UPDATE on Dean trustee letters demanding payment from farmers. Don’t pay. Gather records. Fight back.

BREAKING UPDATE (events on Dec. 4 after this article was published): Farm Bureau issued statement, stands up for producers. Farm Bureau attorneys sent a letter to ASK LLP and Dean Estate seeking withdrawal of preference demand letters within 10 days. The Pennsylvania Milk Marketing Board (PMMB) is working with the State Attorney General’s office and ASK LLP to resolve avoidance claim settlement offers received by dairy farmers and milk haulers. PMMB says ‘be patient, don’t sign anything and don’t write any checks.’ PMMB expects to provide specific guidance to dairy farmers and haulers prior to the December 10 Dairy Industry Conference Call sponsored by the Center for Dairy Excellence. The call will be open to dairy producers outside of Pa. as well.

Don’t ignore these letters. But don’t pay the settlement offers. Sit tight. Gather records.

AUTHOR’S NOTE: I am not a lawyer, and this is not legal advice. This is more of ‘what we know now’ in a rapidly evolving story. The Pennsylvania Attorney General is involved. Other states are mobilizing to perhaps work together. USDA AMS Dairy Programs is now referring all inquiries to the Department of Justice. American Farm Bureau is taking action. Please know that as dairy farmers, you have produced milk that was paid for according to federal and state milk marketing laws, that provided nourishment to families and that has enabled the Dean Foods Company to continue to operate until it was sold. Without you and those payments to you, Dean would have had to abruptly close, and the estate would have nothing.

By Sherry Bunting, Farmshine, Dec. 4, 2020

BROWNSTOWN, Pa. — Most of the letters descended on dairy farms the day before and after Thanksgiving with due dates of December 19 or December 24. More were received this week, and it is expanding to include assignees. No, these are not Happy Thanksgiving and Merry Christmas John and Jane Q. Dairy Farmer. These are thinly veiled attempts at blackmail — demands to pay the Dean Foods Company estate a portion of milk checks from August 14 through November 12, 2019 in order to avoid being sued for much larger, scarier, sums of money.

ASK LLP, the St. Paul, Minn. law firm approved in September to be the Dean estate trustee, conjured up the ‘ghost of milk payments past’ to extort money from dairy farmers for the big bottler’s bankrupt estate by threatening lawsuits to reclaim payments to dairy farmers during what is known as the ‘preference’ period.

These are called ‘preference action recovery’ or ‘trustee avoidance’ claims. This is the legal basis for the action the letters threaten will occur if farmers don’t pay the ‘settlement offer’ or negotiate it with a satisfactory defense by the due date.

In layman’s terms, the claim is that a defendant farmer (Dean Foods creditor) could have received a pre-bankruptcy payment for milk that could have been a better deal than the ‘trustee’ would have divvied out.

Wrong. Federal and state law set forth dates and formulas for milk payments as a requirement for Class I beverage milk companies to operate. That money has already been spent by dairy farmers keeping cows fed and keeping lights on at farms already beleaguered by five years of marginal and below breakeven prices. No windfall there.

The intimidating letters show ways to assert a defense — through hiring a bankruptcy attorney and showing 15 to 18 months worth of invoices. But it’s cumbersome for farmers. They don’t invoice for their milk!

Of course, they want producers to just pay the settlement offer at a reduced rate, as stated in the letter, to avoid legal action commencing the week after the due date. (Don’t.)

Did I mention the due dates are December 19 for some; December 24 for others?

Did I mention farmers have 21 days from the date of the letter to respond with a defense and 30 days (now down to 14 to 20 days remaining) to sign the ‘settlement offers’ with checks payable to Dean Foods Company or risk – says the letter – paying amounts 5 to 6 times higher? People are still receiving these letters, given the Thanksgiving holiday and backlogged post offices. Some producers may not have opened them. The envelopes are non-descript.

In one example, a family milking 100 cows received a packet with a settlement offer of $20,000 placed next to the threat of paying over $110,000. Larger family farms face even larger sums. This is predatory intimidation to push farmers to send money that the bankrupt Dean estate is not entitled to. Yes, it is extortion.

