Article 5. Bonding And Payment For Manufacturing Milk of California Food And Agricultural Code >> Division 21. >> Part 3. >> Chapter 1. >> Article 5.

It is recognized by the Legislature that unfair and disruptive practices have developed concerning the purchasing of manufacturing milk, as defined in Section 32509, including the failure to pay, or the making of late payments, to producers of manufacturing milk. Such practices tend to disrupt and interfere with the purposes of this chapter by, among other things, creating an unfair advantage to purchasers of manufacturing milk used for manufacturing purposes over purchasers of market milk used for manufacturing purposes. It is necessary, in order to more fully achieve the purposes of this chapter, to provide for the requirement of a payment bond and a schedule for payment concerning purchases of manufacturing milk in certain circumstances.

The bond provided for in this article is required for each manufacturing milk handler.

(a) Every manufacturing milk handler that operates only one plant within the state, before purchasing any manufacturing milk from a producer, shall execute and deliver to the secretary a surety bond, executed by the applicant as principal and by a surety company qualified and authorized to do business in this state as surety. The amount of the bond shall be based upon the average daily quantity of manufacturing milk purchased by the handler during any calendar month during a calendar year. The minimum amount of the bond shall be as follows:
  (1) Five thousand dollars ($5,000) for any handler that purchases an average daily quantity of less than 1,000 gallons.
  (2) Ten thousand dollars ($10,000) for any handler that purchases an average daily quantity of at least 1,000 gallons but less than 4,000 gallons.
  (3) Fifteen thousand dollars ($15,000) for any handler that purchases an average daily quantity of at least 4,000 gallons but less than 8,000 gallons.
  (4) Twenty thousand dollars ($20,000) for any handler that purchases an average daily quantity of 8,000 gallons or more.
  (b) Every manufacturing milk handler that operates more than one plant within the state, before purchasing any manufacturing milk from a producer, shall execute and deliver to the secretary a surety bond, executed by the applicant as principal and by a surety company qualified and authorized to do business in this state as surety. The bond shall be a single bond covering all plants within the state and shall be in an amount determined by multiplying twenty thousand dollars ($20,000) by the number of plants operated by the handler in the state.
  (c) Any milk purchase agreement between a handler and a producer may provide for surety bonds, guarantees, or other forms of security in addition to the bonding requirements in this article.

If any handler increases his or her purchases of manufacturing milk during the license year so that the purchases exceed the amount for which the handler is bonded, the handler shall immediately post an additional bond as may be required to comply with this article.

The bond required by Section 61405 shall be in a form approved by the director, and shall be conditioned upon the payment in the manner that is required by the terms of purchase between the manufacturing milk handler and the producer of all amounts due to producers for manufacturing milk purchased by the licensee or applicant during the license year. The bond shall be to the state in favor of every producer of manufacturing milk.

If a handler fails to pay any producer or producers in the manner that is required by this chapter, the director shall proceed forthwith to ascertain the names and addresses of all the producers that the handler has failed to pay, together with the amounts due and owing to them and each of them by the handler, and shall request all of those producers to file a verified statement of their respective claims with the director. The producer need only verify that he or she is owed an amount by the handler. The actual amount in that case may be ascertained by the director.

(a) After determining the claims of the producers pursuant to Section 61407, the director shall bring an action on the bond on behalf of the producers.
  (b) Any producer not satisfied with the amount of the producer's claim as determined by the director, or with the ratio the producer's claim bears to all claims against the bond as determined by the director, may intervene in an action commenced upon the bond so that the correct amount of his or her claim and the ratio it bears to all the claims may be adjudicated.

If the recovery upon the bond is not sufficient to pay all of the claims as finally determined and adjudged by the court, the amount recovered shall be divided pro rata among the producer-creditors.

Payments by a handler to a producer, for the purposes of any action on a handler's bond for any year, shall be credited first to interest and then to principal due, owed, and unpaid. Amounts to be applied to the principal shall be applied first to the amount owed for the most recent deliveries and then successively, in descending order, to the amounts owed to the next most recent deliveries.

(a) The director may bring an action against a surety bond company if the company fails to do any of the following:
  (1) Acknowledge promptly and act reasonably upon receiving a bond demand from the director.
  (2) Promptly investigate and process claims.
  (3) Make fair and equitable settlement of claims.
  (4) Pay the bond amount to the director.
  (b) The authority provided in subdivision (a) is in addition to the authority provided for in subdivision (h) of Section 790.03 of the Insurance Code.
  (c) In addition to the bond proceeds, the surety bond company may be ordered to pay interest at the prevailing prime rate on the amounts owed from the date the claim was filed, all of the department' s court costs, and reasonable attorney's fees.

