Cash rent tenant provisions ofpayment limitation law amended Official publication of the American Agricultural On December 11, 1989, President Bush signed into law H.R. 3620, a bill to c1ari(y Law Associlltion the cash rent tenant provisions of the Food Security Act of 1985. as amended by the Agriculture Reconciliation Act of 1987 ( 7 U.S.C, § 1308(5)(0)1. The 1987 amendments to the Food Security Act became applicable commencing with 1989 crops. Under those amendments, a landlord would automatically be combined as one "person" for payment limitation purposes with a cash rent tenant, or a tenant renting land for a crop share guaranteed as to the amount of the commodity, if the tenant did not make a significant contribution ofeither (1) active persona] labor and capital, land, or equipment, or (21 active personal management and equipment. This provision was inserted in the 1987 amendments to counter • In Depth: Prompt payment perceived abuses of the payment limitation rules in cash rent landlord-tenant and statutory trust situations. provisions for sellers of It soon became apparent, however, that the automatic combining of a landlord as a single person with any out-of-compliance tenant could have a harsh and livestock. poultry. and inequitable impact on innocent landlords who had no control over the farming perishable agricultural operations of their tenants and who in no way participated in the failure of a commodities tenant to comply with the rules requiring that each "person" be actively engaged in the farming operation in order to qualify for participation in federal farm pro­ • Immigration potpourri: grams. The 1987 amendments would have had a particularly acute impact on sanctions Indian tribal farming ventures, since many tribes cash lease large portions of their reservation lands to non-Indiana farming entities. Prior to 1989, tribal farming Response costs recoverable ventures had been granted a regulatory exemption from the number and amount • of payments that a tribe could receive as a result of participation in federal farm under CERCLA in absence (Continued on page 2) of actual contamination • Insider guarantees update Eighth Circuit rules on Chapter 12 eligibility In the case of In re Easton. 883 F.2d 630 (8th Cir. 19891, the Eighth Circuit Court • Ag Law Conference of Appeals addressed the controversial issue of whether cash rental income can be Calendar construed as farm income for purposes of Chapter 12 eligibility. The court vacated the bankruptcy court's finding that the cash rent at issue constituted farm income Federal Register in brief and remanded the case for consideration consistent with the test set forth in its • opinion. Previous caselaw on this issue left the courts generally divided between the total exclusion of cash rent from the category of farm income and an analysis based on the totality of the circumstances. See In re Armstrong, 812 F.2d 1024 (7th Cir.), cert, denied U.s. .108 S.Ct. 287 (1987) (majority holding that cash rent is IN FUTURE excluded as not being at risk; dissent espousing totality of the circumstances test). In response to this split. however, the Eighth Circuit rejected both positions and ISSUES imposed a third interpretation, which requires that the debtor have "had some significant degree of engagement in, played some significant operational role in, or had an ov.nership interest in the crop production which took place on the acreage they rented." Easton. 883 F.2d at 636. In reaching its decision, the court focused on the statutory definition of the term • Farm FLIPS: Restr't5w'li~S s "family farmer." 11 V.S.C. § IOHI7)(A)(Supp. V 1987) This definitIOn includes a a~l-'f~iI()he~b"S fifty percent income requirement applicable to income "received from such farming NNtJ"<;:-O" . operation." Id. Emphasizing this language, the court expressed concern that the opinion of the bankruptcy court. affirmed by the district court, virtually eliminated the requirement that the income be from the farming operation. • The prolj\~o(nbrl~Q;.C. The court also relied upon its analysis of some of the previous caselaw on this liens on agricultural issue and other farmer bankruptcy issues. While rejecting and limiting some of collateral these cases, the court noted that the "theme common" to the remaining cases was "the existence of some indicia of involvement on the part of the debtor in the farming activity." Easton, 883 F.2d at 635. Focusing on this theme, the court [[ articulated a new test, as stated above, to be applied to the rental income at issue. (Continued on page 2) CASH RENT TENANT PROVISIONS OF PAYMENT LIMITATION LAW AMENDED / CONT1NlJED FROM PAGE I

