This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

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new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

36277

Vol. 61, No. 133

Wednesday, July 10, 1996

DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and

Stockyards Administration

9 CFR Part 201

RIN 0580–AA45

Regulations Issued Under the Packers

and Stockyards Act

AGENCY: Grain Inspection, Packers and

Stockyards Administration (GIPSA),

USDA.

ACTION: Final rule.

SUMMARY: As part of GIPSA’s efforts to

review and streamline its regulations,

proposed amendments to rules issued

under the Packers and Stockyards (P&S)

Act were published in the Federal

Register on August 21, 1995, and

identified as Group III. This document

adopts proposed changes which modify

two regulations, to provide uniform

termination procedures for all bonds

and bond equivalents and to change the

requirement that funds pledged to

secure bond equivalents be maintained

in FDIC-insured accounts to permit their

deposit in any Federally-insured

account, and retains seven regulations

in their present form.

EFFECTIVE DATE: August 9, 1996.

FOR FURTHER INFORMATION CONTACT: Dan

Van Ackeren, Director, Livestock

Marketing Division, 202–720–6951, or

Tommy Morris, Director, Packer and

Poultry Division, 202–720–7363.

SUPPLEMENTARY INFORMATION: In

response to the proposed rule published

in the Federal Register (60 FR 43411),

the Agency received comments from

two marketing associations, one

livestock selling agency, a State

department of agriculture, and a law

firm representing livestock marketing

interests.

Two comments were received

regarding the modification of § 201.27.

This regulation provides for approved

sureties, authorizes bond equivalents,

and requires bond or bond equivalents

to be on forms approved by the

Administrator. Both comments

generally supported the proposed

modification of § 201.27(b)(1) and (b)(2),

but urged the Agency to assure that

funds pledged under bond equivalents

be provided the same degree of

protection as those insured by the

Federal Deposit Insurance Corporation

(FDIC). As long as funds are actually

deposited or invested in fully negotiable

obligations of the United States,

deposited in Federally-insured

accounts, or letters of credit are issued

by Federally-insured institutions, then

bond equivalents will continue to have

the same degree of protection as those

insured by the FDIC.

As proposed, § 201.27(b)(1) and (b)(2)

will be modified to broaden these

subsections to permit funds pledged

under bond equivalents to be on deposit

or in accounts that are Federally-insured

and not limited to only deposits or

accounts insured by the FDIC. This

modification would also permit all

Federally-insured banks or other

institutions to issue letters of credit, not

just those banks or institutions insured

by FDIC. The primary benefit accrues to

persons choosing to meet bonding

requirements with bond equivalents by

permitting all Federally-insured

deposits and letters of credit (not just

FDIC) and would expand the number of

banks or other institutions available to

those seeking bond equivalents without

increasing the risk to livestock sellers.

No comments were received

concerning § 201.34. This regulation

sets forth procedures for termination of

market agency, dealer, and packer bonds

and trust fund agreements. As proposed,

the Agency will amend § 201.34(c) to

include termination procedures for trust

agreements. This will provide uniform

termination for all bonds and bond

equivalents.

As proposed, each of the following

regulations will be retained in its

present form:

§ 201.10 Requirements and

procedures for registration.

§ 201.28 Duplicates of bonds or

equivalents to be filed with regional

supervisor.

§ 201.29 Market agencies, packers and

dealers required to file and maintain

bonds.

§ 201.30 Amount of market agency,

dealer and packer bonds.

§ 201.31 Conditions in market agency,

dealer and packer bonds.

§ 201.32 Trustee in market agency,

dealer and packer bonds.

§ 201.33 Persons damaged may

maintain suit; filing and notification of

claims; time limitation; legal expenses.

In the process of reviewing these

regulations, it was determined that they

were necessary to the efficient and

effective enforcement of the P&S Act

and to the orderly conduct of the

marketing system. The absence of any of

the regulations would result in

increased litigation.

Three comments were received

concerning § 201.10, which specifies the

requirements and procedures for

registration for those persons desiring to

operate as market agencies or dealers as

defined in § 301 of the P&S Act. One

comment suggested modifying § 201.10

by prohibiting market agencies, dealers,

and packers from operating subject to

the P&S Act, under their bond or anyone

else’s bond, until all debts owed

approved livestock auction markets had

been paid, regardless of whether such

debt had been dismissed in bankruptcy.

