I

103D CONGRESS

2D SESSION H. R. 4134

To establish a reserve fund to reimburse milk producers for losses incurred

as a result of the bankruptcy of a milk handler that marketed raw

milk from the producers, to provide funds for the reserve fund through

an assessment on all milk handlers, and to establish a Board of Trustees

to administer the reserve fund.

IN THE HOUSE OF REPRESENTATIVES

MARCH 24, 1994

Mr. GUNDERSON introduced the following bill; which was referred to the

Committee on Agriculture

A BILL

To establish a reserve fund to reimburse milk producers

for losses incurred as a result of the bankruptcy of

a milk handler that marketed raw milk from the producers, to provide funds for the reserve fund through an

assessment on all milk handlers, and to establish a Board

of Trustees to administer the reserve fund.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Dairy Industry Security Reserve Fund Act’’.
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1 (b) TABLE OF CONTENTS.—The table of contents for

2 this Act is as follows:

Sec. 1. Short title and table of contents.

Sec. 2. Definitions.

Sec. 3. Establishment of Dairy Industry Security Reserve Fund.

Sec. 4. Establishment of Board of Trustees for Dairy Industry Security Reserve Fund.

Sec. 5. Collection of assessments from milk handlers to fund Reserve Fund.

Sec. 6. Submission and payment of claims of milk producers for nonpayment

for milk shipments.

Sec. 7. Preemption of State or local payment security programs.

3 SEC. 2. DEFINITIONS.

4 For purposes of this Act:

5 (1) BOARD.—The term ‘‘Board’’ means the

6 Board of Trustees established under section 4 to ad7 minister the Dairy Industry Security Reserve Fund.

8 (2) MILK.—The term ‘‘milk’’ means cow’s milk

9 produced in the 48 contiguous States.

10 (3) MILK HANDLER.—The term ‘‘milk handler’’

11 means a person who receives or otherwise acquires

12 milk in commerce before processing or who first

13 processes milk for the purpose of marketing com14 mercially milk or milk products.

15 (4) MILK PRODUCER.—The term ‘‘milk pro16 ducer’’ means a person who produces milk in the 48

17 contiguous States and markets such milk for com18 mercial use.

19 (5) PROCESS.—The term ‘‘process’’ includes

20 the pasteurization, clarification, or separation of

21 milk or the addition of other ingredients or products
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1 to milk, except that such term does not include sim2 ply the cooling of milk or the commingling of milk

3 with other milk.

4 (6) RESERVE FUND.—The term ‘‘Reserve

5 Fund’’ means the Dairy Industry Security Reserve

6 Fund established under section 3.

7 (7) SECRETARY.—The term ‘‘Secretary’’ means

8 the Secretary of Agriculture.

9 SEC. 3. ESTABLISHMENT OF DAIRY INDUSTRY SECURITY

10 RESERVE FUND.

11 (a) ESTABLISHMENT.—There is hereby established in

12 the Department of Agriculture a fund to be known as the

13 ‘‘Dairy Industry Security Reserve Fund’’. Monies in the

14 Reserve Fund shall be available only for the use of the

15 Board.

16 (b) CONTENTS OF RESERVE FUND.—The Reserve

17 Fund shall consist of the following:

18 (1) Amounts collected as assessments under

19 section 5.

20 (2) Amounts collected by States before the date

21 of the enactment of this Act and paid to the Reserve

22 Fund on behalf of milk handlers subject to assess23 ments.

24 (3) Amounts borrowed by the Board.
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1 (4) Interest from investments made under sub2 section (d).

