PRIOR PRINTER'S NOS. 2646, 2839               PRINTER'S NO. 2975

THE GENERAL ASSEMBLY OF PENNSYLVANIA


HOUSE BILL

No. 1969 Session of 1984


        INTRODUCED BY MORRIS, GRIECO, MADIGAN, BALDWIN, LLOYD, BROUJOS,
           SHOWERS, PHILLIPS, W. W. FOSTER, BOWSER, WASS, RUDY, STUBAN,
           CALTAGIRONE, DeVERTER, COLE, FARGO, COY, HALUSKA, HONAMAN,
           LUCYK, JOHNSON, SALOOM, SEVENTY, BATTISTO, ROBBINS, KUKOVICH,
           J. L. WRIGHT, SIRIANNI, PISTELLA, PRATT, PETRARCA, CLYMER,
           LESCOVITZ, FISCHER, SPENCER, GODSHALL, G. M. SNYDER, HERMAN,
           WACHOB, DORR, AFFLERBACH, PRESTON, D. R. WRIGHT, MERRY,
           SEMMEL, SCHEETZ, D. W. SNYDER, ITKIN, DeLUCA, STEIGHNER,
           BURD, DIETZ AND LIVENGOOD, MARCH 13, 1984

        AS AMENDED ON THIRD CONSIDERATION, HOUSE OF REPRESENTATIVES,
           MAY 15, 1984

                                     AN ACT

     1  Requiring prompt payment to milk producers; providing for the
     2     establishment of a security fund; providing for a procedure
     3     to process claims against the security fund; providing for
     4     alternative methods of security on behalf of milk producers;
     5     and providing for certain prohibitions, repeals and
     6     penalties.

     7     The General Assembly of the Commonwealth of Pennsylvania
     8  hereby enacts as follows:
     9  Section 1.  Short title.
    10     This act shall be known and may be cited as the Milk
    11  Producers' Security Act.
    12  Section 2.  Declaration of policy.
    13     It is hereby declared that the dairy industry is a paramount
    14  agricultural industry of this Commonwealth and that the normal
    15  processes of producing and marketing milk are enterprises of
    16  vast economic importance to the Commonwealth and of vital