The Agency believes that such a

modification would not be in the best

interest of all livestock sellers since the

comment referred to only debts owed to

approved livestock auction markets. The

Agency could also be in conflict with

Federal bankruptcy statutes if a

registration was denied based on a debt

dismissed in bankruptcy. Under the

provisions of the P&S Act, all market

agencies and dealers are required, as a

condition for registration, to be solvent.

That is, current assets must be equal to

or exceed current liabilities.

Two other comments received

regarding § 201.10 suggested the

regulation lacks specificity as to what

circumstances or past activities are

deemed actionable in denying the

registration of an applicant. They also

suggested serious violations of the Act,

such as fraud, theft, and embezzlement,

should warrant denial of registration

unless the applicant can show just cause

why registration should not be denied.

The Agency believes this concern is

sufficiently addressed in § 201.10(b)

which specifies that if the Administrator

has reason to believe the applicant is

unfit to engage in the activity for which

application has been made, the

applicant will be afforded an

opportunity for a full hearing for the
36278 Federal Register / Vol. 61, No. 133 / Wednesday, July 10, 1996 / Rules and Regulations

purpose of showing cause why the

application should not be denied. This

paragraph gives the Agency authority to

review each application and to deny

registration to those believed unfit to

engage in the business of a market

agency or dealer. It is believed

§ 201.10(b) can be enforced more

effectively if this regulation is not

narrowed to specified violations of the

P&S Act. After considering the

comments, the Agency has concluded

this regulation should be retained in its

present form.

One comment was received regarding

§ 201.29, which requires market

agencies, packers and dealers to file and

maintain bonds. The comment indicated

no particular concern regarding the

language in § 201.29, but suggested the

P&S Act should be changed to insure

that all major buyers of livestock,

including feedlots, be required to

maintain a reasonable bond. Those

feedlots operating as dealers or market

agencies as defined under the P&S Act,

are subject to the registration and

bonding provisions. Broader coverage to

all major buyers would require a change

in the statute. Therefore, the Agency has

concluded this regulation should be

retained in its present form.

All five comments to the proposal

addressed § 201.30. This regulation sets

forth the formulae for computing bonds

for market agencies, dealers, and

packers. It also provides the

Administrator the authority to adjust the

level of bond required whenever he/she

determines a bond is not adequate to

secure the obligations of the person or

firm.

Two comments generally supported

the Agency’s proposal to retain § 201.30

in its present form and believed that

even a modest increase in bond levels

would not appreciably improve the

financial protection afforded livestock

sellers and may exclude smaller

reputable businesses from operating

altogether. The Agency was also urged

to give serious consideration to

establishing alternatives to the current

bonds and bond equivalents such as the

financial security funds used in several

Canadian provinces.

One comment suggested changing the

formulae for determining bond size for

market agencies buying on commission

and dealers (Clause 2 bond) to one half

of an average week’s gross purchases

from the prior year (52 weeks). Another

comment suggested the Agency

eliminate the 10 percent threshold on

dealer bonds over $75,000 because the

threshold is unfair to smaller dealers

and the default of a larger dealer could

have a greater impact on the livestock

industry than a smaller dealer. One

comment recommended increasing the

minimum requirement for dealers and

market agencies buying on commission

from the current $10,000 to $25,000.

The comment also stated that an

increase in the minimum bond from

$10,000 to $25,000 may discourage

potential dealers, who may not be

financially secure or responsible, from

becoming a livestock dealer.

After considering these comments, the

Agency has concluded § 201.30 will be

retained in its present form. The Agency

does not believe it is necessary to

increase the minimum bond level of

Clause 2 bonds or to remove the

threshold on bonds over $75,000 at this

time. The cost to the industry of

increasing minimum bond levels would

far outweigh the increased protection

that would be gained by such an

increase. Small dealers and market

agencies buying on commission, which

include 48 percent of all dealers or

market agencies, would be hardest hit

by an increase in bond levels and may

find it difficult to remain in business.

The Agency also believes that the cost

to the industry of removing the 10

percent threshold on Clause 2 bonds

over $75,000 would far outweigh the

benefit to livestock sellers and cause an

undue hardship on larger dealers and

market agencies buying on commission

since many would likely be unable to

obtain the required bond coverage.

However, the Agency will continue to

review the levels of bonds and to study

alternative methods of providing

financial protection to livestock sellers.

In addition, the Department is

supporting proposed legislation to

amend the P&S Act to establish a dealer

trust for the benefit of sellers of

livestock to dealers and market agencies

buying on commission. If the proposed

legislation is passed, livestock sellers

will benefit from additional protection

under the Act.