3 (c) USE OF RESERVE FUND.—The Board may use

4 monies in the Reserve Fund to pay—

5 (1) subject to section 4(f), the expenses in6 curred by the Secretary or the Board in administer7 ing this Act; and

8 (2) the claims of milk producers for milk

9 shipped by the producers for which payment is not

10 made on account of the bankruptcy under title 11,

11 United States Code, of a milk handler.

12 (d) INVESTMENT AUTHORITY.—The Board may in13 vest monies in the Reserve Fund in general obligations

14 of the United States, in general obligations of a State or

15 political subdivision of a State, in any interest bearing ac16 count or certificate of deposit of a bank that is a member

17 of the Federal Reserve System, or in obligations fully

18 guaranteed as to principle and interest by the United

19 States. The Secretary shall provide guidelines to the

20 Board for the exercise of this investment authority.

21 (e) BORROWING AUTHORITY.—The Board may bor22 row money for deposit into the Reserve Fund if the Board

23 determines that amounts in the Reserve Fund are insuffi24 cient to satisfy approved claims.
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1 SEC. 4. ESTABLISHMENT OF BOARD OF TRUSTEES FOR

2 DAIRY INDUSTRY SECURITY RESERVE FUND.

3 (a) ESTABLISHMENT.—There is hereby established a

4 Board of Trustees to administer the Dairy Industry Secu5 rity Reserve Fund, set and collect assessments under sec6 tion 5 to provide funds for the Reserve Fund, pay claims

7 made against the Reserve Fund, and perform such other

8 duties as may be assigned to the Board by this Act or

9 the Secretary.

10 (b) MEMBERSHIP.—

11 (1) APPOINTMENT OF MEMBERS.—The Board

12 shall consist of nine members appointed by the Sec13 retary as follows:

14 (A) One member selected from among milk

15 producers whose farms are located in Region I.

16 (B) One member selected from among milk

17 producers whose farms are located in Region II.

18 (C) One member selected from among milk

19 producers whose farms are located in Region

20 III.

21 (D) One member selected from among the

22 officers or employees of milk handlers that are

23 subject to the assessment under section 5 and

24 the principal place of business of which is Re25 gion I.
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1 (E) One member selected from among the

2 officers or employees of milk handlers that are

3 subject to the assessment under section 5 and

4 the principal place of business of which is Re5 gion II.

6 (F) One member selected from among the

7 officers or employees of milk handlers that are

8 subject to the assessment under section 5 and

9 the principal place of business of which is Re10 gion III.

11 (G) Three members selected from among

12 persons who are experts in financial investment

13 or the staffing or administration of relevant

14 Federal programs, as designated by the Sec15 retary before the first solicitation of nominees

16 under subsection (c).

17 (2) REGIONAL DISTRIBUTION.—For purposes of

18 making regional appointments of members of the

19 Board under paragraph (1), the 48 contiguous

20 States shall be grouped into three regions as follows:

21 (A) Region I: Alabama, Arkansas, Con22 necticut, Delaware, Florida, Georgia, Indiana,

23 Kentucky, Louisiana, Maine, Maryland, Massa24 chusetts, Mississippi, New Hampshire, New

25 Jersey, New York, North Carolina, Ohio, Penn-
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1 sylvania, Rhode Island, South Carolina, Ten2 nessee, Texas, Vermont, Virginia, and West

3 Virginia.

4 (B) Region II: Illinois, Iowa, Michigan,

5 Minnesota, Missouri, North Dakota, South Da6 kota, and Wisconsin.

7 (C) Region III: Arizona, California, Colo8 rado, Idaho, Kansas, Montana, Nebraska, Ne9 vada, New Mexico, Oklahoma, Oregon, Utah,

10 Washington, and Wyoming.

11 (3) TERMS OF MEMBERS; VACANCIES.—Each

12 member of the Board shall serve for a three-year

13 term, except that the Secretary may stagger the

14 terms of the initial members of the Board. A va15 cancy on the Board shall be filled in the manner in

16 which the original appointment is required to be

17 made.

18 (4) COMPENSATION.—Members of the Board

19 shall serve without pay, but shall receive a per diem

20 for each day during which they are engaged in the

21 actual performance of services on behalf of the

22 Board and shall be reimbursed for expenses incurred

23 in their service on the Board, including reasonable

24 travel costs and out-of-pocket expenses when re-
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1 quired to be away from their home or place of busi2 ness in the service of the Board.

3 (5) REMOVAL FOR CAUSE.—The Secretary may

4 remove any member of the Board for good cause

5 shown.