programs. Following enactment of the ply with the "actively engaged" provi­ respect to the land in question, but re­ .- ­ 1987 amendments, however, the USDA sions of the law. Any tenant found to be moves completely the provision penaliz­ interpreted the cash rent tenant provi· out·of-compliance with respect to 1989 ing the landlord by combining it as one sion of the 1987 law tv apply tv all fann crops will be eligible only for such pay­ "person" with such tenant. It should be landlords, including Indian tribes. This ments as it would have received if it had noted, however, that any landlord whc. interpretation, which would have lim­ been combined as one "person" with the engages in any scheme or device with a -­ ited a tribal fanning venture to a single landlord under the regulations in effect tenant to avoid the payment limitation program payment if any cash rent ten­ immediately prior to the enactment of will still be subject to forfeiting all of its ant of the tribe were found to be out of the new legislation. farm program benefits under the prohib­ compliance, would have been devastat­ With respect to 1990 crops, the new itions contained at 7 U.S.C. section ing to numerous tribal economies. legislation provides that an out-of."cl)m­ 1308·2. As initially offered, the bill would have pliance cash rent or guaranteed crop - Alan R. Malasky, applied solely to cash rent situations on share tenant shall be ineligible to re­ Arent, Fox, Kintner. Plotkin & Kahn, Indian reservations. It was amended, ceive any farm program payments with Washington, D.C. however, so that its provisions would be applicable to all cash rent tenant situa­ EIGHTH CIRCUIT RULES ON CHAPfER 12 ELIGIBILITY / CONn".'"" FROM PAGE I tions throughout the United States. The President signed the bill into law as Pub­ Unfortunately, the court provides no he found the test proposed by the major~ lic Law 101-217 on December 11, 1989. guidance for the application of this new ity to be unnecessarily narrow and in The new legislation provides that, for test. Although "ownership interest in the conflict with the intent of the statute. 1989 crops, a landlord will not be com­ crop production" presumably means Nevertheless, he concurred with the re­ bined as one "person" with an out-of­ some type of crop share leasing, the mand of the case, stating that the be­ compHance cash rent or guaranteed crop court does not address the factors that lieved that it would "further strengthen share tenant if the Secretary of Agricul­ may be required for a cash rent landlord the record establishing the Eastons' - ture has at any time made a determina­ to show a "significant degree of engage­ rights to chapter 12 protection." Easton. tion regarding the number of persons ment" or a "significant operational role." 883 F.2d at 637 with respect to the tenant's operation on Thus, although the court rejects the - Susan A. Schneider. Graduate Fellow, the land for the 1989 crop year and if the Armstrong alternatives, it does little to National Center for Agricultural landlord did not consent to or knowingly clarify the standard applicable in the Law Research and Information, participate in the tenant's failure to com- Eighth Circuit. Fayetteville. AR The court also remanded the decision for evidence that certain debts were suf­ Federal Register in brief ficiently related to the farming opera­ tion, also for purposes of Chapter 12 The following is a selection of matters eligibility. At issue were the debtors' that have been published in the Federal cosignatures on a grandson's fann loan. Register from December 7, 1989 to Janu~ _ VOL 7.NO 4. WHOLE NO. 76 JAJWARY 1990 Again, the court stated the requirement ary 3, 1990: AALA Editor . . Linda Grim McCormick that the debtors have some ownership 1. FCA; Prior approval submissions; ]88 Morris Rd.. Toney. AL 35773 interest in or play an operational role in final rule. 54 Fed. Reg. 50736. Editorial AssL~tanl: Thoma" P Guarino, Umvennlv l)f the debt-producing enterprise. Easton, 2. FCA; Organization and functions; ArkanR8a, Fayetteville, AR. ­ 883 F.2d at 636-7. service of process; final rule. 54 Fed. Contributing Ed,tors: Roxana C Bacon, Bryan, Cave, Senior District Judge Hansen, sitting Reg. 50735. McPht."eten! & McRobl'~.B, Phoem'l, AZ: J.W Looney, Umversity of ArkanR8~ School of Law, Alan R. by designation, sharply dissented with 3. FCA; Reorganization authorities for Malaaky, Arent, FOJ[. Kintner, Plotkin & Kahn, Wash­ the majority. He noted that the Code's system institutions; advance notice of ington. D.C; Susan A Schneider. Graduate Fellow. NatJOnal CenU.r for Agricultural Law R..8ean;h and definition of "farming operation" in­ proposed rulemaking. 54 Fed. Reg. Information. FayeUeville. AR; Terence J. Centner.~­ cludes the general concept of "Tarming" 51763. 80CISte Profe8sor, Umvel1lity of Grorgia; Phillip L as well as more specific activities such 4. EPA; Grants; availability and re­ Kunkel. Hall, Byers, Hanson, SU.I] & Weinberger. Se Cloud, MN; Lmda Gnm McCormick, AALA Editor, as "tillage of the soil." Easton, 883 F.2d view of new financial assistance pro~ Toney. AL. at 638, citing 11 U.S.C. section gram; wetlands protection; state devel­ For AALA membership Information, rontllct William 10H20XSupp. V 1987). By including this opment grants. 54 Fed. Reg. 51470. P. Babione. Office of the Executive Dlrect.

