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 Maryland General Assembly’s House of Delegates and Senate both introduced legislation entitled Farmers’ Rights Act (HB 1019 & SB 532). If enacted,how would the legislation potentially impact Maryland agriculture? Let’s take a look at it today and see.
The Farmers’ Rights Act (the Act) would require the use of a regulated livestock production contract in agriculture. A livestock production contract, for those unfamiliar with the term, 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.
Similarities Between the Act, PPA, and Minnesota’s Law
The Act, as proposed in Maryland, is directed only towards livestock production contracts as opposed the PPA and Minnesota’s law which are also 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, bear in mind those laws are broader than Maryland’s proposed Act.
The Act, the PPA, and Minnesota’s law require an initial cover sheet disclosing the material risks of entering into the contract. The Act would allow the disclosure of risks to be developed in cooperation with producers or producer organizations. The disclosure would need to be clear and easy to understand by a producer. 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.
Review by State Official
In Maryland, the Attorney General would review livestock production contracts.
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 the head of the state’s department of agriculture or the state’s Attorney General. 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.
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. However, production contract parties cannot 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 area between the three laws is limiting a contractor’s right to terminate when the producer is required to make a capital investment. These provisions require the contractor to pay damages equal to the remaining useful life on the capital investment or the balance left on any loan used in that investment such as, for example, 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 is to ensure that producers’ contracts allow them to recoup capital investment costs from the contractor.
Mediation/arbitration would be required under all three laws before going to court on an issue involving the production contract. This is one possible way to limit costs for the producer who is potentially going to have fewer resources compared to the contractor. One issue with the Act, as it is written, is that it makes no reference to utilizing the agriculture mediation service currently provided by the Maryland Department of Agriculture.
Differences in Three
The Act would not allow a livestock production contract to waive required language from the Act. For example, the livestock production contract 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 PPA and the Act part ways with Minnesota’s law on confidentiality provisions in production contracts. Both the PPA and the Act make confidentiality clauses void and unenforceable. Federal law already limits 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 ensure 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 practices in the industry with government officials without fear of retaliation by the contractor. One interesting feature is the right to not retain all or any part of the waste generated by the livestock without fear of the contract being cancelled.
It’s hard to say what the impact of the Act will be if enacted by Maryland. Currently no state has fully implemented all the provisions of the PPA (as is currently before the General Assembly). Stay tuned here and @MDAgLaw for details on how the Act progresses through the General Assembly.