“There is very specifi c ‘magic language’ that has to go on invoices or that trust fund claim is not preserved. That language would have to be exactly perfect on the invoice.” PSA does not have that requirement. Another specifi c
right the producer may want to exercise is in Section 181, which allows Texas dairy producers to demand that the buyer segregate funds, making the tracing of it that much easier in the event of a bankruptcy.
Assurances of payment There are also steps that a seller can take if they be-
lieve that they are in danger of not getting paid. These are not specifi c to agriculture, but apply to any seller of goods governed by the Uniform Commercial Code. Binford says the seller can essentially demand as-
surances of payment from a party that is teetering on a fi nancial precipice. “One thing to be aware of in bank- ruptcy is that once the bankruptcy case fi les, there’s this concept called ‘Preferences,’” he says. “Let’s say that a particular producer puts a lot of pressure on the debtor and says, ‘Look, you guys know how important I am. You have a bunch of creditors. You owe all of them money, but you just need to pay me with the money that you have. Otherwise, I’m going to make life dif- fi cult.’ It’s always nice to get paid, and having leverage is nice, too. But once a bankruptcy case fi les, there is the ability under the Preference bankruptcy statute to sue the party that applied the pressure in order to get that money brought back into the estate for distribu- tion equitably to all the creditors.”
the Constitution and federal laws and treaties as the supreme law of the land. He adds, “That’s what is nice about the Packers &
Stockyards Act and the Perishable Agricultural Com- modities Act; those are federal laws, so you don’t have to worry about preemptions and Supremacy Clause issues. It’s federal law versus federal law.” Another benefi t to a trust fund-type claim is that
your case may get settled a lot faster. “If you just have an unsecured claim and you fi le a Proof of Claim, you can be waiting around for a couple of years before you get paid, and sometimes you get paid pennies on the dollar,” says Binford. “That’s not a lot of fun when you’re a creditor, and
of the transaction. It’s critical to have documentation
A holder of a successful trust fund claim is immune
to that sort of action. So if the trust claim is unsuccess- ful, the claimant becomes vulnerable. When the claim is under a state law like Section
181, there is always the possibility that a bankruptcy court will determine the claim is preempted by fed- eral law. In the case involving the bankrupt ice cream company, Binford says the judge ruled the federal and state statutes could peacefully coexist, and allowed his claim under the state law to stand. However, he says, “there’s a risk that a bankruptcy court is going to de- termine that the federal bankruptcy code trumps state law” by citing what is known as the Supremacy Clause, the provision in the U.S. Constitution that establishes
tscra.org
that is why asserting these trust fund rights is so im- portant, because the default is that you’re just a lowly, unsecured creditor that has to wait around and you aren’t going to get paid in full. If you have a trust fund claim, you come in and announce your presence loudly in the bankruptcy case, which does have a cost asso- ciated with it because you have to hire a bankruptcy lawyer; you can’t just sleep on your rights. But it does get resolved much faster.” USDA’s Agricultural Marketing Service has handled a lot of claims under the Perishable Ag-
ricultural Commodities Act. Binford says almost every bankruptcy attorney is familiar with PACA, and any restaurant or other large user of produce fi ling bank- ruptcy will have to deal with it. Therefore, there is a fi rm set of case law on PACA, but less so with PSA, and state law provisions are more obscure. Many people don’t know they have rights under the
law. But Binford believes assertions of trust fund rights are increasing for many agricultural producers in these tough times. He says, “There’s just not enough money to go around and, when there’s not enough money to go around, everybody is scrambling for position. Editor’s note: Jason Binford will teach on this topic
at the 2015 Cattle Raisers Convention, March 27 to 29, Fort Worth. To learn more about the convention, visit
www.tscra.org/convention.
January 2015 The Cattleman 79
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