2 AGRICULTURAL LAW UPDATE JANUARY 1990 AGLAW Immigration potpourri: sanctions CONFERENCE CALENDAR [Editor's note: ing the verificatlOn records. Section The following article is the conclusion 274A(b)(l) requires an employer to at­ Environmenta] Law of the discussion begun in the November test, on a form issued by INS. that it has February 15-17, 1990, Hyatt issue of the Update.] independently verified the eligibility for Regency, Washington, D.C. employment of all persons hired, not Topics include: SARA, RCRA, TSCA, Employer sanctions merely those that the employer suspects NEPA, Clean Water Act developments Employer sanctions summary are aliens. Thus, the verification obliga­ and underground water developments. Section 274A of the Act, added by tion imposes both its own liability, re­ Sponsored by the Environmental Law Institute and the Smithsonian Institution. IRCA, is designed to control the unlaw­ gardless of whether the person who was For more information, call }·AOO-CLE·NEWS ful employment of aliens in the U.S. by hired is or is not an unauthorized alien, or 1·215·243·1630. imposing civil and criminal penalties on and the best answer to an unauthorized those persons and entities that know­ employment charge. If the employer has Natural Resources Law Institute ingly hire or recruit or refer for a fee un~ properly completed the paperwork, the Mar. 1-3, 1990, Arlington Hotel, Hot authorized aliens for employment in the employer is exposed to neither a paper­ Springs, AR. U.S. Specifically, section 274A: 1) makes work charge nor a substantive charge of Topics include: the Federal Leasing and it unlawful to knowingly hire or to re­ knowingly hiring an unauthorized alien. Mining Act of 1987 and ppnding mineral cruit or refer for a fee unauthorized Although the burden of proving a viola­ legislation; well site operations and aliens: 2) requires those who hire and tion of the substantive charge remains surface damages. those who recruit or refer for a fee to on the government. which must prove its Sponsored by Arkamias Bar Association and verify both the identity and employment civil case by a preponderance of the evi­ American As;;ociation of Petroleum Landml"n. eligibility of hired individual~; and 3) dence, the Act does establish a "good For more infonnallon, call 501-375·4605. makes it unlawful to knowingly continue faith" defense if the employer shows that to employ unauthorized aliens hired it reviewed the documents specified in Section 274A< b), the "paperwork" re­ after November 6, 1986. the law, that it retained the verification quirements (Form 1-9), carries its own The "sanction" provisions apply to any forms, properly completed, and that the civil penalties. Those who fail to prop­ employer, regardless of the number of documentation appeared on its face to be erly "complete, retain and present for in­ persons employed. ]n addition, the Act genuine. Section 274AlbL spection Form 1-9" may be fined not less amends the Migrant and Seasonal Ag­ The )·9 fann than $100 nor more than $1,000 for each ricultural Worker Protection Act (29 The employer verification form which person for whom the fonn was not prop­ U.S.C.S. section 1801 et. seq.! to add a is the focus of most employer sanctions erly completed. Again, compliance with violation of the "sanctions" law to the list cases, is a simple, but poorly drafted, the verification requirements consti­ of proscribed acts warranting denial of a one-page form requiring the participa­ tutes an affirmative defense to the certificate of registration to a farm labor tion and signature of the employee and substantive violations of sections contractor or an employee of a fann la­ the employer. The top part of the fonn 274A(a)(J)(AI and 274A(a«2<. bor contractor under section 1813(a)(6), asks the employee to explain the basis and potential criminal sanctions under on which he or she is allowed to accept Initiation of a charge section 185Hb). In a related provision. employment in the U.S. The bottom part While an 1-9 audit can be conducted section 274A expressly prohibits an em­ of the form requires the employer to re­ by either INS or DOL, investigations are ployer from using contract labor to avoid cord what documents it has seen to conducted only by the INS. Section the sanctions provisions; an employer prove the employee's authorization for 274A(e)(l), (2). Typically, the investiga­ who uses contract labor is still an em­ employment. It is important to note that tion begins with issuance of an adminis­ ployer under sanctions law. the employer is not required to keep trative subpoena, which gives the em­ Definition of "unauthorized alien" photocopies of the documents provided ployer three days to produce the 1-9 This key term in the sanctions law re­ by the employee, and the employer forms for inspection. While not self­ fers to an alien who, at the time he or should not do so. executing, failure to comply with an ad­ she is employed, is neither an alien law­ The 1-9 fonns must be retained and be ministrative subpoena generally has fully admitted for permanent residence made available for inspection by INS or been considered a sufficient basis for the (has a green card) nor otherwise autho­ DOL for three years after the date an issuance of a court subpoena. If DOL re­ rized to be employed by the INA or by individual was hired, or one year after views the 1-9's, it passes any ir­ the Attorney General. Section 274A(h)(3) tennination, whichever is later. regularities on to INS for follow-up. .-. __ The sanctions provisions apply, then, Following review of the 1-9's, INS can Penalties not only to aliens illegally in the U.S. request additional information. ]fan em­ Violation of section 274A(a)(I)(A), the but to aliens not specifically authorized ployer does not want to voluntarily com­ "knowing hire" provision, or violation of for the employment under consideration ply, ]NS must seek either a search war­ section 274A(a)(2), the "'continuing to or review. rant or a court ordered subpoena. meet­ hire an alien knowing helshe is unautho­ Specifically excluded from the defini­ ing all of the traditional tests for such rized" provision, can result in substan­ tion of "'unauthorized alien" are all per­ judicial involvement. tial penalties. Employers determined to sons hired prior to the passage of IRCA, Based upon the review of the 1-9's and have knowingly committed one of those Le., prior to November 6, 1986. Such any other evidence INS has been able to violations must cease the activity and aliens are considered "'grandfathered," obtain, the employer sanctions unit of may be fined as follows: and no verification forms need be filed the local INS office will issue either a First violation: $250-$2,000 per on them. clean bill of health or a "Notice of Intent employee to Fine." This document, which operates __ Verification of employment Second violation: $2,000-$5,000 per as a fonnal charging document, is gener­ eligibility employee ally settled through negotiation. The em­ In most cases, the employer can avoid More than two violations: $3,000­ ployer agrees to pay some part of the sanctions problems by properly comp]et­ $10,000 per employee. (Continued on page 7)

JANUARY 1990 AGRICULTURAL LAW UPDATE a ======IND~'EP~~='H~======;=:_~. Prompt payment and statutory trust provisions for sellers of livestock,. by J. W. Looney

