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Farm groups stand up for farmers in predatory shakedown by Dean Foods Estate

Colleen Kottke
Wisconsin State Farmer
Nearly 500 farmers who produced milk for bankrupt milk giant Dean Foods are being threatened with legal action if they don't pay up.

Just when farmers who had shipped their milk to Dean Foods thought their ties to the giant milk processor were severed for good following the widely publicized bankruptcy filing last year, another surprise awaited them in their mailboxes.

It's estimated that around 500 dairy farmers and milk haulers received a letter from ASK LLP, the law firm representing Dean Foods Estate, demanding repayment for milk shipped to Dean Foods during the 90-day “preference period” prior to the company filing for bankruptcy.

Dairy Farmers of America (DFA), the country's largest dairy cooperative, acquired the lion's share of Dean Foods property out of bankruptcy last fall. DFA acquired the assets, rights, interests, and properties relating to 44 of Dean Foods fluid and frozen facilities for $433 million – just five months after the giant milk processor filed for Chapter 11 bankruptcy.

According to Pensylvania Milk Marketing Board (PMMB), farmers and haulers (as well as others) who received payments from Dean Foods during the 90-day period immediately preceding Dean’s bankruptcy filing on November 12, 2019, received settlement offers because the bankruptcy trustee can avoid and recover those payments under some circumstances.

Dairy Farmers of America (DFA), the country's largest dairy cooperative, acquired the lion's share of Dean Foods property out of bankruptcy last fall.

Pennsylvania dairy farmer Jessica Peters told Farm Journal that Dean Foods Estate lawyers claim that her farm – Spruce Row Farms – owes the estate $50,000.

“They want money back they paid us after we sold them our milk to their plant, and paid to ship it there,” Peters told Farm Journal. “They then paid me for it, and they processed it and sold it elsewhere. They now want the money back they paid me for my milk, which is a product that’s long gone. This was a year and a half ago.”

Affected producers like Peters were up against a Dec. 19 deadline to respond to the demand letter, with those failing to comply threatened with additional monetary claims. That is until farm groups like the American Farm Bureau Federation and the PMMB stepped in.

The American Farm Bureau Federation sent ASK LLP a letter on Dec. 4 letter demanding an immediate reversal of their “predatory shakedown” and threatening potential legal action if the firm fails to withdraw the letters sent to farmers.

“Shame on these predatory lawyers for bullying dairy farmers at a time when many are struggling to keep their farms running,” said American Farm Bureau Federation President Zippy Duvall. “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. Someone needs to have the farmers’ backs and I’m proud to say AFBF is stepping-in to do just that.”

In the letter, AFBF General Counsel Ellen Steen says the letters sent to farmers “are deceptive and constitute an abuse of process that attempts to extract funds that the Debtor (Dean Foods) is not entitled to under the threat of a lawsuit. Put plainly, your letters are a predatory shakedown, written in legalese.”

Steen's letter outlined the legal legitimacy of the payments made to dairy farmers and admonished the lawyers representing Dean Foods for knowingly taking advantage of farmers, saying, “Sending the Letters under these circumstances is not only deceptive, but outrageous because they threaten legal action when in fact the Producers have no legal exposure for the reasons set forth herein.”

AFBF's legal team claimed that farmers had no legal exposure, pointing to the fact that the payments were clearly within the ordinary course of business and legitimately earned by those targeted dairy farmers.

Farm Bureau also explained in the letter that the dairy industry is highly regulated by the federal government through the federal milk marketing order.

“The primary purpose of FMMOs are to (1) promote orderly marketing conditions in fluid milk markets, (2) improve the producers’ ability to earn income, (3) supervise the terms of trade in milk markets in order to achieve equality of bargaining between milk producers and processors, and (4) assure the public that adequate supplies of quality milk at affordable prices are readily available for consumption,” they wrote. “FMMOs accomplish these purposes by attempting to stabilize market conditions and requiring milk handlers to pay dairy farmers uniform prices at specified times in order to ensure fair treatment in the marketplace while assuring consumers that a reliable and consistent supply of milk and related products is available. The debtor is a handler under applicable law and is governed in all aspects of its payment practices to dairy farmers and producers by FMMOs.”

The FMMO provides farmers complete defense to any preferential transfer accusation, according to Farm Bureau.

Farm Bureau lawyers also noted the letters farmers received were silent on the more “applicable” prong of the ordinary course defense.

“This is disturbing because the debtor, as a participant in the dairy industry, fully understands the application and import of FMMOs, the fact that they govern the form and manner of payment to producers and that they supplied the business terms under which the transactions and payments at issue in the letters occurred,” they wrote. “The letters should not have been sent for this reason.”

American Farm Bureau Federation is stepping up in defense of farmers in what they call a "predatory shakedown" by the Dean Foods Estate.

In response to the outcry of farmers and pressure put on the Dean Foods' Estate, ASK LLP announced that it will close any Avoidance Claim Settlement case brought on by a farmer.

According to the Pennsylvania Milk Marketing Board, ASK LLP worked with them to create a simple, one-page form that farmers can fill out to demonstrate that the payments they received for milk sold to Dean were part of routine business and, therefore, do not need to be paid back.

The farmer declaration form – which applies to farmers and milk haulers from any state who received such a letter – is found on the PMMB’s website at https://bit.ly/39TMA46. Farmers should fill out the form and submit the information to close their case.

Earlier in the week, DFA pointed out in a statement that the cooperative had "no connection to the Dean Foods Estate" and was "disheartened by its actions". The giant cooperative did not receive any preference action letters due to a broad release of claims included in the asset purchase agreement.

“We find it extremely disappointing that hardworking dairy farm families were put in the position of having to incur costs, either in paying the amounts demanded, or obtaining legal counsel to defend themselves against these farfetched claims,” the cooperative stated.

“While there is no legal basis to stop the Dean Foods Estate from pursuing such frivolous claims, it’s egregious to attempt this claw back of funds from the very dairy farmer families that supplied milk in good faith and trust,” DFA continued.