ohio agricultural commodity handlers law
Peggy Hall, Asst. Professor, OSUE Agricultural & Resource Law Program
The Ohio legislature has already addressed a legal issue that recently created discord on Ohio's Sixth District Court of Appeals. In its recent decision in Ohio Department of Agriculture v. Central Erie Supply & Elevator Association, the appeals court disagreed over how to interpret the statutory lien provisions in Ohio's Agricultural Commodity Handler's Law. The majority held that the statutory lien favors farmer claimants over all other interests while the dissent argued that the statute is "entirely silent" on the issue of priorities between farmers and competing parties who have security interests in the proceeds of a failed grain handler. Obviously attuned to the problem, the Ohio legislature revised the law just over a month ago to include language that removes any doubt on the matter.
Ohio's Agricultural Commodity Handler's law contains many provisions designed to protect farmers from the risks of doing business with a grain elevator or other grain handler. If a handler suffers financial distress before paying farmers who've deposited grain with the handler, the law establishes an automatic statutory lien on behalf of the farmers. The law grants the Director of the Ohio Department of Agriculture power to enforce the statutory lien against the grain handler and distribute lien proceeds among the unpaid farmers. The law also states that the commodity handler's law takes precedence over any conflicting provisions for secured transactions in another section of Ohio law, Ohio Revised Code section 1309.
In the Central Erie Supply case, the question before the court was whether the statutory lien for the farmers had priority over a $425,691 security interest established by Citizens Banking Company, a creditor of the failed grain handler. The panel of judges examined the commodity handler's law and reached opposite conclusions. The majority concluded that the law conflicted with R.C. section 1309 and thus took precedence over the bank's security interest that was established under section 1309. The dissent argued that the language about conflicts between the different laws referred only to the issue of how to distribute proceeds between farmers and did not pertain to other security interests established under R.C. section 1309. Both sides did agree, however, that the issue of priority between farmers and other security interests is a matter for the legislature, not the courts. "Yet, unless and until the legislature acts, we are bound to interpret the law as it is currently written, not as we wish it to be," stated dissenting Judge Yarbrough.
The Ohio legislature did act on the matter--and did so before the court had even issued its ruling. In late June of this year, the legislature approved S.B. 66 (see our earlier post) and added this language to the commodity handler's law: “The lien established under this section shall have priority over all competing lien claims asserted against the agricultural commodity assets.” The legislation ascertains that upon its effective date of October 11, 2013, a statutory lien established under the commodity handler's law will be first in line ahead of all other liens claimed against the assets of a failed grain handler. Until October 11, the Central Erie Supply decision bolsters an argument seeking the same order of priority stated in the new law. Based on the recent actions of the legislature and the court of appeals, the commodity handler's statutory lien now has a few more teeth.
Read the Central Erie Supply decision here, S.B. 66 here and the Agricultural Commodity Handler's Law here.
Peggy Kirk Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program
The Ohio Senate concurred with the House of Representatives yesterday to enact changes to Ohio's Agricultural Commodity Handler's law, commonly known as the Grain Indemnity Fund. According to the bill sponsors, the changes will better protect Ohio farmers from grain elevator insolvency by raising the fund cap from $10 to $15 million and increasing the minimum fund balance trigger for the per bushel fee assessment from $8 to $10 million.
The Ohio Legislature originally created the Grain Indemnity Fund in 1983 to reimburse farmers when a grain handler becomes insolvent. The law requires licensing of all grain handlers, who pay a 1/2 cent per bushel fee on grain handled to maintain a minimum balance in the indemnity fund. In the case of a grain handler's financial failure, a farmer is reimbursed 100% for open storage grain in the elevator and 100% of the first $10,000 of a loss for future contracts, delayed price and basis transactions, with 80% reimbursement beyond the first $10,000 of loss. The legislature raised the indemnity fund's required minimum balance to $10 million in 2005.
Ohio Department of Agriculture handles the fund, which paid out $4.1 million to farmers in grain insolvency cases in 2011 and its highest payout of $2.5 million for one elevator in 2004. The fund currently is around $8.2 million, but bill sponsors believe that payouts similar to those of the past could nearly bankrupt the fund under today’s grain prices. Changes to the fund cap and the assessment trigger should prevent depletion of the fund, according to bill sponsor Senator Cliff Hite.
The legislation also changes grain lien priority rules, revises licensing requirements for commodity handlers and increases discretion for the ODA Director to determine the validity of claims. The following summarizes these and other provisions in the legislation:
- Increases the Grain Indemnity Fund's minimum balance from $8 to $10 million and its maximum balance from $10 to $15 million. ODA cannot assess the per bushel assessment on handlers outside of the minimum and maximum balances.
- Gives priority to the automatic lien established and held by ODA in the event of a commodity handler’s failure or insolvency. The lien will now have priority over all competing lien claims asserted against the commodity.
- Requires a commodity handler whose license is revoked to immediately notify all parties storing agricultural commodities in the handler's warehouse and all holders of receipts issued by the handler.
- Directs the ODA Director to determine the validity of claims against the fund with the recommendation of the Commodity Advisory Commission rather than the approval of the Commission.
- Revises the type of financial statements that must be submitted to the Director by an applicant for an agricultural commodity handler's license or renewal. The financial statements must consist of all financial statements and footnotes required by generally accepted accounting principles as promulgated by the Financial Accounting Standards Board together with an independent accountant's report on the statements.
- Establishes the total net worth requirements for a handler's license applicant as 15 cents per bushel handled in the previous year and raises the minimum net worth requirement to $50,000.
- Removes barley, oats, rye, grain sorghum, sunflower and speltz from the list of agricultural commodities addressed by the law.
Revisions to the law will be effective on October 11, 2013. View the agricultural commodity handler's legislation here.
Tags: ohio agricultural commodity handlers law, ohio grain indemnity fund
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