The Packers and Stockyards Act1 forms 1921 promotes fair trade practices in the for purchases is not an express extension the basis of federal regulation of live­ livestock and meat packing industries. of credit by the seller to the packer. 12 stock and poultry marketing. It governs The Act protects farmers, ranchers, and To receive the benefit of the trust pro­ the marketing activities of packers, consumers from economic harm result­ vision, notification of a claim must be stockyards, market agencies, livestock ing from unfair, monopolistic, or dis­ made within thirty days of the final date dealers, and live poultry dealers. The criminatory marketing practices. The set for payment (if no payment is re­ Act prohibits various unfair trade prac­ purpose of the Act was considered by the ceived at all) or within fifteen days of tices and is a significant force in shaping Supreme Court in the case of Stafford u. learning that a payment instrument has industry practices. Wallace,4 to be the promotion of the free been dishonored. The unpaid seller must The Poultry Producers Financial Pro­ and unburdened flow of livestock through notify both the ~acker and the Secretary 2 1 tection Act of 1987 , an amendment to stockyards and packers to the consumer of Agriculture. . the Packers and Stockyards Act, adds in the form of meat products. Stockyards and stockyard dealers provisions applicable to poultry transac­ Prompt payment provisions' The Act prohibits certain activities by tions closely analogous to other parts of statutory trust stockyard owners, dealers, and market the Act regulating payment obligations In 1976, Congress amended the Pack­ agencies. 14 If a stockyard, market agen· of livestock dealers. ers and Stockyards Act in an attempt to cy, or dealer violates any provision of the Producers of fruits and vegetables are assure full and prompt payment. The Act, or an order of the Secretary that is subject to federal legislation that affects Act now provides that each packer, deal­ related to the purchase, sale. or handling the marketing of these commodities in er, or market agency must deliver to the of livestock, the Act imposes liability for ways considerably different from the seller of livestock (or his authorized rep­ the full amount of any damages result­ laws that regulate the major grain crops. resentative) the full amount of the pur­ ing from the violation.]"> Liability can be Producers of certain perishable agricul­ chase price for the livestock before the assessed through a private cause of ac­ tural commodities (fresh fruits and veg­ close of the next business day following tion through litigation in a U.S. district etables) are provided with important the transaction unless the parties ex~ court or through an agency reparation protections in the Perishable Agricul­ pressly agree otherwise.5 In effect, this proceeding. 16 tural Commodities Act (PACA).3 PACA provision entitles the seller of livestock, Market agencies are obligated under was enacted in 1930 to suppress unfair in transactions covered by the Act, to the general prompt payment provisions and fraudulent practices in the market­ next-day payment unless that right is to make payment by the close of the next ing of those commodities and to promote knowingly waived by the seller. An effec­ business day, unless the ri~ht is know. their orderly flow in interstate com­ tive waiver must be in writing and not ingly waived by the seller. I, The obliga­ merce. be procured by deceptive means. A copy tion of market agencies also includes All three of these regulatory programs or other evidence thereof must appear provisions requiring the establishment provide sellers with specific rights with in both the dealer's and purchaser's rec­ of custodial accounts for the handling of regard to payment. Buyers are obligated ords and be contained in documents is­ shippers' rroceeds paid by buyers for to submit full payment within desig­ sued by the purchaser relating to the livestock. 1 These proceeds are referred nated time periods. Failure to do so is transaction.6 Furthermore, any attempt to as "trust funds" in the regulations but not only a violation of the particular Act on the part of the dealer, market agency, this obligation does not, however, fall but also gives rise to rights on the part or packer to delay the payment of sale within the statutory trust provisions ap­ of the seller under statutory trust provi­ proceeds is deemed to be an unfair prac­ plicable to packers. That special enforce­ sions. These provisions were added to tice under the Act. 7 ment mechanism is not available when the basic legislative programs to provide To further protect livestock sellers livestock are sold through a market additional protection to unpaid sellers, from insolvent packers, Congress added agency. Reparation, as an alternative to especially in those situations where the a statutory trust provision to the Act in litigation, may be used. Failure to pay buyer has given a lender a security in­ 1976" Although this section applies only promptly is a violation of the Act that terest in the commodities (livestock, to those packers whose annual purchases could result in a reparation award. poultry, or perishable agricultural com­ exceed $500,000 and is applicable solely modities) or in the inventories of prod­ to cash sales, it establishes a statutory Marketing of poultry ucts derived from these commodities. trust under which all meat inventories, The poultry marketing system differs The interplay between the prompt receivables, and proceeds are to "be held from the livestock marketing system in payment provisions and the statutory ... in trust for the benefit of all unpaid that it operates primarily through verti­ trust is the focus of this article. The cash sellers" until they have been paid cally integrated companies. Under this statutory trust is an important tool for in full for their livestock.9 arrangement, growers (fanners) raise enforcement of payment obligations, and Under the statutory trust provision, a company-owned birds under a produc­ its use will no doubt increase as seBers packer holds livestock purchased in cash tion contract. This contract is essentially become more familiar with its opera­ sales and all "inventories of,'" or "prod­ a bailment agreement between the grow­ tional effect. ucts derived therefrom," in trust for the er and the company. The company sup­ benefit of unpaid cash sellers of the live­ plies the birds and inputs such as feed Packers and Stockyards Act stock until fuji payment has been re­ and medication to the growers. The Com­ Purpose of Act ceived by the seller.lO The sale of live­ pany also supervises the production pro­ The Packers and Stockyards Act of stock constitutes a "cash sale" unJess the cess. Once the birds reach the stage of seller has specifically signed a credit development that corresponds to mar­ J. W. Looney is Dean ofthe University of agreement to the contrary.l1 The seller's keting specifications, the company re­ Arkansas School ofLaw. acquiescence in accepting late payments gains possession of the birds. It then pro-