6 (c) NOMINATION PROCESS.—

7 (1) APPOINTMENT FROM NOMINEES.—The Sec8 retary shall appoint the members specified under

9 subsection (b)(1) from nominees submitted pursuant

10 to paragraph (2).

11 (2) SOLICITATION OF NOMINEES.—The Sec12 retary shall begin the process of filling a particular

13 position on the Board by soliciting the names of per14 sons who are qualified to serve as a member of the

15 Board in that position. The Secretary shall accept

16 recommendations from persons who are qualified to

17 serve as a member of the Board in that position or

18 from organizations composed of such persons. The

19 Secretary shall be the final judge of the qualifica20 tions of persons to submit recommendations or to

21 serve on the Board.

22 (3) LACK OF NOMINEES.—If nominees are not

23 submitted pursuant to paragraph (2) for a particu24 lar position on the Board, the Secretary may make
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1 the appointment in such other manner as the Sec2 retary may prescribe.

3 (d) BOARD PROCEDURES.—

4 (1) MEETINGS OF THE BOARD.—Within two

5 months after the Secretary has appointed the initial

6 Board, the Board shall convene for its initial meet7 ing and elect officers and adopt written bylaws and

8 rules of procedure to govern its meetings. Following

9 the initial meeting, the Board shall meet at the call

10 of the chairperson or as requested by the Secretary,

11 but at least once every six months.

12 (2) QUORUM.—A quorum of the Board shall be

13 five members.

14 (3) NOTICE TO SECRETARY; EX OFFICIO REP15 RESENTATION.—The Board shall notify the Sec16 retary in advance of each meeting of the Board. The

17 Secretary, or a representative of the Secretary, may

18 attend each meeting as a nonvoting ex officio mem19 ber of the Board.

20 (4) CHAIRPERSON.—The members of the Board

21 shall select one of the members to serve as the chair22 person of the Board. The chairperson shall serve a

23 one year term of office.

24 (e) STAFF.—The Board may employ or contract with

25 outside entities for such persons as the Board considers
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1 to be necessary to assist the Board to perform its duties

2 under this Act. The Board shall define the duties of such

3 persons in service to the Board and fix the compensation

4 of such persons. At the request of the Board, the Sec5 retary may assign, on a reimbursable basis, employees of

6 the Department of Agriculture to assist the Board.

7 (f) ADMINISTRATIVE EXPENSES.—

8 (1) IN GENERAL.—The Board may incur and

9 pay for administrative and other expenses related to

10 the duties of the Board under this Act.

11 (2) LIMITATION.—Expenses incurred or paid by

12 the Board during a fiscal year may not exceed five

13 percent of the total amount in the Reserve Fund at

14 the end of that fiscal year. The Secretary may waive

15 this limitation for fiscal years before the Reserve

16 Fund reaches the maximum capital contribution

17 level specified in section 5.

18 (3) REIMBURSEMENT OF GOVERNMENT

19 COSTS.—As one of the administrative expenses of

20 the Board, the Board shall reimburse the Secretary

21 for all costs incurred by the Secretary—

22 (A) to assist the Board in administering

23 the Reserve Fund or in carrying out this Act;

24 and
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1 (B) in performing oversight of Board ac2 tivities.

3 (g) GENERAL POWERS OF THE BOARD.—

4 (1) BYLAWS AND RULES.—The Board may

5 adopt bylaws and issue rules and regulations govern6 ing the manner in which its business may be con7 ducted and the powers vested in it may be exercised.

8 (2) SUITS.—The Board may sue and be sued,

9 complain and defend, in any court of law or equity,

10 State or Federal. All suits of a civil nature at com11 mon law or in equity to which the Board shall be a

12 party shall be deemed to arise under the laws of the

13 United States, and the United States district courts

14 shall have original jurisdiction thereof, without re15 gard to the amount in controversy, and the Board,

16 in any capacity, without bond or security, may re17 move any such action, suit, or proceeding from a

18 State court to the United States district court for

19 the district or division embracing the place where

20 the same is pending by following any procedure for

21 removal then in effect.

