by Sally Colby
For some dairy families, the day before or after Thanksgiving brought an unpleasant surprise.
Hundreds of dairy farmers and milk haulers in states across the nation received a letter written in legalese, but the bottom line was clear: “You owe us a large sum of money, and if you pay a percentage of that, we won’t sue you for the total amount.”
The letter was from ASK LLP, the law firm representing Dean Foods trustees. Dean Foods filed for bankruptcy in November 2019, and dairy farmers and milk haulers were deemed critical vendors to be paid during the bankruptcy process to allow Dean Foods to operate and eventually be sold. Now that bankruptcy has occurred, the trustee for the estate is using the part of bankruptcy law that allows them to request any money back paid to creditors and vendors in the 90 days previous to the bankruptcy filing.
On a recent call hosted by the Center for Dairy Excellence, dairy and legal experts helped clear the air regarding the letter and offered advice to farmers. Those who provided advice said farmers should contact their attorney to ensure the issue is handled properly.
“It’s an avoidance claim,” said Doug Eberly, chief counsel for the Pennsylvania Milk Marketing Board. “When a business files for bankruptcy, the payments that it makes to creditors in the 90 days immediately prior to the bankruptcy are liable to be recovered in order to be used to pay other creditors – the theory being the creditors with bargaining power get preferential treatment and get money out of the bankrupt that then is not available for other creditors and the bankruptcy code allows that money to be recovered.”
Eberly explained that farmers, in good faith and in the ordinary course of business, kept selling milk to Dean, which allowed Dean to stay in business. But that’s also that’s why farmers and milk haulers received these letters attempting to recover payments Dean Foods made to farmers for milk. Eberly said the settlement offer is because ASK LLP doesn’t want to have to go to court and file a claim – they’d rather just have people pay without having to do any work other than sending out a letter.
ASK LLP needs documentation because they have an obligation to the bankruptcy court to show that the things that are supposed to be done pursuant to the bankruptcy code have been done, Eberly explained. There’s also an unsecured creditors committee trying to get every last dime it can to pay creditors. “ASK has to demonstrate to them that you were paid in the ordinary course of business,” said Eberly, “and therefore, you do not owe any money back because you were not treated in a preferential manner by Dean when you were paid.”
Once the word about the letters spread, organizations including state Farm Bureaus, state Secretaries of Agriculture, PMMB and the American Farm Bureau Federation became involved. AFBF president Zippy Duvall, a dairy farmer, stated, “Shame on these predatory lawyers for bullying dairy farmers at a time when many are struggling to keep their farms running. 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.”
A letter to ASK LLP signed by Ellen Steen, general counsel and secretary for AFBF, stated, “Your letters are a predatory shakedown, written in legalese.”
Pennsylvania Rep. Frank Ryan, a CPA, said the letter is typical of what’s sent for repayment in a bankruptcy case. “They’re trying to determine preference period,” he said. “I can’t imagine a situation in which someone in the dairy industry has gotten a preference payment. ‘Preference payment’ means that you were treated better than someone else.”
Ryan emphasized that anyone who has received a letter demanding payment should not submit any payment without consulting with an attorney, adding, “I can’t conceivably imagine a case in which a dairy farmer would be expected to pay any money back.”
However, some farmers, fearing they’d be sued for the total amount, already paid the settlement amount requested in the letter. Ryan said farmers who have paid the money back in good faith should be able to get their money back with the help of an attorney because it most likely didn’t need to be paid, and courts are not interested in penalizing those who act in good faith.
He emphasized the importance of not ignoring the letter, adding that if farmers or haulers dismiss the letter and ASK LLP would happen to determine money is actually owed, the result will be immediate judgment against you. “The U.S. Trustees office has an incredibly powerful way of getting funds they’re owed,” said Ryan. “It will typically be a declaratory judgment against you for failing to respond, and I would caution you not to do that.”
The PMMB worked with the PA State Attorney’s office to construct a declaration letter for dairy farmers and milk haulers to complete and return to ASK LLP. The letter was approved by ASK LLP, and can be used by farmers and haulers in all states. Eberly said it’s important to send the declaration letter to the specific ASK LLP paralegal named in the letter to ensure the file is acted on appropriately. Those who don’t have email can fax the letter using the fax number provided in the letter. “Be sure you put ‘Attention to’ the paralegal it’s assigned to,” he said, adding that sending it to the person it’s assigned to should mean it will be dealt with faster. “Until you hear back, you’re still going to be wondering, and we’d like to get you not wondering as quickly as we can.”
The declaration letter approved by ASK for dairy farmers in all states to sign and return is downloadable at https://tinyurl.com/y9aa2gub.
The declaration letter for milk haulers is downloadable at https://tinyurl.com/y92uyb3w.