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By David Bowser MONTGOMERY,
Ala. — A Kansas cattle feeder fighting the world's largest beef
packer turned out to be his own worst enemy as the second week of a
class-action lawsuit here ground to a halt. In Pickett
v. IBP, a class-action lawsuit in which cattlemen are accusing
beef packer IBP, now Tyson Fresh Meats, of using marketing agreements
to manipulate the cash market for fed cattle, cattlemen may have lost
a crucial piece of evidence in their case. Mike
Callicrate, 52, took the stand on Thursday of the second week of
testimony to describe how he had earned a degree in animal science
from Colorado State University and moved to northwestern Kansas to
organize 10 investors and build Tri-State Feeders in 1978, a
14,000-head capacity feedyard southwest of St. Francis, Kan., a town
of 1250 on the Republican River. "I
organized and managed it," Callicrate told the court here. In
1986, Callicrate said, he left Tri-State Feeders to build a feedyard
on the Kansas homestead of his father-in-law, Swede Calnon, about
seven miles west of Tri-State Feeders. Callicrate said a feeding
facility had long been there, but he began expanding it from a
capacity of 2500 head to 12,000 head over several years. "I
fed cattle for both myself and others," Callicrate told the jury. He
said the custom feedyard employed 12 to 15 people from the community. By
October 2002, Tri-State Feeders had changed names to Cheyenne County
Feeders and was full of cattle, Callicrate told the five-man,
seven-woman jury, but the feedyard he had expanded on his
father-in-law's place was closed and stood empty in 1999 and 2000. "We
fed until the end of 1998," Callicrate said, "when we were
unable to sell any cattle." As
IBP attorneys raised objections to his comments, Callicrate told the
jury he shut the feedyard down because he was being boycotted by the
packers. In
2001, Callicrate said, he started feeding cattle again. This time he
organized Ranch Foods Direct in an effort to sell fed beef directly to
consumers along the Front Range of the Rockies from Pueblo, Colo., to
Casper, Wyo. The
cattle are slaughtered at GNC, a custom slaughterhouse in Colorado
Springs. The carcasses are broken down at a facility owned by Ranch
Foods Direct. "We
take the carcass and add value to it," he said. Callicrate
said they slaughter between 45 and 65 head of cattle a week. "I'm
fighting to keep my feedyard open," Callicrate testified.
"An empty feedyard isn't worth anything. A full feedlot is a
valuable asset." He
said an empty feedlot is actually worth less than bare ground because
it's a single-use facility. An empty feedyard is good only for growing
weeds. From
the witness stand, Callicrate was less than complimentary toward his
adversary in court, IBP, a company to whom he had once sold cattle.
Again bringing objections from IBP attorneys, Callicrate accused the
company of buying low quality cattle and turning out low quality beef
products. But
the trouble in the case stemmed from what was apparently an attempt to
authenticate a speech given in 1988 to the Kansas Livestock
Association by Robert Peterson, then chairman and chief executive
officer of IBP. The
speech, according to those familiar with it, reportedly expressed
Peterson's view of captive supply, supplies of cattle allegedly under
the control of a packer prior to slaughter. The cattlemen suing IBP
claim these captive supplies enable packers to manipulate the cash
market for fed cattle. Callicrate
testified Thursday that he was at a December 1988, Kansas Livestock
Association Convention in Wichita, Kan., when Peterson gave the
speech. "He
gave a speech at the meeting," Callicrate said. As
Callicrate's attorney, David Domina, produced a transcript of
Peterson's speech, Callicrate said he had reviewed the transcript and
compared it to audiotapes of the speech he bought from the Kansas
Livestock Association at or soon after the convention. IBP's
attorneys were quick to point out that in August 1999, during the
discovery phase of the case that has dragged on for almost nine years,
Callicrate had not offered the tapes for examination as required by
the court. IBP's attorneys immediately called for the tapes and speech
to be excluded from being introduced as evidence in the case. "There
ought to be sanctions," said IBP's lead attorney Tom Green,
"and the sanction ought to be exclusion." Following
court Thursday, Callicrate voluntarily turned the tapes over to IBP's
attorneys for inspection. Friday
afternoon, with the jury dismissed for the weekend, U.S. Senior
District Judge Kyle Strom presided over a hearing concerning the
audiotapes and Callicrate's testimony. Thomas
Jorgensen, a member of IBP's team of attorneys, said that only the
last half of Peterson's speech was on one of Callicrate's two tapes
and, using a code on the tape cassette, Jorgensen was able to
determine the tape was manufactured in California on Feb. 25, 1997,
almost 10 years after Peterson's speech. Jorgensen
said he also talked to Kansas Livestock Association officials Lee
Borck and Rich McKee, who told him the meeting was in July 1988, in
Dodge City, Kan. Jorgensen said the KLA officials told him they didn't
think they had tape recorded Peterson's comments nor sold tapes of the
speech. Randy
Beard, the cattlemen's attorney who had initially tracked down the
taped speech for the plaintiffs, told the judge he had learned about
the possibility of the tape-recorded speech in March 2002, after the
discovery process had closed. Beard said he talked with several
people, including Callicrate, who offered to help locate the tape of
Peterson's speech. "When
I talked to Mike Callicrate," Beard told the judge, "Mike
did not indicate to me that he had those tapes, but he offered to help
me locate the tapes if they did exist." The
trail led to Ken Winter, a Kansas livestock auction owner. Beard said
that when he asked for a copy of the tapes, they were sent to
Callicrate, who then gave them to Beard on July 16, 2002. "I
listened to them," Beard said, "and it appeared to be Mr.