22 (3) INTERVENTION.—Upon timely application,

23 the Board may raise and may appear and be heard

24 on any issue in a bankruptcy case under title 11,
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1 United States Code, in which a milk handler is the

2 debtor.

3 (4) CONTRACT AUTHORITY.—The Board may

4 enter into contracts and agreements as necessary in

5 the conduct of its activities under this Act.

6 (5) MISCELLANEOUS AUTHORITIES.—The

7 Board may exercise such other powers incidental to

8 its performance of functions required or authorized

9 for it under this Act.

10 (h) REPORTS.—The Board shall submit an annual

11 report to the Secretary and Congress describing the activi12 ties of the Board during the preceding fiscal year, expendi13 tures from the Reserve Fund during that fiscal year, and

14 the balance of the Reserve Fund at the end of that fiscal

15 year and containing an estimate of anticipated expendi16 tures from the Reserve Fund during the fiscal year in

17 which the report is submitted.

18 SEC. 5. COLLECTION OF ASSESSMENTS FROM MILK HAN19 DLERS TO FUND RESERVE FUND.

20 (a) IMPOSITION OF ASSESSMENT.—The Secretary

21 shall require by order that each milk handler shall pay

22 an assessment on all milk acquired by the milk handler

23 and marketed for commercial use. In lieu of collecting an

24 assessment from milk handlers in a State, the Board may

25 accept payments from the State that—
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1 (1) were collected before the date of the enact2 ment of this Act; and

3 (2) are paid on behalf of milk handlers in

4 amounts sufficient to cover the amounts that would

5 be otherwise due from the milk handlers.

6 (b) EXCEPTIONS.—

7 (1) NONCOMMERCIAL PUBLIC HANDLERS.—The

8 Board may exempt from paying an assessment those

9 milk handlers that are noncommercial public users

10 of milk, such as the Armed Forces, prisons, and

11 schools.

12 (2) HANDLERS WHO ARE ALSO PRODUCERS.—

13 A milk handler that is also a milk producer shall not

14 be subject to an assessment if the milk handler only

15 markets milk that is the handler’s own production

16 and such milk is produced through a single farming

17 operation. In light of this exception, a milk handler

18 that fails to pay an assessment may not submit a

19 claim as a milk producer under section 6 for losses

20 related to the handler’s bankruptcy.

21 (c) AMOUNT OF ASSESSMENT.—The rate of assess22 ment shall be established by the Board, except that the

23 rate may not exceed two cents per hundredweight of milk.

24 (d) SUSPENSION OF ASSESSMENTS.—
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1 (1) SUSPENSION REQUIRED.—The Board shall

2 suspend the collection of assessments under this sec3 tion whenever the unobligated balance in the Reserve

4 Fund reaches $30,000,000.

5 (2) REFUND OF EXCESS ASSESSMENTS.—If the

6 unobligated balance in the Reserve Fund exceeds

7 $30,000,000 for three consecutive years, the Sec8 retary shall refund the amount in excess of

9 $30,000,000 to all milk handlers that are in oper10 ation as of the date the refund is declared and from

11 which assessments were collected at any time.

12 (3) AMOUNT OF REFUND.—The amount to be

13 paid as a refund to a milk handler referred to in

14 paragraph (2) shall bear the same ratio to the total

15 amount to be refunded as—

16 (A) the total amount of assessments that

17 would have been collected from that milk han18 dler during the 12-month period preceding the

19 refund, if not for the suspension of assessments

20 under paragraph (1); bears

21 (B) to the total amount of assessments

22 that would have been so collected during that

23 period from all milk handlers referred to in

24 paragraph (2).

25 (e) COLLECTION AND ENFORCEMENT.—
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1 (1) COLLECTION.—Assessments under this sec2 tion shall be collected and remitted on a monthly

3 basis to the Board for deposit in the Reserve Fund.