So what happened? On the day before and after Thanksgiving, notices of Intended Litigation and Settlement Offers were received by dairy farmers from ASK LLP representing the Dean Foods Company estate. The action covers payments by the former Dean Foods to independent dairy farmers for raw milk sales from August 14 to November 12, 2019 — the 90 days prior to Dean’s filing on Nov. 12, 2019 for Chapter 11 bankruptcy protection and sale.

This is a little-known part of bankruptcy law where the estate trustee can go back 90 days before a filing to collect payments believed to be ‘preferential.’

Farmshine has confirmed letters were received by Dean Dairy Direct producers in numerous states — including Pennsylvania, Ohio, New York, Kentucky, Tennessee, and assuredly others. 

The letters list payment transactions (on the Federal Order specified dates), a total claim amount the farmer will be sued for, and a settlement offer at about 15 to 20% of that amount due December 19 or 24, 2020 (depending on the date of the letter).

Under Southern Foods Group LLC, case number 19-36313 in the bankruptcy court of Houston, Texas, with Judge David R. Jones presiding, the Dean Chapter 11 reorganization is headed to an omnibus hearing scheduled for Dec. 11, 2020 and disclosure hearing Jan. 11, 2021. Debtor filed its Plan of Reorganization Nov. 30 as file number 3230 on the docket at https://dm.epiq11.com/case/dnf/info (The Milksheds blog offers additional happenings of context and perspective here.)

If you are a dairy farmer who received a ‘demand package’ from ASK LLP representing the Dean estate, don’t ignore this, but don’t panic, don’t pay anything, don’t sign anything, sit tight for a bit, get prepared by gathering records (milk statements, contracts) and know that many trustworthy, well-situated people are working on this.

These letters are an intimidating threat to see what ‘other people’s money’ the law firm can shake loose for the Dean estate after the fire sale in which the bulk of assets were sold to Dairy Farmers of America (DFA).

In an email Wednesday, DFA, a large supplier of former Dean plants they now own, indicated that they did not receive these legal preference action letters.

“As part of the Asset Purchase Agreement, and as a result of a broad release of claims against each other, Dean Foods released DFA from these potential claims,” a DFA representative stated. “Ultimately, we had no idea that the Dean estate was planning to make these claims against independent producers. It’s disappointing that they sould take this kind of aggressive action against hard-working dairy farm families who supplied them with milk prior to the filing.”

The cooperative indicated in a statement that it “DFA does not control the actions or decisions of Dean Foods in its bankruptcy liquidation and was not involved with the decision to pursue these claims.”

Among other cooperatives doing business with the former Dean plants, at least one regional cooperative executive confirmed receiving a letter six weeks ago for dairy ingredient sales (cream and condensed milk) during the 90-day pre-bankruptcy time-period. They have not agreed to nor negotiated any settlement, but they provided their volumes and documentation of these sales to ASK LLP through their bankruptcy attorneys — and are monitoring the situation.

This source also believes other regional cooperatives received letters pertaining to pre-bankruptcy raw milk and ingredient sales.

On Tuesday, we confirmed that a milk hauler received a letter, and at least two entities receiving “assignments” direct from a producer’s milk check have received letters. This goes deep, and it is getting deeper.

The letters mention two potential defenses in a separate “additional instructions” piece, urging producers to “make a copy of this letter and all enclosures to send to your attorney should you choose to defend this matter rather than settle and return the payments.”

Even the ‘instructions’ intimidate the dairy farmer to feel they might have some financial obligation to the Dean Estate (absurd).

The instructions state: “Under certain circumstances you may have a defense warranting settlement of this action at less than the settlement offer extended. We will be happy to consider your defense and ‘explore’ settlement.”

Media calls and emails to several undersigned representatives at ASK LLP have gone unanswered.

Questions posed to USDA AMS Dairy Programs have been met with a blanket response that they are looking into the situation and would be providing a general ‘official’ description of how Federal Orders govern payments for Class I milk in relation to producers showing ‘ordinary course of business’ defense. After all, USDA FMMO market administrators have the specified dates and regulations posted at each of the 11 FMMO websites, and the dates correspond with the payments made to producers as listed in these predatory preference action letters.