     1  importance to the consuming public which ought to be safeguarded
     2  and protected in the public interest. The General Assembly finds
     3  that the marketing of milk requires dairy farmers and
     4  cooperatives to receive prompt payment from dealers and
     5  handlers. It has been, and continues to be, the policy of this
     6  Commonwealth to protect producers and cooperatives against loss
     7  of payment for milk because of defaults by purchasers. The
     8  public interest requires the establishment of an act to provide
     9  security for dairy farmers and cooperatives.
    10  Section 3.  Scope of coverage.
    11     (a)  For purposes of this act, a cooperative corporation or
    12  association of producers shall be deemed to be a producer and
    13  not a dealer with respect to the milk of its producer members or
    14  of its producer patrons under specific nonmember marketing
    15  agreements, or of other qualified (Capper-Volstead) cooperatives
    16  under agreement with such cooperative provided that written
    17  documentation concerning such transactions is on file with and
    18  approved by the Milk Marketing Board, together with a written
    19  waiver signed by the seller cooperative of any claim against the
    20  board or purchaser cooperative under this act. All members of
    21  the seller cooperative shall be notified by mail of such waiver.
    22  A cooperative corporation or association of producers shall be
    23  deemed to be a dealer with respect to milk purchased or received
    24  from producers other than those specified above.
    25     (b)  It shall be unlawful for a milk dealer or handler to
    26  purchase, acquire or receive on consignment or otherwise milk
    27  from producers unless the milk dealer or handler shall be in
    28  good standing with regard to requirements of this act. The Milk
    29  Marketing Board, at its discretion, may require licensed dealers
    30  or handlers to purchase, acquire or receive milk from producers
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     1  on a cash-on-delivery basis.
     2     (c)  Pursuant to the purposes of this act, any member of the
     3  board or any designated employee thereof shall have the power,
     4  at all reasonable hours, to inspect, photograph, photostat, mark
     5  or stamp for identification, audit and copy all books, papers,
     6  records or documents of all licensees for the purpose of
     7  ascertaining facts to enable the board to administer this act.
     8  The information obtained shall be for the confidential use of
     9  the board and the various administrative departments, boards and
    10  commissions of the State government, and shall not be disclosed
    11  to any person except as may be required in the enforcement of
    12  the law or by order of the court. Failure to comply with such
    13  rights of inspection as noted above may result in revocation of
    14  the license of the dealer or handler at which time no producer
    15  shall legally ship milk to the dealer or handler.
    16  Section 4.  Definitions.
    17     The following words and phrases when used in this act shall
    18  have the meanings given to them in this section unless the
    19  context clearly indicates otherwise:
    20     "Blend price."  The actual price due or paid to producers
    21  after computation of the licensed dealer's or handler's producer
    22  obligation pursuant to the applicable rules, regulations or
    23  orders of the board or applicable orders established by the
    24  United States Department of Agriculture.
    25     "Board."  The Milk Marketing Board.
    26     "Cooperative."  A cooperative agricultural association or
    27  corporation of producers organized under the laws of this
    28  Commonwealth or of any other state, which qualifies as such
    29  under the provisions of the Federal Capper-Volstead Act, and
    30  engaged in making collective sales or in the marketing of milk
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     1  for its own members. A cooperative shall not be deemed a milk
     2  dealer or handler but shall be deemed a producer, except as
     3  provided in section 3(a).
     4     "Handle" or "to handle."  The doing of any one or several or
     5  all of the following acts: to buy, sell, barter, acquire, store,
     6  process, consign, receive, transport or control as owner, buyer,
     7  seller, consignee, consignor, bailee, bailor, broker or factor.
     8     "Milk."  Fluid milk and cream, fresh, sour or storage,
     9  skimmed milk, flavored milk or milk drink, buttermilk, ice cream
    10  mix and condensed or concentrated whole or skimmed milk, except
    11  when contained in hermetically sealed cans.
    12     "Milk dealer" or "handler."  Any person who purchases or
    13  receives or handles on consignment or otherwise milk within the
    14  Commonwealth, for sale, shipment, storage, processing or
    15  manufacture, within or without the Commonwealth, whether on
    16  behalf of the person or others, or both. This definition shall
    17  not include cooperatives as provided for in section 3(a).
    18     "Pay period."  The dates and terms of payment as required
    19  under section 5 and under rules, regulations and orders of the
    20  board promulgated pursuant to section 5.
    21     "Producer."  A person producing milk.
    22  Section 5.  Prompt payment of milk.
    23     (a)  All milk dealers shall pay for milk purchased or
    24  received from producers with final payments to be made no later
    25  than the fiftieth day from which the milk was received or
    26  purchased. The board may, in its sole discretion after a public
    27  hearing, shorten the time period in which final payments for
    28  milk are made. It is the specific intent of the General Assembly
    29  that final milk payments be made in as short a time period as
    30  practical from the date milk was received or purchased.
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     1  Therefore, the board is empowered to hold public hearings to
     2  consider the time period for final milk payments and to shorten
     3  the time period whenever appropriate.
     4     (b)  On or before July 1 of each year, each licensee shall
     5  notify all of his producers by first-class mail of the financial
     6  basis on which the producer security is based.
     7  Section 6.  Cooperative licensing requirements.
     8     A cooperative which is deemed to be a dealer or handler under
     9  the provisions of section 3(a) shall, in regard to milk
    10  purchased or received from producers other than its own members,
    11  be required to be licensed as a dealer with respect to milk so
    12  received or purchased, and shall be required to the extent of
    13  such milk purchased, received or handled to comply with the
    14  provisions of this act regarding the filing of bonds and
    15  contributions to a security fund for the protection of nonmember
    16  producers.
    17  Section 7.  Security bonds.
    18     (a)  Each milk dealer, as required by this act, shall file
    19  with the board a corporate surety bond or collateral bond. The
    20  bond shall be on a form prescribed by the board conditioned for
    21  the payment by the milk dealer or handler of all amounts due
    22  under this act and all other applicable Federal laws in addition
    23  to the orders of the board for milk purchased or otherwise
    24  acquired from producers by the milk dealer or handler during the
    25  license year, which payments shall be made within the time
    26  limits specified in this act or the regulations of the board and
    27  shall be upon such other terms and conditions as the board may
    28  prescribe.
    29     (b)  A corporate surety bond shall be executed to the
    30  Commonwealth by the milk dealer as principal and by a corporate
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     1  surety company authorized and regulated by the Commonwealth as
     2  surety. The board shall have no power to reject any corporate
     3  surety bond which is so executed by a corporate surety company
     4  authorized to do business in this Commonwealth as surety, so
     5  long as the amount of the bond is equal to or less than the
     6  amount the surety company is authorized by the Pennsylvania
     7  Insurance Commissioner to execute on a single bond without
     8  obtaining collateral security from the principal. The board may
     9  reject any bond which exceeds that amount. A collateral bond
    10  shall be executed to the Commonwealth by the milk dealer as
    11  principal, shall set forth the collateral posted with the bond
    12  and shall have attached thereto the collateral properly assigned
    13  and transferred to this Commonwealth. The collateral posted with
    14  the bond shall be cash in an equal amount of the bond or the
    15  bond shall be secured by an actual deposit with a bank, bank and
    16  trust company or national bank within the Commonwealth of money
    17  to the full amount of the bond or securities to the amount of
    18  the bond consisting of interest-bearing obligations of the
    19  Federal Government or an irrevocable letter or letters of credit
    20  for the account of the milk dealer authorizing the board to draw
    21  on a bank or a trust company or banks or trust companies located
    22  within and authorized to do business in this Commonwealth.
    23     (c)  The bond shall be in a sum equal to a minimum of 30% of
    24  the highest aggregate amount owed by the dealer to producers for
    25  a 40-day period during the preceding 12 months. Such bond may
    26  exceed the 30% minimum and be equal to the full amount of the
    27  money owed, at the discretion of the dealer.
    28     (d)  Milk purchased, acquired or received by a milk dealer or
    29  handler from producers outside this Commonwealth and sold or
    30  distributed by the dealer or handler as fluid milk within this
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     1  Commonwealth shall be included in computing the amount of the
     2  dealer's or handler's bond, except where the dealer or handler
     3  has filed a bond or other security for the protection of the
     4  producers with the state wherein the milk is purchased, acquired
     5  or received.
     6  Section 8.  Bonds.
     7     Surety bonds or securities for the license year shall be
     8  filed with the board on an annual basis not later than the 15th
     9  of the month before the beginning of such license year. Where a
    10  dealer elects to participate under the minimum bond requirement
    11  as outlined in section 9 7, in lieu of filing a bond equivalent   <--
    12  to 75% or more of the greatest amount owed in a 40-day period,
    13  he shall notify the board not later than two months prior to the
    14  date on which such change is to be made, and shall make the
    15  initial payment as required under section 9 not later than one
    16  month before such change is to be made.
    17  Section 9.  Security fund.
    18     (a)  Each milk dealer shall in addition to a bond, when less
    19  than 75% of the maximum amount owed also be required to pay
    20  monthly 2¢ per hundredweight to the board on all milk purchased
    21  from producers during the prior month. The board shall maintain
    22  the moneys received in an interest-bearing account and the
    23  moneys, including interest, shall be credited to the account of
    24  each individual paying dealer. In the event a dealer defaults in
    25  payment to producers, the moneys submitted by the defaulting
    26  dealer, including interest, shall be made available to the
    27  producers shipping to the defaulting dealer.
    28     (b)  At the time the value of the bond and the security fund
    29  moneys credited to each dealer shall equal the total amount owed
    30  for the above mentioned 40-day payment period, the payments to
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     1  the fund shall cease or may, with the approval of the board, be
     2  used to decrease the value of the bond at the end of the license
     3  year. Should the dealer agree to post a bond for a minimum of
     4  75% of the highest aggregate amount owed for the 40-day pay
     5  period, payment to the security fund shall not be required.
     6     (c)  Nothing shall prevent any dealer from increasing the
     7  dealer's bond beyond the 30% nor increasing the amount paid into
     8  the security fund credited to the dealer to provide additional
     9  protection for the dealer's producers.
    10     (d)  At the time a dealer discontinues purchasing milk from
    11  producers, after all the producers are paid in full, the moneys,
    12  including interest and minus the administrative fee, as provided
    13  for in subsection (e), shall be returned to the dealer.
    14     (e)  The board may impose an administrative fee on the
    15  security fund moneys on an annual basis at not more than .5% of
    16  the total fund.
    17  Section 10.  New licensees.
    18     A milk dealer or handler purchasing or acquiring or receiving
    19  or intending to purchase or receive milk from producers, but not
    20  so engaged during the preceding 12 months, shall file a bond in
    21  a sum to be fixed by the board in accordance with the handler's
    22  anticipated purchases from producers and the handler's
    23  obligation to a producer settlement or equalization fund, but
    24  not less than the total amount expected to be owed during the
    25  full 40-day pay period. The board shall review the operations of
    26  the dealer or handler every two months and the bond shall be
    27  modified by the board at the time the board is satisfied that
    28  the producers are adequately secured. At the end of six months
    29  of operation, upon approval by the board, the new dealer or
    30  handler may file the amount of the bond and pay into the
    19840H1969B2975                  - 8 -

