Preferential Payments

Actions from Farm Bureau, PA Milk Marketing Board and others result in Defense to ASK / Dean Foods Demands

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Two Weeks of Furious Activity Sets Farmers, Haulers on Paths to Resolution with a Team Effort

The Background: During the week of and prior to Wednesday, November 25, former Dean Foods independent producers and milk haulers began to receive “Demand” letters from ASK, LLP, a law firm specializing in recovery of ‘preferential payments.’ In a concise definition, ‘Preferential Payments’ are often made by entities filing bankruptcy in the 90 days prior to the filing, and in bankruptcy law, it is perfectly legal for attempts to be made to recoup those monies for other purposes in bankruptcy proceedings.

NOTE: This blog post is providing information about legal events, but should not be taken as legal advice. The author is not an attorney. Qualified attorneys are cited and referenced.

When producers began receiving these letters, reactions ranged from dismay, agony, and horror, to disbelief, to scoffs such as “that money came to me as a regular payment – I’m not paying it back!,” to “We have a situation, what should we do?” With deadlines of December 19th and December 24th in those letters, the truth, the legalities, and appropriate responses had to be sorted out in a very short time frame, to make sure producers met legal requirements.

Several dairy industry and agriculture advocacy groups have, since late Wednesday, Nov. 27th, and early morning on Friday, November 27th, worked furiously and tirelessly to challenge the ASK letters, and to keep the monies where they rightfully belonged – in the hands of dairy producers and local farm communities. Through email networks, phone calls, messages via email and text, news stories, podcasts, blog posts, letters from dairy organizations, and conference calls, it has been an ‘all hands on deck’ effort to assist producers and milk haulers in a ‘defense’ to those letters. Here is a summary:

Earlier this week: Newsletters from AgriVoice (excerpts)

ACTIONS by organizations regarding ASK Letters (per Dean Estate) to Producers trying to get ‘payback’ monies from farmers, others;  Resolution seems to be approaching

Over the past 10 days, a number of organizations and individuals in key positions in several states have been diligently working on behalf of producers to help determine paths for producers to challenge the ASK letters received Thanksgiving week, in order to resolve the situation with minimal legal costs and headaches to individuals farmers.  American Farm Bureau, and the Pennsylvania Milk Marketing Board, courtesy of Counsel Doug Eberly, have taken these actions:


– American Farm Bureau Challenges ASK with Strongly Worded Letter (For news release & letter, please scroll)

– FORMS YOU CAN USE to reach resolution (LINK):  The Pennsylvania Milk Marketing Board has been in communications with ASK, and working with that firm, has developed  “Resolution Forms” which can be used by all affected farmers and/or haulers to send to ASK in order to avoid any payback:  

  1. SEE LINK – Avoidance Claim Settlement Offers from ASK, LLP
  2. PRINT OFF & READ CAREFULLY
  3. Note: The first two pages explain the situation, then there is a form for farmers to fill out, and a page for haulers to use. Be careful to make sure you select the appropriate form!
  4. FOLLOW INSTRUCTIONS
  5. FILL IN with your information
  6. SEND to ASK via an appropriate method to the party named on the forms you receive – get confirmation it has been received and you should be well on the way to resolution
  7. You MUST send these forms in, for documentation purposes.
  8. Don’t forget – please take a moment to send both parties notes or emails of appreciation, and any others who have worked on this – for instance, your state organization and advocacy groups! 
  9. Contacts at Farm Bureau:  Travis Cushman, travisc@fb.org,  Dale Moore, dalem@fb.org,  John Newton, jnewton@fb.org 
  10. At PA Milk Marketing Board: Doug Eberly, deberly@pa.gov.    

Dec. 4, 2020 – News Release posted at American Farm Bureau Federation

The American Farm Bureau Federation is standing-up for hundreds of dairy farmers being targeted by predatory lawyers representing the estate of Dean Foods, which is currently undergoing bankruptcy proceedings. Almost 500 dairy farmers who once sold milk to Dean Foods received letters threatening legal action unless they refund money legitimately earned prior to the bankruptcy filing.

“Shame on these predatory lawyers for bullying dairy farmers at a time when many are struggling to keep their farms running,” said American Farm Bureau Federation President Zippy Duvall. “It’s ludicrous to suggest the meager profits from regularly scheduled and routine milk sales – sales that are heavily watched and regulated by the federal government – were outside the regular course of business. Someone needs to have the farmers’ backs and I’m proud to say AFBF is stepping-in to do just that.”