USDA has not confirmed nor denied whether market administrators received similar letters regarding payments Dean made to producer settlement funds in the pre-bankruptcy period.

Late Tuesday evening, USDA stated in an email that, “We’re forwarding all media inquiries on this matter to the Department of Justice press office.” This indicates the DOJ is potentially also looking at the concerns surrounding these predatory attempts to intimidate farmers into sending payments to Dean Foods.

In Pennsylvania, where over 100 dairy farmers are affected by the letters, the State Attorney General is involved. Pennsylvania has the added layer of Class I pricing regulation through the Pa. Milk Marketing Law enforced by the Pa. Milk Marketing Board (PMMB).

“The PMMB wants to make sure every Pa. dairy farmer is treated fairly,” states Rob Barley, chairman. “I have complete trust in the PMMB staff in consultation with the Attorney General that this will ultimately happen. We will do all we can in our power to ensure that it does.”

Expressing her concern for dairy farmers receiving these letters with a short time-frame for response at a difficult time, Carol Hardbarger, PMMB executive secretary confirmed late Monday that, “The Pennsylvania State Attorney General’s office is aware of these letters.”

Hardbarger noted that the PMMB board and staff sprang into action with a joint meeting Monday morning after learning about the legal actions over the weekend. They have been working on it ever since. She provided at Farmshine’s request a description of how payments to Pennsylvania farms by Pennsylvania-regulated plants are governed at the state level — in addition to Federal Order rules.

“Dairy farmers selling milk to a dairy processor and being paid per federal and state regulations is a paradigm that is ordinary course of business for the industry,” states PMMB chief counsel Doug Eberly. As with anything, he adds, there may be the odd deviation in that, but he can’t think of any leading to a trustee avoidance claim. 

Both Eberly and Hardbarger stressed that the PMMB is working on this within the scope of their authority and working with the State Attorney General’s office as several producers in the eastern and western parts of the state have stepped forward to provide copies to PMMB of the legal packets they received. 

More will be discussed as regards Pennsylvania producers at the upcoming Dairy Industry Conference call next Thursday, Dec. 10 where Eberly and Barley will speak.

Other state organizations are reaching out to Farmshine as they learn what Pennsylvania is doing. Even without a milk marketing board, producers and their organizations in other states can contact their Agriculture Secretaries or Commissioners, even lawmakers, and ask that their State Attorneys General look into these surprise legal notices and payment demands and the predatory nature of them.

While stopping short of giving legal advice, Eberly said there are some general points for producers to know within this rapidly evolving situation: 

1)      Absolutely don’t pay anything now. (And don’t sign anything without consulting an attorney.

2)      Start gathering deposit records for the 3-month period identified in the letter (Aug. 14 – Nov. 12, 2020) and the 15 months prior to that (as stated in the letter), so you have this information ready. 

3)      Don’t worry about putting anything into the requested formats mentioned in the letter, just get these items together for now.

4)      Know that the Pennsylvania State Attorney General’s office is aware of these letters. 

“The ordinary course of business affirmative defense means that the vast majority of farmers most likely will owe nothing, we just have to get them there in the most efficient way possible,” said Eberly.

More key takeaways for dairy farmers in this rapidly evolving situation here:

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3 thoughts on “UPDATE on Dean trustee letters demanding payment from farmers. Don’t pay. Gather records. Fight back.

  1. Pingback: Dean Foods Chapter 11: Status of Requests for Repayment by ASK, LLP; Liquidation plan filed, Jan. hearing scheduled | MilkshedsBlog

  2. Pingback: Ghost of milk payments past invoked as intimidating letters seek money from farmers for big bottler’s bankrupt estate: Don’t pay. Don’t panic. Don’t sign anything. Sit tight. Gather records. | Ag Moos

  3. Pingback: Milk producers, haulers, MUST repond to ‘Dean’ letters; PMMB Declaration Letters can be used by those affected in ALL states | Ag Moos

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