December 4, 2020
American Farm Bureau Federation sent ASK LLP, the law firm responsible for the Dean Foods Estate Trustee Avoidance Letters received by farmers across the country, a letter on Friday explaining why the letters received are “outrageous” and demanding they withdraw the letters within 10 business days to avoid further legal action by the organization.
Farm Bureau’s legal counsel explained multiple reasons they believe farmers have no legal exposure, including the fact that the payments were clearly within the ordinary course of business.
“A creditor faced with a preference action must prove two elements under § 547(c)(2)(B): First, that the debt was incurred in the ordinary course of business or financial affairs for both parties; second, that the terms of the transaction were consistent with ordinary business terms for the relevant industry,” they wrote. “Ordinary business terms include the entire range of typical business practices for the relevant industry. The creditor must show that the transfer was made in a manner falling within these practices. ‘Only dealings that are idiosyncratic or extraordinary fall outside ordinary business terms.’”
Farm Bureau also explained in the letter that the dairy industry is highly regulated by the federal government through the federal milk marketing order.
“The primary purpose of FMMOs are to (1) promote orderly marketing conditions in fluid milk markets, (2) improve the producers’ ability to earn income, (3) supervise the terms of trade in milk markets in order to achieve equality of bargaining between milk producers and processors, and (4) assure the public that adequate supplies of quality milk at affordable prices are readily available for consumption,” they wrote. “FMMOs accomplish these purposes by attempting to stabilize market conditions and requiring milk handlers to pay dairy farmers uniform prices at specified times in order to ensure fair treatment in the marketplace while assuring consumers that a reliable and consistent supply of milk and related products is available. The debtor is a handler under applicable law and is governed in all aspects of its payment practices to dairy farmers and producers by FMMOs.”
The FMMO provides farmers complete defense to any preferential transfer accusation, according to Farm Bureau.
“The payments that the debtor seeks to recover from the producers were made pursuant to the terms of the FMMO in place for the region in which the transaction occurs,” they wrote. “Case law provides that when, as here, payment terms are governed by regulatory mandate, same can define the scope of ordinary business terms under Section 547(b)(2)(C) and are a complete defense to any preferential transfer.”
Farm Bureau lawyers also noted the letters farmers received were silent on the more “applicable” prong of the ordinary course defense under Section 547(c)(2)(B) discussed herein.
“This is disturbing because the debtor, as a participant in the dairy industry, fully understands the application and import of FMMOs, the fact that they govern the form and manner of payment to producers and that they supplied the business terms under which the transactions and payments at issue in the letters occurred,” they wrote. “The producers clearly have a complete ordinary course of business defense to any alleged preferential payment that the debtor identifies in its letters under 11 U.S.C. § 547(c)(2)(B), and the Letters should not have been sent for this reason.”
Farm Bureau lawyers demanded the Dean Foods estate withdraw the letters and retract the demands in them within 10 business days to avoid further legal action by the organization. Additionally, Farm Bureau demands any settlement funds paid by farmers because of the letter be refunded immediately.
“If the debtor refuses to return any funds received in settlement or proceeds with litigation against any producer despite the foregoing, AFBF intends to intervene in any such litigation or to seek relief in the Bankruptcy Court,” they wrote in their letter. “AFBF will consider all remedies that it can seek as an advocate of the producers, including asking the court to enjoin any litigation against the producers and to hold any funds received by the debtor in settlement in escrow.”