AFBF sent a letter to the law firm managing the Dean Foods estate calling for an immediate reversal of their “predatory shakedown” and threatening potential legal action if the firm fails to withdraw the letters sent to farmers. In the letter, AFBF General Counsel Ellen Steen says the letters sent to farmers “are deceptive and constitute an abuse of process that attempts to extract funds that the Debtor (Dean Foods) is not entitled to under the threat of a lawsuit. Put plainly, your letters are a predatory shakedown, written in legalese.”

Many recipients of the Debtor letters are independent farmers already struggling through difficult economic times made worse by the COVID-19 pandemic. The letters put producers in an impossible position—either pay the amounts demanded or incur the cost of legal counsel to defend against the Debtor’s allegations.

The AFBF letter outlines the legal legitimacy of the payments made to dairy farmers and admonishes the lawyers representing Dean Foods for knowingly taking advantage of farmers, saying, “Sending the Letters under these circumstances is not only deceptive, but outrageous because they threaten legal action when in fact the Producers have no legal exposure for the reasons set forth herein.”AFBF further calls upon those lawyers to retract their demands by notifying each farmer by separate letter within 10 business days; returning any funds already received; and by ceasing any litigation against farmers who did business with the company. The AFBF letter clearly states a willingness to step-in in the event that the Dean Foods estate pursues litigation against farmers.

-American Farm Bureau Federation

READ THE LETTER ITSELF – HIGHLY RECOMMENDED READING!

News Release, December 9th from PA Milk Marketing Board

PMMB QUICK ACTION LEADS TO RESOLUTION OF PAYMENT DEMANDS

The Pennsylvania Milk Marketing Board, working with the Pennsylvania Attorney General’s office and ASK LLP, has developed declarations to respond to avoidance claim settlement offers received by Pennsylvania dairy farmers and milk haulers.  The declarations, available on the Board’s website at https://www.mmb.pa.gov/Consumer/Pages/default.aspx, are a simple and standardized way for farmers and haulers to demonstrate that they received payments from Dean Foods in the ordinary course of their business with Dean.  

Dairy farmers and milk haulers should read the explanation on the Board’s website and return the appropriate declaration to ASK.  We emphasize that it is vitally important that farmers and haulers return the completed declarations to ASK as soon as possible.

In a bankruptcy, payments made by the debtor during the 90 days prior to the bankruptcy filing may be avoided and recovered under some circumstances.  In the continuing aftermath of last year’s Dean Foods bankruptcy, dairy farmers and milk haulers received avoidance claim settlement offers from ASK LLP seeking to recover a portion of the payments they received during that 90-day period.  However, if dairy farmers and milk haulers demonstrate that payments were received in the ordinary course of their business with Dean, those payments may not be recovered, and those farmers and haulers do not have to return those payments.

Because milk marketing is highly regulated, the Board believes that the settlement offers’ request for records spanning May 2018 through November 2019 is not necessary to demonstrate that dairy farmers and milk haulers received payments in the ordinary course of their business with Dean.  ASK agreed to accept declarations in lieu of the records.  After receiving and reviewing a declaration, ASK will seek authority from its client to close the file and then inform the farmer or hauler.

Board Secretary Carol Hardbarger stated that the cooperation received from not only the Attorney General’s office, but other organizations such as the Center for Dairy Excellence and the PA Farm Bureau, enabled the quick resolution of this issue.  Board Chairman Robert Barley and Member Jim Van Blarcom echoed that sentiment.

The information provided is not legal advice and is not a substitute for obtaining legal advice from a licensed attorney.

_______ ADDITIONAL REFERENCES and RESOURCES ___________

11 Dec. 2020, am: Recap & Summary, including FAQs from a PMMB Conference Call on Dec. 10th: ” Milk producers, haulers, MUST respond to ‘Dean’ letters; PMMB Declaration Letters can be used by those affected in ALL states,” written and posted by Sherry Bunting, AgMoos

10 Dec 2020: “Preferential Transfers/Payments: A Conversation with Michael Fielding” – a podcast from Paul Goehringer, University of Maryland, where the entire concept is explained in ‘layman’s terms’ by an attorney

7 Dec 2020:   An Additional Article: ‘Declarations’ Pave Way for Resolution to Dean Settlement Offer Claims,”    by Dave Natzke, for Progressive Dairyman


9 Dec 2020:  Ready for a chuckle? – A humorous description of the situation: “Old Ebenezer Would Have Been Proud of Dean Foods,” by our own Ryan Bright, of Philadelphia, posted at Growing America.
_______________________

A TEAM EFFORT – All will continue to work until resolution: There are many government officials, organizations and individuals both nationally, and in several states, who continue to work on this issue.  Much of this work is being done behind the scenes, and there may be a few days when we don’t hear or know anything while people do the work that matters, using their resources, according to their professional processes. 

