., 283 U.S. 643, 649 (1931), the C ourt
made clear that an unfair method must be unfair to competitors. It said:
[T]he word ‘competition’ imports the existence of present or
potential competitors, and the unfair methods must be such as
injuriously affect or tend thus to affect the business of these
competitors— that is to say, the trader whose methods are assailed as
unfair must have present or potential rivals in trade w hose business
will be, or is likely to be, lessened or otherwise injured.
Three years later, however, the Supreme Court changed course in Federal
Trade Commission v. R.F. Keppel & Bro., Inc., 291 U.S. 304 (1934). As
explained in Sperry & Hutchinson, 405 U.S. at 242–43, the Court in Keppel
upheld an FTC cease-and-desist order against a candy marketing scheme on the
ground that it “contravened public policy insofar as it tem pted children to gamble
and compelled those who would successfully compete with Keppel to abandon
-5-
their scruples by similarly tempting children.” The marketing scheme “was
‘unfair,’ though any competitor could maintain his position simply by adopting
the challenged practice.” Id. at 243. Sperry & Hutchinson concluded its
summary of Keppel as follows: “Thenceforth, unfair competitive practices were
not limited to those likely to have anticompetitive consequences after the manner
of the antitrust law; nor were unfair practices in commerce confined to purely
competitive behavior.” Id. at 244. The Court then noted that the Keppel
decision’s “perspective” of the FTCA “was legislatively confirmed” in 1938 when
Congress amended the Act by adding the phrase “unfair or deceptive acts or
practices” to the original ban on “unfair methods of competition.” Id. at 244
(internal quotation marks omitted). The Court thought that the language unfair or
deceptive acts or practices clearly did not require anticompetitive conduct. See
id.
To return to the PSA, the original 1921 language of § 202(a) made it
unlawful to “Engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device in commerce.” Pub. L. No. 67-51, § 202, 42 Stat. 161. The
language “unfair . . . practice . . . in commerce” is the very language construed by
Sperry & Hutchinson as not requiring an “effect on competition.” 405 U.S. at
239. M oreover, the language is part of the same language in the 1938
amendments to the FTCA that Sperry & Hutchinson described as “confirm[ing]”
-6-
the Keppel view that unfair practices under the FTCA were not “confined to
purely competitive behavior.” Id. at 244.
Particularly notew orthy is that the language of PSA § 202(a) more clearly
omits a competitive-effect requirement than does the FTCA language construed in
Keppel. Section 202(a) does not include the phrase “restraining comm erce” that
appears in other subsections of § 202. See § 202(c) (“if such apportionment has
the tendency or effect of restraining comm erce”); § 202(d) (transferring or
reviewing an article “for the purpose or with the effect of . . . restraining
comm erce”); § 202(e) (doing “any act for the purpose or with the effect of
. . . restraining commerce”). And perhaps more striking, § 202(a) does not use
the FTCA’s language “unfair methods of competition” construed in Keppel.
Perhaps this failure to adopt the language of the FTCA, enacted seven years
earlier, was to avoid the narrow construction of the FTCA by the Supreme Court
in Grata, decided shortly before enactment of the PSA.
Comparison of the PSA to the FTCA is sensible because the PSA is an
offspring of the FTCA. In 1917 President W ilson ordered an FTC investigation
of the food industry. See Davidson et al., supra, § 3.02, at 187. The FTC’s report
condemned the practices of the meat-packing industry. See id. The five largest
packers entered into a consent decree under the Sherman Act in 1920, but the
PSA was enacted in 1921, presumably because the antitrust laws and the FTCA
were deemed inadequate to the task of dealing with the problem. See id. at
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187–88. In that light it would be somewhat surprising if “unfair practices” under
the PSA had a narrower meaning than “unfair methods of competition” in the
FTC A.
Supporting this view is the discussion of the recently enacted PSA in
Stafford v. Wallace, 258 U.S. 495 (1922), which upheld the PSA’s
constitutionality. Some courts have relied on the Supreme Court’s statement in
that opinion that “[t]he chief evil feared is the monopoly of the packers.” Id. at
514. But the purpose of the PSA was not just to end the packers’ monopoly. The
1920 consent decree should have accomplished that task. The PSA ’s purpose was
to end the sort of practices engaged in by the monopoly, practices that could
certainly be characterized as unfair but could not easily be characterized as
restricting competition. This point is made clear by quoting at length from Chief
Justice Taft’s opinion for the Court:
The object to be secured by the act is the free and unburdened
flow of live stock from the ranges and farms of the W est and the
Southwest through the great stockyards and slaughtering centers on
the borders of that region, and thence in the form of meat products to
the consuming cities of the country in the M iddle W est and East, or,
still, as live stock, to the feeding places and fattening farms in the
M iddle W est or East for further preparation for the market.