Two comments were received

regarding § 201.32 which refers to

trustees named in market agency,

dealer, and packer bonds. Both

comments suggested § 201.32 be

amended to show that whenever

multiple trustees are listed on a bond,

the Agency should designate a ‘‘lead’’

trustee to represent those who filed

claims against the bond. Both comments

further suggested that whenever trust

agreements or trust fund agreements

(bond equivalents) are used in lieu of a

bond, the bank issuing collateral for a

trust fund agreement or an irrevocable

letter of credit should not be permitted

to act as trustee. They believe an

inherent conflict of interest exists

whenever the bank holding the

collateral for a bond equivalent (or

issued a letter of credit) is also named

as trustee.

After reviewing these comments, the

Agency has decided to retain § 201.32 in

its present form. The Agency does not

accept bonds or bond equivalents with

multiple trustees listed, therefore, does

not believe it is necessary to amend the

regulation to designate a ‘‘lead’’ trustee.

Trustees on bond equivalents have a

fiduciary responsibility to carry out

their duty as trustee when bond claims

are filed. Whenever a trustee fails to

carry out their fiduciary responsibility

on behalf of the claimants, the Agency

has the authority to appoint a new

trustee to carry out the trustee’s

responsibility.

Three comments were received

concerning § 201.33, which pertains to

filing and notification of bond claims,

time limitations, and the filing of civil

suit to recover on the bond or bond

equivalent.

One comment suggested the number

of days to file a claim stay at 60 days,

but to pay only those claims that are

filed within 21 days of the first unpaid

debt. The comment further stated that

this is sufficient time for those following

the prompt pay laws and they should

not be penalized by dividing bond

proceeds with those who have given

buyers credit. The Agency believes this

suggestion would give livestock sellers

insufficient time to file the bond claims.

Some sellers of livestock may not have

specifically extended credit to the

buyer, yet may be classified as a credit

seller if a bond claim is not filed within

21 days of the date of the transaction

and therefore, not included in the

payout of bond proceeds. We believe

there is insufficient basis to warrant this

change in the bond requirements at this

time.

Two other comments suggested two

changes to this regulation. They

suggested that the Agency clarify the

term ‘‘date of transaction.’’ They state

that it has been assumed for years that

the term ‘‘date of transaction’’ meant the

date of the sale or, at most, the date

payment was due after the sale. The

comment also accurately states that

§ 201.33(d) requires that a claim must be

filed within 60 days from the date of the

transaction on which the claim is based

and, if for some reason the claim is not

paid or acknowledged as a valid claim,

the claimant can then file suit on that

claim alleging as a cause of action that

the claimant has a valid claim but the

surety has denied liability or failed to

pay the claim. In other words, filing a

claim within 60 days from the date of

the transaction is a condition precedent

which must be met in order to file suit.

They believe this paragraph should be
Federal Register / Vol. 61, No. 133 / Wednesday, July 10, 1996 / Rules and Regulations 36279

clarified to avoid confusion and keep

persons from filing suit against a surety

company 15 or 18 months after a

transaction when no claim was ever

filed against the bond.

The Agency believes that the language

in § 201.33 is sufficiently clear and does

not believe it is necessary to define

‘‘date of transaction’’ or to modify

paragraph (d). In addition, § 409 of the

P&S Act provides a basis for when

payment is due in subject transactions.

Under § 409, payment must be made by

the close of the next business day

following the purchase of livestock and

transfer of possession thereof. After

considering these comments, the

Agency has decided to retain § 201.33 in

its present form.

The proposed changes in

§ 201.27(b)(1) and (b)(2) and in

§ 201.34(c) do not impose or change any

recordkeeping or information collection

requirements. Existing requirements in

these regulations have been previously

approved by OMB under control No.

0590–0001.

As provided by the Regulatory

Flexibility Act, it is hereby certified that

these amended rules will not have

significant economic impact on a

substantial number of small entities and

a statement explaining the reasons for

the certification is set forth in the

following paragraph and is being

provided to the Chief Counsel for

Advocacy of the Small Business

Administration.

While these proposed amended rules

impact small entities, they will not have

a significant economic impact on any

entity, large or small. The primary effect

of the changes in rules § 201.27(b)(1)

and (b)(2) is to permit funds pledged

under bond equivalents to be on deposit

or in accounts that are Federally insured

and to permit Federally-insured banks

and other institutions to issue letters of

credit. Eligible institutions would no

longer be restricted to those banks or

institutions insured by FDIC. The

primary effect of the rule change in

§ 201.34(c) is to include the termination

of trust agreements.