4 AGRICULTURAL LAW UPDATE JANUARY 1990 'oultry, and perishable agricultural commodities*

cesses them and markets the finished the purpose of, or resulting in, an exten­ tive cases under PACA are either repa­ poultry products. sion of the normal payment period are to ration proceedings for money damages The Poultry Producers Financial be considered "'unfair practices" in viola­ or disciplinary cases. Reparation cases Protection Act of 1987 tion of the Act.27 involve a wide range of disputes. The The Poultry Producers Financial pro­ If after a hearing, the Secretary flOds reparation procedure is designed to pro­ tectionAct of1987, an amendment to the that a live poultry dealer has violated vide an informal and inexpensive meth­ Packers and Stockyards Act, was enact­ provisions of the Act, he or she may issue od by which disputes can be adjudicated. ed on November 23, 1987. 19 The Act's a cease and desist order against the The reparation procedure provides an al­ key provisions include the extension of dealer.28 The Secretary may also assess ternative forum for producers who suffer "unlawful practices" liability to live poul­ a civil penalty of up to $20,000 for each losses as a result of violations of PACA. try dealers and handlers, the establish­ such violation. However, the provisions Disciplinary cases frequently involve a ment of a statutory trust to insure pay­ state that "in no event can the penalty party's failure to pay promptly or in full. ment to growers under cash sale and assessed by the Secretary take priority the failure to properly account, or the poultry growing arrangements, and the over or impede the ability of the live misbranding of a commodity. requirement of prompt payment by deal­ poultry dealer to pay an,?' unpaid cash Prompt payment provisions ers who purchase poultry. The Act's pro­ seller or poultry grower.2. The "unfair conduct" provisions of visions are closely analogous to other Statutory trust PACA make failure to make full pa~­ Packer:;; and Stockyards Act provisions The statutory trust is intended to rem­ ment "promptly" a violation of the Act. 4 that regulate payment obligations of edy the problem caused by financing ar­ The Act provides no further definition, livestock dealers and handlers. ~o rangements in which live poultry deal~ but the regulations provide specificity Amendments to existing regulations ers grant a security interest in poultry with regard to a variety of transac­ have been issued to incorporate the that they obtain by cash purchase or tions.::>;; For many transactions "full pay­ legislative amendment.21 poultry growing arrangements. The trust ment promptly" is defined to mean 1li The Act defines the following key applies to all poultry obtained by a live within ten days of acceptance.: Ifa con­ terms: poultry dealer, whether by cash pur­ tract involves an agreement for payment (a) Poultry grower: "Any person en­ chase or by a poultry growing arrange­ at times different than those provided gaged in the business of raising and car­ ment. for in the regulations, the agreement ;ng for live poultry for slaughter by The trust assets include all inven­ must be in writing before entering into !nother, whether the poultry is owned tories of, or receivables or proceeds from, the transaction and a copy of the agree­ by such person or by another, but not an poultry obtained by the dealer, or the ment must be maintained in the records emplolee of the owner of such poul­ products derived therefrom. The grower­ of the parties. The party asserting the seller is protected from the risk of non­ existence of such an agreement has the try:"2' n (b) Poultry growing arrangement: "Any payment as an "unsecured creditor" un­ burden of proving it.: growout contract, marketing agreement, der a cash sale because the value of the Statutory trust or other arrangement under which a trust assets is held for the benefit of all In 1984 PACA was amended to create unpaid cash sellers or poultrv growers a statutory trust for the benefit of un­ poultry grower raises and cares for Hve 30 poultry for delivery, in accord with an­ until they have received full payment. paid suppliers or sellers of perishable ag­ other's instructions, for slaughter;"2:.1 Payment is considered not to have oc­ ricultural commodities or their agents curred if the cash seller or poultry and on all inventories of food or other (c) Live poultry dealer: "Any person grower receives a ,Rayment instrument products derived from perishable agri­ engaged in the business of obtaining live that is dishonored. 1 cultural commodities. This trust applies poultry by purchase or under a poultry Live poultry dealers are exempt from until full payment for commodities has growing arrangement for the purpose of the statutory trust provisions if they (a) been received.38 This provision is de­ either slaughtering it or selling it for have $100,000 or less in average annual signed to protect unpaid suppliers, sell­ slaughter by another. ,;"24 and value of live poultry, or (bl have $100,000 ers, and their agents in those circum­ (d I Cash sale: "A sale in which the sell­ or less in average annual value of live stances where commission merchants, er does not expressly extend credit to the poultry obtained by purchase or by a dealers, or brokers encumber or give buyer.,,25 poultry growing arrangement.3~ lenders a security interest in those com­ Live poultry dealers must make prompt modities or in the inventories ofrroducts r- payment for poultry, SpecificallY, a The Perishable Agricultural derived from the commodities.,l. dealer must deliver the full payment Commodities Act To obtain the benefit of the trust, the amount due to the seller-grower before The Perishable Agricultural Commod­ unpaid supplier, seller, or agent must the close of the next business day follow­ ities Act (PACA)33 was enacted in 1930 give written notice to the commission ing the purchase of poultry, in the case to suppress unfair and fraudulent prac­ merchant, broker, or dealer and file the of a cash sale, or by the close of the fif­ tices in the marketing of perishable ag­ notice with the Secretary within thirty teenth day following the week in which ricultural commodities and to promote days after the specified time for payment the poultry is slaughtered, in the case of the orderly flow of perishable commod­ has elapsed.4u The notice must include a poultry obtained under a poultry grow­ ities in interstate commerce. The basic statement that it is a notice of intent to ing arrangement.26 Further, any at­ regulatory approach of PACA is through preserve trust benefits and must include : empt by a live poultry dealer to delay the licensing of commission merchants, the name and address of the trust ben­ making payment due under the Act, or dealers, and brokers who are engaged in eficiary, the seller-supplier. commission any actual delay in making payment, transactions involving perishable agri­ merchant or agent, and the debtor. It and any attempt made by the dealer for cultural commodities. Most administra­ (Continued on page 6)

