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Get it in writing

Get it in writing. That is common advice when finalizing any kind of a business agreement. Reducing the arrangement to written language for both parties to review before signing should reduce the chances for complications later on.

All of the paper in the world, however, cannot force folks to work together and comply with the terms of their contracts. Just ask J. David Mongold, owner of M & M Poultry Farm in Dorcas, WV, and Pilgrim’s Pride, the second-largest live poultry dealer in the United State, an indirect, wholly-owned subsidiary of Brazil-based JBS SA, the largest animal protein processor in the world.

On May 8, Mongold sued Pilgrim’s Pride in federal court, alleging breach of contract, breach of the covenant of good faith and fair dealing, tortious interference and violations of the federal Packers and Stockyards Act of 1921. He contends that Pilgrim’s interference in virtually every aspect of his operation pushed his family farm into bankruptcy. Mongold is seeking compensatory and punitive damages.

A commercial poultry producer since 1996, Mongold owned six chicken houses on his farm that could accommodate as many as 148,000 chicks. Mongold became a grower for Pilgrim’s in 2009. The contract provided that Pilgrim’s would deliver flocks of chicks to Mongold’s facilities where he would care for the birds for approximately six weeks before Pilgrim’s would transport the birds for processing at their Moorefield, WV plant.

All I know about the case is what I have found online. And there has been more written about this case than expected, likely because Mongold’s legal team includes former GIPSA (Grain Inspection & Packers & Stockyards Administration) administrator J. Dudley Butler, who led changes to federal law aimed at corporate concentration in the livestock and poultry industries.

Compensation under the contract is distributed in a tournament system, so Mongold was ranked against other Pilgrim’s growers based on live weight divided by the cost of feed and medication that Pilgrim’s supplied. The lawsuit alleges that Pilgrim’s “defrauded Mongold by unilaterally imposing and utilizing the tournament system which wrongfully placed Mongold in competition with his fellow growers, all the while requiring Mongold to accept chicks which are genetically different, chicks with varying degrees of healthiness and feed of dissimilar quantity and quality.”

The real issue with the tournament system, according to the lawsuit, is the criteria used by Pilgrim’s. These criteria were never revealed, explained or discussed with growers. Furthermore, Pilgrim’s requirements for facilities, equipment, technology and management practices varied from grower to grower, creating a ranking system that was arbitrary and capricious. The complaint claims that the key variables that determine growers’ scores, ranking, and ultimately, their compensation, are entirely under Pilgrim’s control and therefore subject to manipulation without detection by the growers, enabling Pilgrim’s to artificially depress a grower’s payout.

The complaint also states that Pilgrim’s terminated the production agreement without the required 90-day notice to afford an opportunity to participate in a “cost improvement program” prior to termination for poor performance, as required by USDA’s GIPSA.

The lawsuit contends that under the arrangement, the growers own the farm and the facility, and pay for the labor, materials and utilities necessary to care for the chickens, all subject to the strict and unrelenting control of every detail by Pilgrim’s. Under such a one-sided arrangement, the only thing a grower can truly call his own is the extensive debt that is accumulated as a direct result of meeting Pilgrim’s strict demands.

This is not the first lawsuit that Pilgrim’s has faced. A quick Google search shows that there have been other unhappy growers. Times have changed since I graduated law school. I frequently advise clients to do a Google search just to see what is online about a company or an individual they are contemplating doing business with.

Integration contracts have been a part of Ohio agriculture for decades. I know many farmers who are pleased with their agreements and contracting companies. An accurate written agreement is crucial when entering into such business relationships. From the WV case, it is obvious that there needs to be full disclosure of documentation and calculations regarding payment, as well as descriptions about how the compensation is determined. Err on the side of too much description. And if the information is not in the written agreement, it often does not count.

Should disputes arise, make sure there contract terms that describe who is notified and how a resolution that is mutually acceptable is determined. Be precise about when the contract starts and stops.

All contracts should stipulate Ohio law governs, unless another jurisdiction can apply that has more favorable statutes. Indicate in which courthouse a lawsuit is filed. If parties are able to terminate the agreement, verify that there is advance notice and to whom.

Before signing is a great time to ask what if and why and play out every possible scenario in your head. Make sure the answers you want are provided for in the document you sign.

Legal experts indicate that this will be a hard lawsuit for Mongold to win against a company of unlimited resources. There will be a great deal of difficulty in trying to prove the point of inferior chickens being delivered to specific growers, along with issues proving a difference in feed being delivered to one farm versus another. Should anything interesting develop in this federal case, I will keep you posted.

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