These rules have been determined to

be not significant for purposes of

Executive Order 12866 and, therefore,

have not been reviewed by OMB. These

amendments do not impose any new

paperwork requirements and do not

have implications for Federalism under

the criteria for E.O. 12612.

This final rule has been reviewed

under E.O. 12778, Civil Justice Reform.

This action is not intended to have

retroactive effect. This rule does not

preempt any State or local laws,

regulations, or policies, unless they

present an irreconcilable conflict with

this rule. There are no administrative

procedures which must be exhausted

prior to any judicial challenge to the

provisions of this rule.

List of Subjects in 9 CFR Part 201

Bonding, Dealer, Market Agency,

Packer, Registration.

Done at Washington, D.C., on this 1st day

of July 1996.

James R. Baker,

Administrator, Grain Inspection, Packers and

Stockyards Administration.

For the reasons set forth in the

preamble, the Grain Inspection, Packers

and Stockyards Administration will

amend 9 CFR part 201 as follows:

PART 201—[AMENDED]

1. The authority citation for part 201

continues to read as follows:

Authority: 7 U.S.C. 204, 228: 7 CFR 2.17(e),

2.56.

2. Revise § 201.27(b) to read as

follows:

§ 201.27 Underwriter: equivalent in lieu of

bonds; standard forms.

* * * * *

(b) Any packer, market agency, or

dealer required to maintain a surety

bond under these regulations may elect

to maintain, in whole or partial

substitution for such surety bond, a

bond equivalent, or combination

thereof, must be the total amount of the

surety bond otherwise required under

these regulations. Any such bond

equivalent must be in the form of:

(1) A trust fund agreement governing

funds actually deposited or invested in

fully negotiable obligations of the

United States or Federally-insured

deposits or accounts in the name of and

readily convertible to currency by a

trustee as provided in § 201.32, or

(2) A trust agreement governing funds

which may be drawn by a trustee as

provided in § 201.32, under one or more

irrevocable, transferrable, standby

letters of credit, issued by a Federallyinsured bank or institution and

physically received and retained by

such trustee.

* * * * *

3. Revise § 201.34(c) as follows:

§ 201.34 Termination of market agency,

dealer and packer bonds.

* * * * *

(c) Each trust fund agreement and

trust agreement shall contain a

provision requiring that, prior to

terminating such agreement, at least 30

days notice in writing shall be given to

the Administrator, Grain Inspection,

Packers and Stockyards Administration,

U.S. Department of Agriculture,

Washington, D.C. 20250, by the party

terminating the agreement. Such

provision shall state that in the event

the principal named therein files an

acceptable bond or bond equivalent to

replace the agreement, the 30-day notice

requirement may be waived and the

agreement will be terminated as of the

effective date of the replacement bond

or bond equivalent.

* * * * *

[FR Doc. 96–17358 Filed 7–9–96; 8:45 am]

BILLING CODE 3410–EN–P

9 CFR Part 201

RIN 0580–AA44

Regulations and Statements of General

Policy Issued Under the Packers and

Stockyards Act

AGENCY: Grain Inspection, Packers and

Stockyards Administration (GIPSA),

USDA.

ACTION: Final rule.

SUMMARY: As part of GIPSA’s efforts to

review and streamline its regulations,

proposed amendments to rules issued

under the Packers and Stockyards Act (7

U.S.C. 181 et seq.) were published in the

Federal Register (60 FR 29506) on June

5, 1995, and identified as Group II. This

document adopts proposed changes

which modify six trade practice

regulations and retains seven

regulations and seven statements of

general policy in their present form.

EFFECTIVE DATE: August 9, 1996.

FOR FURTHER INFORMATION CONTACT:

Daniel Van Ackeren, Director, Livestock

Marketing Division, 202–720–6951, or

Tommy Morris, Director, Packer and

Poultry Division, 202–720–7363.

SUPPLEMENTARY INFORMATION: In

response to the proposed rule published

in the Federal Register (60 FR 29506),

the Agency received comments from

four organizations and two companies.

Although the Agency did not propose

any changes to § 201.43, a poultry

growers association suggested that a

new paragraph be added to § 201.43 to

require live poultry dealers to maintain

certain records for flock placements.

After considering the comment, the

Agency has concluded that this

regulation will be retained in its present

form. The Agency believes that § 401 of

the P&S Act adequately addresses the

issue of record maintenance.

The Agency received three comments

regarding § 201.49. A livestock trade

association agrees with the proposed

amendment. A major hog slaughterer

suggests that records be retained for lot

summaries instead of individual