JANUARY 1990 AGRICULTURAL LAW UPDATE 5 PROMPr PAYMENT •.• TRUST PROVISIONS FOR SElLERS OF LIVESTOCK, ••. COMMODITIES I CONTINUED FROM PAGE & must also include the date of transac­ ing financing arrangements for purchas­ a purchase by a buyer requires payment tion, commodity, and contract terms, in­ ers of these commodities. within ten days of acceptance. voice, price, and the date payment was ]f this procedure results in successful 37.7 C.F.R. § 46.2(aa)(lll. due and the amount past due and un­ protection for fanner-sellers of the cov­ 38. 7 U.S.C. § 49ge(C)(2) paid. If the problem results from a pay­ ered commodities, the concept may be 39. 7 U.S.C. § 499.(c)( 1). ment instrument that has been dishon­ extended to other transactions as welL 40.7 U.S.C. § 49ge(c)(3). ored, the date of receipt of notice of this For example, similar protection might be 41. 7 C.F.R. § 46.46. fact must be included in the notice. 41 considered for sellers of grain or other 42. In re DKM.B., Inc.. 95 Bankr. 774 Strict compliance with notice provis­ major crops if Congress concludes that (Bankr. D. Colo. 1989). ions is required.42 Oral notice is not suf­ grain elevator insolvencies continue to 43. In re Marvin Properties, 76 Bankr. ficient, nor is notice only to USDA even pose a burden on seHers of these agricul­ 150 (Bankr. 9th Cir. 19871 arfd 854 F.2d if the debtor had actual knowledge ofthe tural commodities. The experience of 1183 (9th Cir. 1988). intent to preserve trust benefits.43 The sellers of livestock, poultry, and perisha­ 44. In re WL. Bradley Company, Inc., 75 notice may be filed even before the due ble agricultural commodities in success­ Bankr. 505 (Bankr. E.D. Pa. 1987); In re date of the payment once delivery has fully using these provisions may deter­ Montere.y House, Inc., 71 Bankr. 244 been made.4 mine whether similar protection is ap­ (Bankr. S.D. Tex. 1986). The protection of the statutory trust propriate for sellers of other agricultural 45. 7 C.F.R. § 46.46(d)(21 provisions may be waived if in writing commodities. 46. In re Fresh Approach. Inc., 51 Bankr. prior to the time any contracts are 412 (Bankr. N.D. Tex. 1985); In re Super negotiated. The waiver must be separate *" A more detailed discussion of these Spud, Inc., 77 Bankr. 930 (Bankr M.D. and distinct from any agency contract.45 matters is found in J. Looney, J. Wilder, Fla. 1987). The seller's claims are elevated above S. Brownback, J. Wadley, Agricultural 47. In re Prange Foods Corp., 63 Bankr. secured creditors, ahead of administra~ uw': A Lawyer's Guide to Representing 211 (Bankr. W.D. Mich. 19861 tive costs and expenses, and ahead of Farm Clients (American Bar Associa­ 48.1n re Fresh Approach. 51 Bankr. 412 other priority and general creditors. The tion, General Practice Section, 1989) (Bankr. N.D. Tex. 19851 trust assets are not part of the estate in from which this article is derived in part. 49. Lyng l'. Sam Comptan Produce Co., bankruptcy.46 It is not necessary to seek Cir. 3-86-759 (N.D Tenn. 1987); Also see relief from the automatic stay in bank­ In re Harmon. 11 Bankr. 162 (Bankr. ruptcy in order to file the notice. The N.D. Tex. 19801 bankruptcy petition with the automatic L 7 U.S.C. §§ 181-229 50. Forestwood Farm Inc. v. Tanner, 77 stay does not toll the period for filing the 2. Pub. L. No. 100-173, 100 Stat. 917. Bankr. 