The letters which were sent by a lawyer representing Dean Foods trustees, demanded farmers repay money they were paid for milk shipped during the preference period of the bankruptcy. Roger McEowen of Washburn University says this is not a scam and in most cases farmers will have be able to fight these claims.
If you did business with the debtor that ends up filing bankruptcy, they can reach back 90 days and they can require you to pay back what they paid, McEowen says it’s called a Trustee Avoidance Claim. However, he notes most farmers will qualify for an exception and will be able to avoid repayment.
“If the transaction occurred in the normal course of business, then that claim is going to fail. I mean they can’t get it,” he says. “These are extortion letters, there’s no other way to put it. They’re seeing what they can get.”
What is the normal course of business? Here’s an example: I normally sell milk, and they buy milk from me. That’s the ordinary course of business so long as the invoices are paid in the time period required on the invoice or payment is made in accordance with industry custom past dealings, according to McEowen.
“A lot of these farmers shouldn’t pay anything on it other than to pay their legal counsel,” he says. “You have to have a lawyer respond to this stuff you can’t just blow it off, because if you blow it off and don’t respond then you’re going to have to assert your defense.”
McEowen’s recommendation to farmers who received the letter? Hire a lawyer, follow up and by all means don’t avoid dealing with it.
“Farmers should have experienced bankruptcy counsel review this to determine whether they have defense,” he says adding a lawyer will assert you made the sales within the 90 days, but that they fell under the normal course of business, site the appropriate code sections and provide invoice documentation.
Do not drag your feet to get this handled because McEowen says the Trustee has the ability to sue farmers to avoid and recover any preference items by filing the lawsuit against them.
Dairy Farmers of America, the company who bought the majority of Dean Foods assets, says their field staff will have information to help answer questions soon.
“We recently learned the Dean Foods estate is reaching out to former vendors and suppliers requesting the recovery of funds paid within the 90-day period prior to its filing of bankruptcy,” says Kristin Coady of DFA. “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. We are working to get field staff information to help answer questions.”
In the meantime, McEowen’s blog can provide additional information regarding this type of scenario.