In the meantime, make sure you fill out and submit your paperwork to ASK, and take care of what you can do as a farmer or hauler.   All involved are aware of the pending deadlines which were noted in the packets which producers received;  those deadlines vary from December 19th through December 24th. These packets also contain different names of whom to respond – make sure your ‘defense response and declaration’ is directed to the correct party. 

ANY UPDATES WILL BE POSTED AS AVAILABLE.

Dean Foods Chapter 11: Status of Requests for Repayment by ASK, LLP; Liquidation plan filed, Jan. hearing scheduled

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Dean Foods Chapter 11: Quickly Evolving Events weeks of Nov. 23rd through December 4th, 2020 – a Year after filing

“WHAT SHOULD A PRODUCER DO ABOUT THE REQUESTS FROM ASK SUGGESTING FARMERS SHOULD PAYBACK MONEY?” is the question first and foremost on farmers’ minds.   Most are electing to wait until more information is gathered before sending any money to this law firm, realizing some of the deadlines are pending. This situation has been and continues to be QUICKLY EVOLVING, with information changing by the minute.


NOTICE: This post contains and refers to information and reports about legal events, with some attorneys quoted and official legal notices included, but should not be considered legal advice.  I am not an attorney, so any information should be considered as public information, and not taken as advice on a course of action for any individual.


LEGAL REFERENCE:  Case #19-36313, US Bankruptcy Court, Southern District of Texas-Houston; Presiding Judge:  David R. Jones

SUMMARY – some good news:  

The good news is that producers do have recourse and options per many industry reports, although the exact course of action has yet to be determined, and it may differ for individual producers.  

ADDITIONAL COURT ACTIVITY this week:  On Nov. 30, Southern Foods Group, LLC / Dean Foods et.al. filed several documents outlining a “Plan of Liquidation” in the above-referenced Bankruptcy Action.  (See graphic below).  Some producers have received emails, or may receive letters in the mail, regarding a hearing related to this process, scheduled for Jan 11 at 2:30 pm. (Doc. 3234 at the Epiq Southern Foods Court Docket)  Producers can participate in this January proceeding via audio/video if they wish.  

SUMMARY REPORT:

Past Week:  As many already know, there has been a lot of activity since the last week of November, 2020, concerning an attempt from ASK, LLP to reclaim a portion of funds paid to producers, and other entities doing business with Dean Foods, in the 90 days prior to the Dean Foods/Southern Foods Group Chapter 11 Bankruptcy filing on Nov. 12 of 2019.


Who all got the notices?  It has been confirmed through several sources that farmers were not the only parties who got such notices: a few co-ops and other business entities, such as milk check assignees, consultants, and milk haulers, also received similar letters, and have challenged the requests in a variety of ways.  The resolution of these challenges is not yet known.


Since producers began receiving letters on or about Wednesday, Nov. 25, there has been a flurry of phone calls, text messages, communication to and among agricultural advocacy organizations and dairy producer groups, and others trying to gather and assemble all pertinent information.


The main goal was to establish a producer’s rights and potential courses of action in regards to these solicitation letters from ASK, LLP, and to determine if a producer would eventually be required to pay the requested amounts at all.  Just because ASK asked, does not necessarily mean they will receive.

In communications with many, most farmers have elected to wait until more information was forthcoming before they paid anything to this third party, some have engaged individual attorneys, and some have elected to wait to see if their is a ‘blanket’ recourse on a collective group of farmers.  

The Beginning: How ASK, LLP got involved:

ASK, LLP is working based on contingency fees ranging from 15-27.5%, stated in a ‘letter of engagement’ on the Bankruptcy Court’s Docket. This ‘letter of engagement’ is dated July 18, 2020, and was sent to Gary Rahlfs, Chief Financial Officer, Southern Foods Group/Dean Foods.  That engagement was approved by via a Court Order of Sept. 1, 2020.  That Order, Document #2898, was publicly posted at the Bankruptcy website on Sept. 1, 2020, and it can be downloaded.    

On Social Media?  Be careful!!!  By this time, social media is full of posts of dismay, indignation, and asking what to do.  While these posts generally may be interesting to read, they should not be considered as valid sources of legal information or advice.  

