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Chicken Farmers Lose Pilgrim’s Pride Lawsuit

(CN) - More than a hundred farmers that invested in $150,000 chicken houses cannot intervene in the bankruptcy of Pilgrim's Pride, the 5th Circuit ruled.

Pilgrim's Pride filed for Chapter 11 protection in Dallas just over four years ago. The largest chicken producer in the country, Pilgrim's had been hobbled by an unsustainable debt load related to its 2006 purchase of rival Gold Kist, high feed prices and low chicken prices.

It emerged from bankruptcy one year later after Brazil-based JBS S.A. - the largest meat producer in the world - purchased 64 percent of the company's shares.

Clinton Growers - a collection of over 100 chicken growers - sued the company shortly after its bankruptcy filing, asserting promissory estoppel claims.

Pilgrim's had individually contracted with each grower to supply its Clinton, Ark., plant and agreed to provide the chicks and feed. In exchange, each grower built and maintained the expensive chicken houses, raised the chicks to maturity, and sold them back to Pilgrim's at a price based on their weight.

The plant was idled when Pilgrim's filed for Chapter 11.

Clinton Growers argued that, notwithstanding the terms of the contracts, Pilgrim's made verbal promises that led them to believe they were entering into a long-term relationship.

When Pilgrim's said it "was here for the long haul," the growers said they believed they would receive chickens as long as they met Pilgrim's specifications.

They also claimed that the promises led them to believe they could "more than cover the costs of building and raising the chickens" in the long run if they upgraded their chicken houses.

A bankruptcy judge nevertheless awarded Pilgrim's Pride summary judgment, and U.S. District Judge John McBryde later affirmed.

The New Orleans-based federal appeals court affirmed that decision Thursday.

It said written contracts between Pilgrim's Pride and the Clinton Growers barred the latter's claim of oral promises for a long-term relationship.

Those contracts "stated that either party could terminate the contract without cause between flocks - which lasted between four and nine weeks - but that PPC could end the agreement at any time for 'cause or economic necessity,'" Judge Stephen Higginson wrote for a three-member panel, abbreviating Pilgrim's Pride Corp.

Promissory estoppel claims under Arkansas law only apply when "the elements of a contract cannot be shown," the ruling states

"This 'contract bar' doctrine requires that courts 'never accommodate a party with an implied contract when [the party] has made a specific one on the same subject matter," Higginson wrote. "As a result, a party alleging promissory estoppel can succeed only by showing that the written contract does not cover the subject matter underlying the promissory estoppel claim."

The contracts in this case bar the claim because they both cover the same subject matter: the duration of the agreements, according to the ruling.

"The essence of PPC's alleged oral representations - for example, to commit to the Growers 'for the long haul' - is the promise of a long-term relationship," Higginson wrote. "The plain language of the contracts, however, specifies and is sure that the agreements between PPC and the Growers are to 'continue on a flock to flock basis' - a time period spanning between four and nine weeks."

The panel also disagreed with the growers' argument that the promises enlarged the scope of the contracts by inducing their investment in the chicken houses.

"To the extent that we construe PPC's alleged oral promises to address subject matter other than duration, the plain language of the contracts bars the growers' claims by detailing the growers' compensation, along with their obligation to maintain the chicken houses to PPC's specifications," Higginson wrote. "As the district court correctly observed: 'No plausible argument can be made that the statements on which Clinton Growers rely in support of their promissory estoppel theory are not directly dealt with in their broiler production contracts. The subjects of those statements are express elements of the contracts.'"

Formerly based in Pittsburg, Texas, Pilgrim's is the second-largest chicken producer in the world, with operations in the United States, Mexico and Puerto Rico. Its corporate headquarters was moved to Greeley, Colo., after its purchase. The company employs 38,000 people and has the capacity to process over 36 million birds a week and 9.5 billion pounds of live chicken annually, according to its website.

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