Peterson speaking to the KLA." Beard
told the judge that he had a transcript made of the tapes and asked
Winter to authenticate the tapes and transcript. "He
was hesitant to do that," Beard said. Winter
did, however, offer the names of several people who could. One of
those was Kansas cattleman Lee Isaac, who told Beard he had introduced
Peterson at the KLA meeting. After
obtaining an affidavit from Isaac, Beard said he made copies of the
tapes on CDs for IBP's lawyers and appropriately notified the court. "I
did not know," Beard said, "that Mr. Callicrate had those
partial tapes." "We
were treated to contrived and fabricated evidence," Green
complained to the court. "It is a fraud upon the court. Further
testimony should not be permitted." "He
either lied under oath or he's had them since 1988," Judge Strom
said of Callicrate's testimony concerning the tapes. Strom,
after having Domina inform Callicrate that Callicrate could be subject
to prosecution if he lied under oath, had the Kansas cattle feeder
brought back into court. Returning
to the stand, Callicrate said the first time he saw the affidavit from
Isaac was when he was presented with it and the transcript while on
the witness stand Thursday. Callicrate said the meeting was in Garden
City, Kan. "The
first time I saw the affidavit was when I sat here in the witness
chair," Callicrate told the judge, "and I didn't notice, but
that the affidavit signed by Lee Isaac said the meeting was in Garden
City, Kan." Green
pointed out that the affidavit did not disclose a location. "I
may have made a mistake on the meeting," Callicrate told the
judge. Callicrate
indicated he was not sure where the tapes came from, adding that when
tapes are available at meetings like KLA's, he always orders them. "I
cannot tell you these are the exact tapes," Callicrate told the
judge. “They could be copies." "I'm
not satisfied, frankly," Strom said. With
that, the judge said he would not allow any evidence based on
Callicrate's testimony concerning Peterson's speech. He said he would
not allow Peterson's speech, neither the tape nor the transcript, nor
would he allow another Peterson speech given in 1994 to be admitted as
evidence in the case based on Callicrate's testimony. "Mr.
Callicrate," the judge said, looking down at the Kansas cattle
feeder sitting in the witness stand in federal court here, "you
have — from what I can determine, and I have been reading some of
your website material — a deep animosity toward IBP. I'm afraid
you've allowing that to influence your testimony beyond what you
actually know, frankly." Earlier
in the week, Domina spent much of the time drawing distinctions for
the jury between his clients and the culture of the large meat packer. On
Thursday, Steve Donaldson, 38, of Cullman, Ala., took the stand to
tell how he earned degrees from Auburn and the University of Georgia
in animal science, came home to help his sick father with the family
cattle operation and got out of the business in the mid-1990s because
of a lack of profitability. He and his wife and five children still
raise a few calves, but they have focused their business now on swine. That
contrasted sharply with John Chalsty, a Wall Street investment banker
with Donaldson, Lufkin and Jenrette, who served on the IBP board. In a
videotaped deposition from Chalsty's New York City offices, Chalsty
freely admitted that he knows little of cattle feeding and slaughter.
