June 4, 2009

The city of Clinton, Ark., is suing Pilgrim's Pride Corp. in bankruptcy court, saying the chicken producer's departure has cost it hundreds of jobs and could cause it to miss bond payments.

 

The city of some 2,200 people, located about 70 miles north of Little Rock, is seeking US$28.5 million in damages in the lawsuit that alleges Pilgrim's Pride closed its Clinton plant last year in an illegal attempt to raise chicken prices, according to papers filed Tuesday with the US Bankruptcy Court in Fort Worth, Texas.

 

"With its largest and sole remaining employer, Pilgrims, now evacuated, the city faces a crisis of revenue, bond payments and economic devastation, and as a result of the Pilgrims evacuation is threatened with becoming a modern day ghost town," Clinton attorneys said in court papers.

 

A Pilgrim's Pride spokesman declined to comment. The Pittsburgh, Texas, company filed for Chapter 11 bankruptcy protection in December 2008.

 

The company announced in an August 2008 press release that it would close the Clinton plant, and another facility in Louisiana, within 60 days in an effort to address the "continued imbalance in supply and demand in the US chicken industry."

 

The plant's closure cost Clinton 450 jobs and leaves the city on the hook for US$8.5 million in municipal bonds without one of its largest tax payers, city attorneys said.

 

Clinton issued the bonds to build a state-of-the-art waste-water treatment centre to handle the high volume of animal waste and other difficult to purify contaminates created by the Pilgrim's Pride plant.

 

The city says it began building the treatment centre in 2005, after Pilgrim's Pride threatened to leave Clinton if a waste-water facility wasn't built.

 

"There was and is no need for the high volume sophisticated series of ponds and waste processing facilities required by Pilgrims except for the processing of Pilgrims' poultry waste products," the city said.

 

In addition to the bond payments, the city wants to recoup US$10.5 million in wages and benefits lost to plant employees, as well as utility bills, unemployment payments and lost tax revenue.

 

In the lawsuit, the city alleges that the plant's closure violates the Packers and Stockyard Act of 1921 because it was done with the intent of "manipulating or controlling" chicken prices.

 

Pilgrim's Pride, the nation's largest chicken processor at the time of its bankruptcy filing, has taken action to close several processing plants both before and after it filed for bankruptcy in an effort to reduce its production capacity.

 

The company says the closures are necessary to counteract the circumstances that led to its bankruptcy filing, namely rising feed prices and falling demand for chicken. The city says the closures were executed to artificially prop up prices by creating a shortage.

 

Clinton attorneys say the city's plant was deliberately chosen because there isn't a competing processor nearby. They say similar plants in other parts of the country were spared because Pilgrim's Pride feared farmers would sell their products to another nearby processor, leaving the overall amount of chicken in the market unchanged.

 

Pilgrim's Pride is still crafting its bankruptcy-exit plan. Last month, the company paid back its US$450 million bankruptcy loan and said it would fund its case with the proceeds from the sale of a Farmerville, La., processing plant to Foster Farms.