SUMMARY ARTICLES   (the most complete, most accurate, and most in-context with the entire situation – all contain pertinent information):


Dec 3, 2020: Update on Dean Trustee Letters demanding payment from farmers. Don’t pay. Gather records. Fight back, by Sherry Bunting, based on a cover article which has been printed in this week’s edition of Farmshine, and is now in the mail to subscribers.

Dec. 3, 2020:  Milk payment process officially described, relative to Dean trustee avoidance claims seeking partial payback from farmers, by Sherry Bunting, posted at AgMoos blog.  Includes information regarding ‘regular course of business procedures, regulated by Federal Milk Marketing Order rules, under the supervision of USDA.’  This post also appears as an article in the Dec. 4th edition of Farmshine.

  • Both articles are full of various useful pieces of information
  • The “Milk Payment Process” describes usual course of business transactions in the fluid milk industry
  • Various scenarios described in both
  • Bunting notes she is not an attorney

Dec. 3, 2020:  Bankruptcy and the Preferential Payment Rule, posted at the Agricultural Law and Taxation Blog, by Roger McEowen, a professor of Agricultural Law and Taxation for the Washburn University School of Law, Topeka, Kansas

  • Includes insight from Joe Peiffer, described as one of the country’s leading farm bankruptcy attorneys, working with Ag and Legal Business Strategies of Cedar Rapids, Iowa
  • Describes differing situations when avoidance claims will apply, and when they won’t

Dec. 3, 2020: Dairy Farmer Says She Won’t Be Bullied into Repaying $50,000 to Dean Foods, by Tyne Morgan, for AgWeb/ Farm Journal

  • The perspective of Jessica Peters, Spruce Row Farm, at Meadville, PA
  • Details her range of emotions when she got her letter of ‘legal jargon’

Dec. 3, 2020: DFA Calls Dean Foods Estate Claims “Farfetched,” by Anna-Lisa Laca for AgWeb/Farm Journal

  • Quote from article: “We find it extremely disappointing that hardworking dairy farm families are now put in the position of having to incur costs, either in paying the amounts demanded, or obtaining legal counsel to defend themselves against these farfetched claims.”

Dec. 1, 2020:  Dairy Farmers Asked to Return Dean ‘Preference’ Payments, by Dave Natzke, for Progressive Dairyman.  Highlights:

  • An attorney, Justin Mertz, with Michael Best, weighs in, via an interview, on three possible defenses, or reasons a party may not have to meet the demands in the letter
  • DFA did not receive notices as part of their Asset Purchase Agreement with Dean Foods, which was approved by the court – they are ‘disappointed’ by this action.


CONCURRENTLY:  On this past Monday, Nov 30, Southern Foods Group, LLC, Dean Foods, and Debtor Affiliates filed on the Court Docket two significant documents:  

Document 3230: JOINT CHAPTER PLAN OF LIQUIDATION of SOUTHERN FOODS GROUP, LLC, DEAN FOODS COMPANY, and THEIR DEBTOR AFFILIATES  (75 pages) with the US Bankruptcy Court for the Southern District of Texas – Houston Division, and 

Document 3229 (143 pages), which is captioned:  
MOTION OF DEBTORS FOR ENTRY OF AN ORDER (I) APPROVING THEDISCLOSURE STATEMENT, (II) ESTABLISHING PROCEDURES FOR THESOLICITATION AND TABULATION OF VOTES TO ACCEPT OR REJECT THEPLAN, (III)APPROVING THE FORMS OF BALLOTS AND SOLICITATIONMATERIALS, (IV) ESTABLISHING THE VOTING RECORD DATE, (V) FIXINGTHE DATE, TIME, AND PLACE FOR THE CONFIRMATION HEARING ANDTHE DEADLINE FOR FILING OBJECTIONS THERETO, (VI) APPROVINGRELATED NOTICE PROCEDURES, AND (VII) GRANTING RELATED RELIEF

CONFERENCE CALL NEXT THURSDAY – via PA Center for Dairy Excellence


The PA Center for Dairy Excellence is graciously inviting those affected by this Dean Foods event to participate in a Conference Call on Thursday, Dec. 10, 2010.   The Dean situation is only one to be discussed – Rob Barley and Doug Eberly, Counsel for the PA Milk Marketing Board, will address the letters and how they affect farmers. 

QUICKLY MOVING, EVOLVING SITUATION – Stay Tuned


It is expected there are other significant actions and news to be shared in the next few days, since this is a quickly moving event with pending response deadlines as early as Dec. 19th.  Rest assured that many individuals, information networks, and advocacy organizations are trying to get answers and information to folks as quickly as they can.