If a manufacturing milk handler fails to pay any producer in the manner that is required by this chapter, the director may require the filing of a new or additional bond in the amount determined by the director to be sufficient to satisfy claims for the payment of producers thereafter supplying manufacturing milk to the manufacturing milk handler. The failure of a manufacturing milk handler to have filed a new bond within 10 days after notice from the director constitutes grounds for the revocation or suspension of the manufacturing milk handler's license of the manufacturing milk handler.

The failure of any manufacturing milk handler that purchases manufacturing milk from producers to execute and deliver the bond as provided and required in this article is a violation of this chapter. The failure of any handler to post any additional bond as may be required is also a violation of this chapter.

The failure of any manufacturing milk handler that purchases manufacturing milk from producers to execute and deliver the bond as provided and required in this article shall constitute grounds for suspension, revocation, or refusal of the manufacturing milk handler' s license. The failure of any handler to post any additional bond as may be required to comply with this article shall also be grounds for suspension, revocation, or refusal of the license pursuant to these procedures.

Except as otherwise provided in Section 61411.2 or 61411.3, the purchase of any manufacturing milk in excess of 1,000 gallons monthly from any manufacturing milk producer without a written contract that has been executed and complies with all the requirements of this article is an unlawful practice. The contract shall include all of the following:
  (a) The amount of manufacturing milk which is to be purchased for any period.
  (b) The price to be paid for all manufacturing milk received.
  (c) The date and method of payment for the manufacturing milk. Payment shall be made for the amount of the manufacturing milk delivered during the first 15 days of any calendar month not later than the first day of the next following month and for the amount delivered during the remainder of the month not later than the 15th day of the next following month.
  (d) The charges for transportation, if hauled by the handler, which shall be the lower of either of the following:
  (1) A rate not in excess of the rate charged for actual or reasonably similar services by highway carriers, as the term "highway carrier" is defined in Section 3511 of the Public Utilities Code.
  (2) The actual amount paid by a handler for that transportation. The contract may contain any other provisions that are not in conflict with this chapter. A signed copy of the contract shall be filed by the producer with the director within five days of the date of its execution. This section does not apply to the purchase of milk which does not meet market milk standards in Chapter 2 (commencing with Section 35751) of Part 2 of Division 15, when the milk has been processed on a dairy farm that held a valid market milk permit during the 30-day period preceding the purchase.

The production of manufacturing milk in excess of amounts to be purchased under contracts executed pursuant to Section 61411 shall be voluntary on the part of the producer and shall not be a condition, oral or written, of the execution or renewal of any contract.

Section 61411 does not apply to the purchase of manufacturing milk which is necessary to meet an unanticipated increase in demand or an unanticipated shortage in the supply of a handler if the quantity purchased from any one producer does not exceed 5,000 gallons in any one month. However, if the producer is a cooperative association acting as a producer, the total quantity purchased shall not exceed 30,000 gallons per month. For a single transaction between a producer and handler, payment shall be made for the amount of milk delivered during the first 15 days of any calendar month not later than the first day of the next following month and payment shall be made for the amount of milk delivered during the remainder of the month not later than the 15th day of the next following month, unless the milk is subject to a pooling plan as authorized in Chapter 3 (commencing with Section 62700) and the pooling plan provides for different dates and methods of payment, in which case the date and method of payment for the milk shall be as provided for in the pooling plan.

Section 61411 does not apply to manufacturing milk purchased under cash-on-delivery terms.

Any contract between a producer and a handler shall be voidable by the producer for a 45-day period following the occurrence of either of the following:
  (a) The handler has failed to pay the producer the full price specified in the contract or has failed to comply with the terms specified in subdivision (c) of Section 61411, and the failure has not been corrected by the handler within one business day after notification by the producer or director. The 45-day period shall commence on the day after the payment was due.
  (b) The handler has failed on three separate occasions within a 12-month period to pay the producer the full price specified in the contract or has failed to comply with the terms specified in subdivision (c) of Section 61411. The 45-day period shall commence on the day after the third occurrence.

If a notice has been issued by the director that the future deliveries to the handler shall not be covered under the Milk Producers Security Trust Fund created pursuant to Chapter 2.5 (commencing with Section 62500), all contracts between producers and the handler are voidable by the producers. Producers shall have the option to void their contracts for a 45-day period from the date the notice is issued or until the date the director establishes for reinstatement of the handler's eligibility under the trust fund, whichever is later.

Every milk handler who receives manufacturing milk subject to the provisions of this article shall deduct as an assessment from payments made to producers for manufacturing milk the sum of one and two-tenths cents ($0.012) per hundredweight of manufacturing milk. The amount of the assessments so deducted shall be paid to the director on or before the 45th day following the last day of the month during which the manufacturing milk was received. Every milk handler who receives manufacturing milk subject to the provisions of this article that purchases or handles manufacturing milk from producers shall pay a fee of six-tenths of one cent ($0.006) per hundredweight of manufacturing milk. The amount of the fee shall be paid to the director on or before the 45th day following the last day of the month in which the manufacturing milk was received.