The chief evil feared is the monopoly of the packers, enabling
them unduly and arbitrarily to lower prices to the shipper who sells,
and unduly and arbitrarily to increase the price to the consumer, who
buys. Congress thought that the power to maintain this monopoly
was aided by control of the stockyards. Another evil which it sought
to provide against by the act, was exorbitant charges, duplication of
commissions, deceptive practices in respect of prices, in the passage
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of the live stock through the stockyards, all made possible by
collusion between the stockyards management and the commission
men, on the one hand, and the packers and dealers on the other.
Expenses incurred in the passage through the stockyards necessarily
reduce the price received by the shipper, and increase the price to be
paid by the consumer. If they be exorbitant or unreasonable, they are
an undue burden on the commerce which the stockyards are intended
to facilitate. Any unjust or deceptive practice or combination that
unduly and directly enhances them is an unjust obstruction to that
commerce. The shipper, whose live stock are being cared for and
sold in the stockyards market is ordinarily not present at the sale, but
is far away in the W est. He is wholly dependent on the commission
men. The packers and their agents and the dealers who are the
buyers, are at the elbow of the commission men, and their relations
are constant and close. The control that the packers have had in the
stockyards by reason of ownership and constant use, the relation of
landlord and tenant between the stockyards owner, on the one hand,
and the commission men and the dealers on the other, the power of
assignment of pens and other facilities by that owner to commission
men and dealers, all create a situation full of opportunity and
temptation to the prejudice of the absent shipper and owner in the
neglect of the live stock, in the mala fides of the sale, in the
exorbitant prices obtained, in the unreasonableness of the charges for
services rendered.
The scope of the PSA is further reflected in the accompanying House Report,
which states:
A careful study of the bill, will, I am sure, convince one that it, and
existing law s, give the Secretary of Agriculture complete
inquisitorial, visitorial, supervisory, and regulatory power over the
packers, stockyards and all activities connected therewith; that it is a
most comprehensive measure and extends farther than any previous
law in the regulation of private business, in time of peace, except
possibly the interstate commerce act.
H.R. Rep. No. 67-77, at 2 (1924).
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It appears to me that the condemned practices described by Chief Justice
Taft are of the same ilk as those that the majority opinion holds are covered by
the PSA. W here I differ from the majority opinion in this regard is that I would
not describe the injuries caused by those practices as competitive injuries. The
majority opinion does not explain how the alleged practices hurt OK’s
competitors or even how they injure competition among the Growers. The
alleged injuries may be caused by the existence of a monopoly. But it is unclear
to me how the practices (such as unilaterally decreasing production by delivering
fewer chicks to grow ers) reduce competition among either grow ers or dealers. If
competitive injury were required by § 202(a), I would agree with the district court
that the Growers had not presented sufficient evidence of such injury.
Turning to the specific allegations of this case, I depart from the majority
opinion in that I would affirm the decision below because the Growers have not
presented sufficient evidence to support their claims that the practices at issue on
appeal are unfair. M y reasons are essentially the same as the majority opinion’s
reasons for rejecting the Growers’ unconscionability claims. The Growers are not
existing producers who sought a market for their product and were confronted
with OK’s take-it-or-leave-it contracts. Rather, they entered into their businesses
only after approaching OK and seeking approval to become its suppliers. The
terms of the contract were known. The Growers made an informed decision to
enter the industry. To the extent that the Growers claim that the contract
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misrepresents O K’s actual practice, those are deceptive-practice claims; and it is
my understanding that such claims are not before us. Perhaps OK’s exercise of
its authority under the contract to reduce the number of birds placed with the
Growers could be an unfair practice if it were the result of an effort by OK to
drive up prices for its products. But the Growers’ briefs on appeal do not allege
that any reduction in placement has occurred.
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Been v. O.K. Industries, Inc.
Court: Court of Appeals for the Tenth Circuit
Date filed: 2007-07-31
Citations: 495 F.3d 1217
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