4 The Secretary shall issue an order prescribing the

5 manner in which assessments are to be collected and

6 remitted. The Secretary shall oversee the collection

7 of assessments using the audit system provided

8 under Federal milk marketing orders issued under

9 section 8c of the Agricultural Adjustment Act (7

10 U.S.C. 608c), reenacted with amendments by the

11 Agricultural Marketing Agreement Act of 1937.

12 (2) PENALTIES.—If a milk handler fails to

13 remit the assessments required under this section or

14 fails to comply with such requirements for record15 keeping or otherwise as are required by the Board

16 to carry out this section, the milk handler shall be

17 liable to the Secretary for a civil penalty in an

18 amount that is—

19 (A) in the case of an unintentional viola20 tion, not less than $500 but not more than

21 $5,000; and

22 (B) in the case of an intentional violation,

23 not less than $10,000 but not more than

24 $100,000.
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1 (3) ENFORCEMENT.—The Secretary may en2 force this section in the courts of the United States.

3 (f) EFFECT ON PRODUCER PRICES.—Assessments

4 collected under this section shall not—

5 (1) reduce the prices paid under the Federal

6 milk marketing orders issued under section 8c of the

7 Agricultural Adjustment Act (7 U.S.C. 608c), reen8 acted with amendments by the Agricultural Market9 ing Agreement Act of 1937; or

10 (2) be deducted from the amounts that milk

11 handlers must pay to milk producers for milk sold

12 to a milk handler.

13 SEC. 6. SUBMISSION AND PAYMENT OF CLAIMS OF MILK

14 PRODUCERS FOR NONPAYMENT FOR MILK

15 SHIPMENTS.

16 (a) BOARD DETERMINATION OF ELIGIBILITY.—The

17 Board shall determine the eligibility of a milk producer

18 to receive a payment from the Reserve Fund on account

19 of the bankruptcy under title 11, United States Code, of

20 a milk handler.

21 (b) SUBMISSION OF CLAIM.—To apply for a payment

22 from the Reserve Fund, a milk producer shall submit a

23 claim to the Board in such form and containing such in24 formation as the Board may require in order to evaluate
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1 the claim. The information required by the Board shall

2 include the following:

3 (1) The name of the milk handler the bank4 ruptcy of which has resulted in the nonpayment to

5 the milk producer for milk supplied by the milk pro6 ducer.

7 (2) The name of the State in which the milk

8 handler is licensed.

9 (3) The number of days of milk shipments for

10 which the milk producer has not been paid on ac11 count of the bankruptcy.

12 (4) The quantity of milk involved in those ship13 ments.

14 (5) The amount of the payments due to the

15 milk producer for those shipments that has not been

16 paid.

17 (c) ELIGIBILITY CRITERIA.—Payments may be made

18 by the Board on a claim submitted under this section only

19 in the case of the bankruptcy of a milk handler that is

20 licensed by a State and only with respect to milk produced

21 by a milk producer after the date of the enactment of this

22 Act.

23 (d) AMOUNT OF PAYMENT.—The total amount paid

24 by the Board under this section to a milk producer on

25 an approved claim shall be equal to 80 percent of the total
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1 amount due to the milk producer and not paid on account

2 of the bankruptcy for shipments of milk by the milk pro3 ducer occurring during the period—

4 (1) beginning on the date of the first shipment

5 for which the milk producer is not paid; and

6 (2) ending 31 days after that date.

7 (e) PARTIAL PAYMENTS.—If monies in the Reserve

8 Fund are insufficient to make payments under this section

9 in a lump sum, the Board may pay approved claims on

10 a pro rata basis while funds are generated through assess11 ments under section 5 to permit payment of the total

12 amount of the approved claims.

13 SEC. 7. PREEMPTION OF STATE OR LOCAL PAYMENT SECU14 RITY PROGRAMS.

15 The provisions of this Act preempt any State or local

16 law or regulation with respect to the prompt payment of

17 milk producers for milk sold to milk handlers subject to

18 this Act, regardless of whether the State or local program

19 is in the form of—

20 (1) a reserve fund funded by milk handlers to

21 reimburse milk producers for losses incurred as a re22 sult of the bankruptcy of a milk handler subject to

23 this Act;

24 (2) a statutory trust established for the benefit

25 of milk producers; and
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1 (3) any similar payment security requirements,

2 including surety bonds, letters of credit, pledges of

3 assets, and cash deposits.

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