897 (Bankr. N.D. Ala. 19871. notice.'H 3. 7 U.S.C. § 499a·499s. 51. In re Hancock-Nelson Mercantile. Trust funds may be recovered from a 4.258 U.S. 495 (1922). Inc.• 95 Bankr. 982 (Bankr. D. Minn. secured creditor48 or from third parties 5. 7 U.S.C. § 228b(a) 1989); In re WL Bradle.Y Company, Inc.• who knew or should have known that 6.7 U.S.C. § 228b(b). 75 Bankr. 505 (Bankr. E.D. Pa 1987); the assets were transferred to them in 7. 7 US.C. § 228b(c). Also see In re Frosty Morn Meats. Inc., 7 ­ breach of the truSt.49 However, dissi­ 8. 7 U.S.C. § 196. Bankr. 988 IM.D. Tenn. 1980). pated trust funds used to pay antecedent 9. 7 U.S.C § 196(b) 52. Lyng v. Pellegrino & Sons. Inc., 694 debts in the ordinary course of business 10. 7 U.S.C. § 196(b). F. Supp. 976 (N.D. Mass. 19881; In re may not be traced into the hands of third 11. See In re Gotham Provision Co., Inc., Nagelberg & Co., Inc.. 84 Bankr. 19 parties who had no knowledge of the 660 F.2d 1000 (5th Cir. 1982) cert den. (Bankr. S.D. N.Y. 19881 character of the funds received.50 When 103 S.Ct. 129,459 U.S. 858, 74 L.Ed. 2d trust assets are commingled with non­ 111 (1982). produce related assets, the trust ben­ 12. In re G & L Packing Co., Inc., 20 eficiaries are not required to trace the Bankr. 789 (Bankr. N.D. N.Y. 19821, Insider guarantees assets; the burden is on the debtor to affd 41 Bankr. 903 (N.D. NY 1984). identify non-trust property.51 13. 7 U.S.C. § 196(b); 9 C.F.R. § 203.15. update The USDA may initiate action to avoid 14. 7 U.S.C. §§ 203, 208. In the November issue of the Update, dissipation of trust assets and to recover 15. 7 U.S.C. § 209(a). the case ofIn re Robinson Brothers Drill­ assets transferred to a third party.52 16. 7 U.S.C. § 209. ing. Inc., 97 Bankr. 77 (W.D. Okla. 1988) 17.7 U.S.C. § 228b(a). was noted to be on appeal. The district 18. 9 C.F.R. § 201.42. court opinion was simply adopted by the Summary 19.7 U.S.C. § 181 et seq. Tenth Circuit in Manufacturers Hanover The combination of the prompt pay­ 20. See e.g., 7 U.S.C. §§ 196 and 228b. Leasing Corp. u. Lowrey, No. 88-2982 ,." ment requirements with the statutory 21. 54 Fed. Reg. 16353, April 24, 1989. (JOth Cir., Nov. 9, 1989). The result fol­ trust provides a powerful tool for sellers 22. 7 U.S.C. § 182(8). lows Levit v. Ingersoll~and Financial of livestock, poultry. and perishable ag­ 23. 7 U.S.C. § 182(9). Corp., 874 F.2d 1186 (7th Cir. 1989). ricultural commodities. Congress has 24. 7 U.S.C. § 182(10). - Phillip L. Kunkel. recognized the disadvantage that unpaid 25.7 U.S.C. §§ 197 and 228b-1. Hall, Byers, Hanson, Steil & sellers face in collecting payment from 26.7 U.S.C. § 228b-1. Weinberger. St. Cloud, MN purchasers ofthese commodities who be­ 27.7 U.S.C. § 228b-1. come insolvent and has given these sell­ 28. 7 U.S.C. § 228b-2. ers special protection. Attorneys advis­ 29. 7 U.S.C. § 228b-2. ing sellers in these situations should be 30. 7 U.S.C. § 197. prepared to make use of this tool as an 31. 7 U.S.c. § 197(c). effective method of achieving the great­ 32.7 U.S.C. § 197. est possible protection for their seller­ 33. 7 U.S.C. § 499a - 499s. clients. At the same time, those who ad­ 34. 7 U.S.C. § 499b(4). vise lenders should be aware ofthe effect 35.7 C.F.R. § 46.2 (aa). of these legislative programs in structur­ 36. See, e.g., 7 C.F.R. § 46.2(aaX5) where