     1  security fund as required in sections 7 and 9.
     2  Section 11.  Trusteeship.
     3     (a)  In such cases where it appears that the financial
     4  condition of the applicant for a license or the licensee is not
     5  adequate to reasonably assure payment to producers, the board
     6  may require in lieu of other security or payments to the
     7  security fund and, where it is practical from an operating
     8  standpoint, the licensee to file an agreement providing for the
     9  complete control over all processed or manufactured milk and
    10  dairy products by a trustee to be selected at least annually by
    11  the involved producers. Such trustee shall make and file a
    12  trustee's fidelity bond and contracts signed by the operator and
    13  the purchasers of the dairy products requiring that payment for
    14  such products sold be made to him as trustee. Such trustee shall
    15  maintain a separate bank account for that purpose and shall at
    16  least twice annually render a true and correct account of his
    17  dealings to the board and to the producers. Producers shall have
    18  a first lien on assets of trusteeship to assure payment in case
    19  of default.
    20     (b)  The operation of the trustee arrangement, requirements
    21  dealing with payments, reports and other operations shall be
    22  handled according to regulations established by the board.
    23  Section 12.  Procedure for disbursing proceeds.
    24     (a)  The board or an affected producer shall have the power
    25  to sue on the bond and security fund on behalf of producers.
    26     (b)  The board shall, after hearing with notice to all
    27  interested parties, issue findings of fact and an order setting
    28  forth the amounts due producers. The findings and order shall be
    29  conclusive evidence for collecting from the bond and security
    30  fund for payments to producers. The board's order may be
    19840H1969B2975                  - 9 -