He said his specialty was watching the financial aspects of the
business. The
only time he'd ever seen a feedyard, Chalsty said, was in the 1960s
when he was in Amarillo on some financial dealing with Boone Pickens
and Mesa Petroleum. They had driven out to a 100,000-head feedyard
south of town to look at the cattle. "It
was a very big yard," Chalsty said. Domina
also played videotaped depositions of Gene Leman, CEO of Fresh Meats;
Richard Bohn, chief operating officer of IBP and heir apparent to
Robert Peterson's job as chairman and CEO; and Bruce Bass, vice
president of cattle procurement. Leman
recounted that IBP employed some 50,000 people, had 11 meatpacking
plants and sales offices in Tokyo, Shanghai, Taiwan, Moscow, London
and Mexico. Bohn
said the company’s new world headquarters in Dakota Dunes, S.D., was
worth between $40 million and $45 million. While
Chalsty, Leman and Bohn indicated there was no written policy at the
board of directors level concerning cattle procurement, Bass testified
in his deposition that the 70 IBP buyers call him twice daily for
directions and authorization to bid on cattle. Bass
said he attends a series of daily meetings to coordinate information
about boxed beef prices and cattle prices. Bass sets the price for
cattle paid by IBP and maintains records. Bass
keeps records of cattle purchases and the need for cattle at each
plant each week. These records, the cattlemen maintain, show the level
of captive supplies or purchased cattle available for kill for at
least the next week and longer, depending upon the level of purchases
made in advance, but those records are destroyed weekly. Bass
acknowledged that his buyers look at formula cattle regularly but do
not bid on them. Bass said he is the one who normally negotiates
formula purchase arrangements. He said when forward contracts are used
by IBP, the company takes a futures position on the Chicago Mercantile
Exchange to hedge its risks. Callicrate
is one of the cattlemen who sued IBP in 1996, claiming the giant beef
packing operation, now owned by Tyson Foods, used its market power to
manipulate cattle prices in violation of the Packers and Stockyards
Act, federal anti-trust legislation passed in 1921. The
others remaining from the initial lawsuit are Henry Lee Pickett of
Fitzpatrick, Ala.; Pat Goggins, Billings, Mont.; Johnny Smith, Pierre,
S.D.; Chris Abbott, Gordon, Neb.; and R.D. Rothwell, Hyannis, Neb. The
case was filed in the U.S. Middle District Court of Alabama because of
Pickett's residence in the state. In
2002, the case was certified a class action suit involving cattlemen
and feedyards who sold cattle to IBP between Feb. 1, 1994 and Oct. 31,
2002. Court
records indicate that more than 30,000 cattlemen may be part of the
legal action that could involve more than $2 billion. *****
(Editor’s note: It is
unclear at this time precisely what former IBP head Robert Peterson
told the Kansas Livestock Association in July of 1988 and what use the
plaintiffs planned to make of it. Peterson evidently was speaking his
mind to cattlemen in several venues about that time, however, as the
following story indicates. His message, though not in so many words,
was “Don’t participate in these captive arrangements with our
competitors, or we will join the game, too — and you will sorely
regret it.”) The
following article appeared in the July 21, 1988 issue of Livestock
Weekly, under the headline: “IBP Official Warns Against
Packers Feeding Own Cattle”:
When the National Cattlemen’s Assn. holds its midyear
conference in Denver next weekend, the issue of packer forward
contracting and cattle feeding will surely be raised by the Texas
Cattle Feeders Assn. delegation, and probably by representatives of
the feeding industry in Kansas and elsewhere.
This would be an immediate result of the appearance by Bob
Peterson, president of IBP, at last week’s “managers’
roundtable” at the Texas association’s headquarters in Amarillo.
Peterson got the rapt attention of the 55 feedlot managers attending
the session when he declared that unless forward contracting and
feeding by other packers is opposed, then IBP will get into these
activities in a big way.
When IBP sets out to do anything in a big way, it means big.
The company is largest of the nation’s biggest beef packers,
followed by Excel and ConAgra. IBP kills around 30,000 cattle per day.
Peterson said his company has no intention of trying to compete
with other packers, regardless of size, except on equal terms. If they
feed their own cattle as well as contracting for fed cattle to be
delivered at a future date, IBP must employ similar tactics. However,
he emphasized, if IBP feeds its own cattle, it will be in its own
yards. The company doesn’t want to do this, he said; it prefers to
buy cattle on the open market.
Steve Kay, publisher of Cattle
Buyers Weekly in Petaluma, Calif., says Excel buys 35-40 percent of its
cattle by contract, ConAgra five percent, IBP three percent. But he
says “the more serious and sensitive issue is packer feeding.”
The Texas Cattle Feeders Assn. newsletter quoted Peterson as
saying, at the Amarillo meeting, “It (packer feeding) is not good
for the industry and, in the long run, will not be good for feeders.
If IBP is forced into feeding and contracting to meet the competition
of our two major competitors who are doing it, we will become big in
order to gain efficiency. This probably would lead to our purchasing
feedyards and the feeder cattle supplies. If all of the big three
packers are doing this, it will at times be difficult for independent
feedyards to sell cattle.”
The newsletter also quoted Peterson as saying IBP expects to
spend $1 billion in the next few years on new technology, and would
prefer to spend capital in this way rather than investing in the
feedlot business. |
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