6 AGRICULTURAL LAW UPDATE JANUARY 1990 IMMIGRATION POTPOURRI: SANCTIONS / CONTINUED FROM PAGE'

money sought, agrees to behave itself in Cir., June 23, 1989), the Ninth Circuit whether the alien is really authorized to the future, and all is forgiven. Even such rejected a challenge to the constitution· work. The ALJ relied upon Mester Man.­ a negotiated settlement, however, is con­ ality of the statute and affirmed the ALI ufacturing in reaching his conclusion. ~idered to constitute a "violation" so as decision imposing some civil fines, albeit va allow the acceleration of penalties much reduced from those sought by INS. Search warrants onto farm should the employer be revisited. Mester's key legal issue concerned or ranchland when an employer should be held ac­ Historically, INS has been authorized Administrative hearing countable for knowledge of an employ· to search without a warrant (8 U.S.C.S. Ifthe employer does not accept the N0­ ee's unauthorized status even if, at an section 1357), and the Supreme Court has lice of Intent to Fine or any negotiation earlier date, the employer was presented sustained a warrantless search onto a thereof, the employer can request a hear· with the appropriate documentation to farm with a lock and a "no trespassing" ing before an Administrative Law Judge meet the 1-9 form requirements. The em­ sign on the basis that the Fourth Amend­ {ALn. That hearing must be conducted ployer argued that, unless it received of· ment does not protect open fields (Oliver in accordance with the Administrative ficial written notice from INS that em­ u. U.S., 466 U.S 170, 104 S.Ct. 1735 Procedure Act. Section 274A(eX31(B). If ployees were illegal, it could continue to (1984)). The !RCA changes that policy. no hearing is requested, and if no settle­ rely upon the documentation presented The Act now provides that, in the ab­ ment is negotiated, the Notice of Intent by its employees. INS argued that, al­ sence of a properly executed warrant or to Fine constitutes a final order which though it had provided no such written the consent of the owner or his agent, may not be appealed, Section 274A(e)(6), notice, it did orally tell the employer that, INS officers may not enter onto the If a hearing before an ALI has oc­ pursuant to an J-g audit, certain of its em­ premises of a farm or other outdoor ag­ curred, the decision and order of that ployees lacked authorization to work. ricultural operation for the purposes of judge become final unless, within thirty The AlJ and the Ninth Circuit held interrogating a person believed to be an days, the Attorney General modifies it. that IRCA does not require notice to come alien as to the person's right to be in, or There is no other administrative review. to the employer in any particular way. to remain in, the U.S. Section 287(dl. However, under another provision of the The court held that the employer had Unless the farmland lies within twenty­ INA, a final AU decision can be re­ "constructive notice" or imputed notice, five miles of an international border, viewed in the court of appeals within even if it did not have actual notice, in this warrant requirement applies. forty-five days after the date the final order to be held accountable under the It is wise for agricultural employers to order is issued. Section 274A(e)(71. The Act, because it deliberately failed to in­ require INS to live up to the law, since only sanctions·related action that can vestigate "suspicious circumstances" ­ INS usually doe~ not have adequate in­ arise in district court is that brought the INS's oral statement that the employ­ formation to justify issuance of a war­ by the Attorney General to enforce a ees were not eligible for hire. rant to search fields. While it is always civil fine or other civil penalties (Sec­ A second ALI decision agrees. In necessary to weigh the benefits offorcing tion 274A(f)(2)), or to enjoin a pattern United States v. New El Rey Sausage an agency to fully comply with its own )f practice of violations (Section Company, Case No. 88100080 (OCARO rules and the law against the downside 174A(f)(2ll July 7, 1989),the AlJ held that once the of becoming a target for a disgruntled INS warns an employer that it suspects agency, generally speaking agricultural Reported decisions an alien worker has used false documents employers should insist upon INS meet­ The first court review of sanctions im­ to establish eligibility on the 1-9 form, a ing the warrant provision. posed upon an employer in a contested rebuttable presumption arises that the - Roxana C. Bacon, proceeding under section 274A occurred employee is not authorized to work in the Bryan, Cave, McPheeters & McRoberts, very recently. In Mester Manufacturing u.s. To rebut the presumption, the em­ Phoenix, AZ Co. t'. INS, F.2d., No. 88-7296 (9th ployer must exercise "due care" to learn

Response costs recoverable under CERCLA in absence ofactual contamination The First Circuit Court of Appeals has contaminated the plaintifT's property, taminated its own property and there _ concluded that the Comprehensive Envi­ and plaintiff Dedham Water Company existed a threatened release of hazard­ (". _...... ~"X>nmental Response, Compensation, and did not appeal this finding of no actual ous substances that may have generated , . Liability Act of 1980 (CERCLA-42 U.S.C. contamination. Rather, Dedham Water response costs. The circuit found that . §§ 9601-9675) permits recovery of re­ Company argued that the threatened re­ these facts were sufficient to support re­ sponse costs in "two-site" cases, even in lease of hazardous substances by the de­ coverable response costs, and ordered a the absence of any actual contamination fendant was sufficient to justify liability new trial. of a plaintiff's property by hazardous sub­ for response costs. Agricultural users of hazardous sub· stances in Dedham Water Company t'. The circuit court agreed. Cumberland stances need to be apprised of these far­ Cumberland Farms Dairy, Inc., Case No. Fanns could be liable for threatened re­ reaching CERCLA provisions. Owners 889 F.2d. 1146 I1st Cir. Nov. 2, 1989). leases if such contributed to the plain­ or users of a hazardous substance may The particular facts of this case dis· tifT's response costs. CERCLA, as a strict incur liability even though there is no close that the liability provisions of liability statute, provides recovery of re­ actual contamination, and the existence CERCLA are very broad. First, proof of sponse costs for threatened releases of actual contamination by others does contamination is not necessary; rather without proof of actual contamination. not preclude liability for response costs threatened releases may give rise to lia­ Second, Dedham Water involved two­ for nonpolluters. For further infonna­ bility. Second, evidence ofcontamination site contamination. The district court tion on liability for hazardous chemicals, by a third party may not preclude liabil­ had found that persons other than Cum­ see Wadley and Settle, Statutory Regu­ ity for a nonpolluter; threatened releases berland Farms were probable causes of lations of Hazardous Chemicals on the also apply to "'two·site" cases. actual contamination and that Cumber­ Farm, 6 Agric. L. Update 4-7 (July The district court had found that haz­ land Farms had not contaminated plain­ 19891. ardous substances from defendant Cum· tiff's property. However, the evidence - Terence J, Centner, l berland Farms had not migrated onto or disclosed Cumberland Farms had con- Associate Professor. Univ. of Georgia JANUARY 1990 AGRICULTURAL LAW UPDATE 7 II A~}~t"""'=:J I ,SLJ!l l1/ip".te-JJ 219 New York Avenue Des Moines, Iowa ,50313

ADDRESS CORRECTION REQUESTED

AMERICANAGRICULTURAL BWASSOCIATION NEWS

1990 American Agricultural Law Association membership renewal

Membership dues for 1990 are due February 1, 1990. For the 1990 calendar year, dues are as follows: regular membership, $50; student membership, $20; sustaining membership, $75; institutional membership, $125; and foreign membership (out-' side U.S. and Canada), $65. Dues should be sent to: William P. Babione, Office of the Executive Director, Robert A. Leflar Law Center, University of Arkansas, Fayetteville, AR 72701.

Statements will be mailed to the membership shortly.