The director may fix the rates of assessments or fees required by Section 61412 at lesser amounts, and may adjust the rates of assessments or fees from time to time, whenever he or she finds that the cost of administering this article can be defrayed from revenues derived from the lower rates, provided that the rate of assessments deducted from payments to producers for manufacturing milk and the rate of fees paid by manufacturing milk handlers shall at all times be in the ratio of two to one.

(a) Any assessment or fee or either of them payable pursuant to any provision of this article is a debt of the person by whom the assessment or fee or either of them is payable and shall be due and payable to the director upon the date set forth in Section 61412. If the person does not pay the assessment or fee or either of them upon the required date, the director may file a complaint against that person in a state court of competent jurisdiction for the collection of the assessment or fee or either of them.
  (b) If any such person does not pay to the director the assessments or fees or either of them provided for in this article, on or before the date specified in Section 61412, the director may add to the unpaid assessments or fees or either of them an amount not exceeding 10 percent of the unpaid assessment or fees or either of them to defray the cost of enforcing the collection of the unpaid assessments or fees or either of them.

The failure of any handler to pay for manufacturing milk delivered to the handler at the time and in the manner specified in the contract with the producer is an unlawful trade practice.

(a) Handlers shall pay producers either by check or cash. Handlers electing to pay producers in cash shall, in all cases, obtain a dated, signed receipt from each producer. These receipts shall be made a part of the permanent records of the handler. Handlers paying by check shall issue checks which are reduceable to cash by the producer in no more than one business day.
  (b) The giving of a promissory note is not payment within the meaning of this chapter.

(a) If a handler does not pay for manufacturing milk delivered to him or her at the time and in the manner specified in the contract, the handler shall pay the producer interest on the unpaid amount from the time the payment was due until paid at the rate of 12 percent per annum. The interest is in addition to any other penalties provided in this chapter.
  (b) If there is no contract for the delivery of milk to the handler or the delivery was made as a single transaction between the producer or handler, the handler shall pay the department interest on the unpaid amount from the time the payment was due until paid at the interest rate specified in subdivision (a). The interest is in addition to any other penalties provided in this chapter.

If a handler fails to pay for manufacturing milk delivered to him or her at the time and in the manner specified in this chapter, the director may assess a penalty for each payment date that the producers were not fully paid. Any penalty assessed shall be a minimum of one hundred dollars ($100) for each payment date. If the amount not properly paid is more than forty thousand dollars ($40,000), the penalty assessed shall be five thousand dollars ($5,000) or one-fourth of 1 percent of the amount not properly paid, whichever is less.

The director may revoke or suspend any license of a handler if the director finds as a result of a noticed hearing that the handler has not paid for any manufacturing milk delivered to him or her at the time and in the manner specified in the contract with the producer.

The director, pursuant to the procedure in Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, may also refuse to grant or renew any license to a handler if the director is satisfied that the handler has failed to pay for any manufacturing milk delivered to him or her at the time and in the manner specified in the contract with the producer.

In lieu of revoking or suspending a handler's license under Section 61416, the director may impose any other conditional and probationary orders, pursuant to a noticed hearing, that may be proper for the enforcement of this chapter or to enforce any provision of any regulation adopted by the director pursuant to Section 61341.

If the respondent does not comply with any conditional or probationary orders, the director may suspend or revoke the license in accordance with the procedure provided in Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.

(a) Whenever the director is satisfied, either by investigation or after a hearing, that a handler is unable to pay for any manufacturing milk purchased from any producer, and is further satisfied that to permit the handler to continue to purchase and receive any manufacturing milk from producers would be likely to cause serious and irreparable loss to producer-creditors and other producers, the director may thereupon and forthwith shorten the time for hearing that is provided for in Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, and thereupon may issue an order to show cause why the license of the handler should not be forthwith suspended or revoked. The time of notice of the hearing shall not, however, be less than five days. At the hearing the handler that is proceeded against shall be ordered to show cause why the license should not be suspended or revoked, or continued under conditions and provisions, if any, that the director may consider just and proper and for the protection of the best interests of the producer-creditors and producers from whom the handler has been and is receiving any manufacturing milk. Following the hearing, the decision of the director shall become effective at the director's discretion.
  (b) The hearing, in the case of an emergency, may be called upon written notice which is served personally or by mail on the handler that is involved. If the notice is sent by mail, the hearing date shall be no sooner than 10 days after the notice is sent. It may be held at the nearest office of the director or at any place that may be most convenient in the discretion of the director for the attendance of all of the parties that are involved.