Photo by Edwin Remsberg
This post should not constitute legal advice or lobbying for or against this piece of legislation. The purpose of this post is to review the possible implications of proposed legislation.
Recently the Farmers’ Rights Act (SB 761) was reintroduced in the Maryland state senate. Last year, I provided an overview of this legislation, and much of what I wrote then still applies to the reintroduced legislation. As I wrote last year, this legislation could impact Maryland agriculture if enacted, changing how livestock production contracts are handled in the state. To view last year’s post, see Let’s Look at the Farmers’ Rights Act.
The Farmers’ Rights Act (the Act) is aimed at the use of livestock production contracts in agriculture. A livestock production contract is when a producer agrees to feed and care for livestock owned by a contractor in return for money. The Act is similar to one enacted in Minnesota in 1999 and a proposed model law called the “Producer Protection Act” (PPA) which captured features of Minnesota’s law and other states’ laws regulating production contracts.
As with last year’s proposed legislation, the reintroduced Act is only directed towards livestock production contracts. The PPA and Minnesota’s law are directed towards all grain and livestock production contracts. Production contracts are not just instruments utilized by the livestock sector but also by vegetable and grain contractors. So if you are to review the PPA or Minnesota’s law, then bear in mind those laws are broader than Maryland’s proposed Act.
SIMILARITIES BETWEEN THE ACT, PPA, AND MINNESOTA’S LAW:
Review By State Official
To ensure the livestock production contract complies with the requirements of the law, the Act, Minnesota’s law, and the PPA all require review by a state official. Minnesota requires review by the Commissioner of Agriculture (similar to our Secretary of Agriculture). The PPA allows a state to pick either the head of the state’s department of agriculture or the state’s Attorney General as reviewer. As proposed, the Act would require Maryland’s Attorney General to review production contracts to ensure the contracts are easily readable. In all three, the decisions of the review are final and not reviewable by a court.
Waiving the Act
The Act would not allow a party to a livestock production contract to waive required language from the Act. For example, a party could not waive the cover sheet requirement or other requirements discussed above. This is similar to requirements in the PPA and Minnesota’s law. The Act would also allow a producer three days to cancel the contract (commonly called a “three-day cooling off period”) which is similar to Minnesota’s law and the PPA.
The Act, the PPA, and Minnesota’s law each require a cover sheet disclosing material risks of entering into the contract. In Maryland, the Act would allow this disclosure to be developed in cooperation with producers or producer organizations. This disclosure would need to be clear and easy for a producer to understand. All three laws require a cover sheet reminding a producer that a legal contract is binding, along with an index of major sections such as names of parties, definitions, provisions governing termination, cancellation, and renewal, duties and obligations of the parties, etc. All three laws also require that a livestock production contract be written so a person of average intelligence, education, and experience in the industry could understand it.
Choice of Law
All three laws limit the ability of parties to choose the state law that will govern the contract. This is a typical contract provision if a state has a better-developed body of law for your industry or it may just be more convenient for the selection of one state’s law over another. The production contracts could not choose the law of another state if a dispute arises. This means only Maryland law could be used to interpret the livestock production contract and not Delaware law, for example.
Another common feature of the three laws is limiting a contractor’s right to terminate when the producer is required to make a capital investment. This requires the contractor to pay damage equal to the remaining useful life on the capital investment or the balance left on any loan used in that investment such as if the contractor is required to make improvements totaling $100,000 with a useful life of 20 years. In year 5, contractor decides to cancel the contract and would potentially owe the producer $75,000 (or the remaining 15 years of useful life of the capital investment). This provision helps insure that producers’ contracts allow them to recoup capital investment costs from the contractor.
Under all three laws, mediation/arbitration would be required before going to court on an issue involving the production contract. This is one possible way to limit costs for the producer who potentially has fewer resources compared to the contractor. One issue with the Act as written is it makes no reference to utilizing the ag mediation service within Maryland Department of Agriculture.
DIFFERENCES IN THE THREE LAWS
Photo by Edwin Remsberg
The PPA and the Act part ways with Minnesota’s law on confidentiality provisions in production contracts. Both the PPA and the Act would make confidentiality clauses void and unenforceable. Federal law has already limited the impact of confidentiality clauses in livestock production contracts. The 2002 farm bill allowed producers to discuss terms with state and Federal agencies, accountants, legal advisors, lenders, managers, landlords, and immediate family members. The PPA and the Act would go further to make all confidentiality clauses unenforceable in livestock production contracts. This is similar to provisions found in Illinois (§ 17/30) and Iowa (§ 202.3).
The PPA and the Act also create a producer’s lien to insure payment for livestock produced under the contract. This lien provision is typically there to protect producers against non-payment from contractors going out of business. Iowa also has provisions creating a lien for livestock production contracts (Iowa Code Ann. §§ 579B.1 – 579B.7 (West. 2015)).
Another common area for the Act and the PPA is allowing producers to join producer associations and discuss industry practices with government officials without fear of retaliation by the contractor.
It’s hard to say what the impact of the Act would be if enacted by Maryland. Currently no state has fully implemented all the provisions of the PPA as is currently before the General Assembly. Maryland would be the first to fully enact the law if passed. As you can see, while other states have enacted portions of the PPA, the majority of states have not limited implementation to one sector of agriculture such as livestock, but focused on the industry as a whole.