December 11, 2020
If you got a letter demanding money as a result of the Dean Foods bankruptcy, don’t pay it. Your best bet is to fill out an avoidance claim declaration as soon as possible.
Doug Eberly, chief counsel of the Pennsylvania Milk Marketing Board, said during a conference call Thursday that filling out the claim letter — there is one for farmers and haulers — would show ASK LLP, the bankruptcy law firm representing the Dean Foods estate, that farmers were paid by Dean Foods during the ordinary course of business for the 90 days before Dean's filing for bankruptcy in 2019.
Under federal bankruptcy law, when a business files for bankruptcy, the payments that it makes to creditors during the 90 days before filing can be recovered to pay other creditors — known as the “claw back” provision. Eberly says that the theory behind the provision is that creditors (firms owed money) with borrowing power can get preference over other creditors, and this is a tool that can be used to pay them back.
Eberly says that ASK likely sent out the letters to farmers to settle individual cases rather than go to court and file official claims.
The declaration letters are key, though, because they not only prove that a farmer, or milk hauler, was paid by Dean during the ordinary course of business, but it also provides proof to the bankruptcy court hearing the case, as well as the unsecured creditors committee that’s trying to get all of Dean Foods’ creditors paid.
Must the declaration be submitted through an attorney? No, according to Eberly. He says that anyone, including a farmer, can fill out a declaration and send it to the paralegal named on the initial ASK letter. The name and email will be different for any farmer who got a letter. You can also fax it to 651-406-9676.
If you’ve already paid it, can you get your money back? Rep. Frank Ryan, R-Pa., who also is a certified public accountant and is familiar with aspects of bankruptcy law, says that you can likely get your money back, but you would have to contact an attorney to help you out.
If you still owe money, do you have to send it the entire amount? That depends, according to Ryan. “In an unlikely event that you do owe it, that can be negotiable," he says. "You can very easily go back and make a counteroffer. They are really just trying to see how much money they can get back into the estate."
Can farmers in other states fill out the declaration? Yes. Even though the farmer and hauler declarations are on the Pennsylvania Milk Marketing Board’s website, any farmer can fill one out if they got a letter.
Legal options to deal with Dean’s letters
Several dairy producers, processors and other entities that sold milk or milk products to Dean Foods in late 2019 recently got demand letters from ASK LLP seeking the return of payments for the milk or milk products sold.
Paul Goeringer, an Extension legal specialist with University of Maryland, advises not to take these demand letters lightly. Go online and fill out an Avoidance Claims Declaration or seek legal advice from an attorney with experience in preference claims.
Federal bankruptcy code allows for certain payments made 90 days before the bankruptcy filing to be considered preferential transfers/payments and potentially clawed back into the debtor’s bankruptcy estate.
The bankruptcy code also allows for three defenses that could prevent or lessen the effects of the claw back provision.
The first defense is the ordinary course of business defense. This is where the creditor (in this case, the dairy farmer) would claim the payment was made in the agreed-upon terms and is not preferential. With this defense, payments are consistent with what has occurred historically and is customary within the industry.
The second defense is the contemporaneous exchange defense. With this defense, the creditor claims the transfer/payment was an exchange made for a new value on preexisting debt. In this case, the payment for milk would have gone toward accrued debt that accrued. So when the milk shipment is delivered and payment is made, the payment is considered to be the value of the milk delivered.
The third defense is the new value defense. This is where a dairy producer must show having supplied additional milk above what is normally supplied and the payments related to that additional milk supplied.
Each one of these defenses require documentation to demonstrate qualifying for it.
An attorney experienced with these issues will be able to help you analyze whether the claims are valid, whether these or other potential defenses may apply, and they may be able to help with negotiating a favorable settlement, if necessary. Such an attorney may also be able to negotiate a better settlement for you.
Dairy producers with a demand letter should consider pulling together a 15-month payment history, invoice terms for milk transactions with Dean Foods, any contracts with Dean Foods, and any potential claims against the debtor.
If you need legal assistance with this, reach out to your state bar association and see if there is an agricultural law section or bankruptcy section to see membership lists for possible attorneys in your area with the appropriate experience.
You can also contact the American Agricultural Law Association, a national association of attorneys specializing in various legal issues affecting agriculture. Many have backgrounds in debtor/creditor issues such as this, and you can find more information at aglaw-assn.org.
You may also want to work with neighbors who received these letters to pool together to find an attorney to assist all of you. This could drive down costs and help the attorney get a better understanding of the claims.
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