     1  appealed to the Commonwealth Court.
     2     (c)  In the event the moneys available from the bond and
     3  security fund are not sufficient to pay producers 75% of the 40-
     4  day purchases, the moneys available shall be divided pro rata
     5  among producers.
     6  Section 13.  Prohibitions and violations.
     7     (a)  No milk dealers license shall be issued to any person or
     8  organization not in compliance with the provisions of this act.
     9     (b)  It shall be unlawful for a milk dealer to purchase or
    10  receive milk from producers unless the milk dealer has complied
    11  with the provisions of this act.
    12     (c)  In addition to other penalties provided by law, the
    13  board may commence a proceeding in court to seek temporary or
    14  injunctive relief against any person violating the provisions of
    15  this act.
    16     (d)  Producers who do not receive payments from licensees in
    17  accordance with provisions of this act shall immediately notify
    18  the board or its representatives. At no time shall the holder or
    19  provider of the bond or security, nor the trustee be responsible
    20  for payments to producers beyond the 40-day pay period when
    21  payments are in default after the producer has been notified by
    22  certified mail.
    23     (e)  If any dealer who purchases or receives milk from
    24  producers has not filed a surety bond or securities in lieu
    25  thereof, in accordance with this act by the 15th day of the
    26  month prior to the beginning of the license year, the board
    27  shall notify such producers by certified mail that such milk
    28  dealer has not filed any security or made other provisions for
    29  assuring payments for milk purchased, for the license year
    30  commencing the 1st day of the next month. The board then may
    19840H1969B2975                 - 10 -

     1  require a trustee to be selected under the provisions of this
     2  act or shall have the right to revoke the license of said
     3  dealer.
     4  Section 14.  Rules and regulations.
     5     The board, after due notice and public hearing, may
     6  promulgate rules and regulations to carry out the provisions and
     7  intent of this act.
     8  Section 15.  Penalties.
     9     A violation of this act shall subject a milk dealer or a
    10  participating cooperative to a penalty of $50 for each day that
    11  it is late in making payment into the security fund of the
    12  assessment required by this act, for each day it sells milk to a
    13  milk dealer after being notified by the board of the milk
    14  dealer's failure to provide security as provided herein or for
    15  each day a milk dealer or participating cooperative who has
    16  failed to make payments for milk purchased as provided pursuant
    17  to section 5. Any person who buys or sells in violation of the
    18  credit period provided in section 5 shall be liable for
    19  suspension or revocation of his milk dealer's license in
    20  pursuance of the act of April 28, 1937 (P.L.417, No.105), known
    21  as the Milk Marketing Law, or the board may accept from the
    22  licensee an offer in compromise, a penalty at the rate of $50
    23  for each day of violation.
    24  Section 16.  Repeals.
    25     The act of July 10, 1980 (P.L.481, No.104), known as the Milk
    26  Producers' and Cooperative Security Funds Act, is repealed.
    27  Section 17.  Effective date.
    28     This act shall take effect on July 1, 1984 or, if enacted
    29  subsequent to that date, then immediately.

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