[Federal Register Volume 61, Number 133 (Wednesday, July 10, 1996)]
[Rules and Regulations]
[Pages 36277-36279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17358]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 61, No. 133 / Wednesday, July 10, 1996 /
Rules and Regulations
[[Page 36277]]
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.
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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
Sec. 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 Sec. 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, Sec. 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 Sec. 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 Sec. 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:
Sec. 201.10 Requirements and procedures for registration.
Sec. 201.28 Duplicates of bonds or equivalents to be filed with
regional supervisor.
Sec. 201.29 Market agencies, packers and dealers required to file
and maintain bonds.
Sec. 201.30 Amount of market agency, dealer and packer bonds.
Sec. 201.31 Conditions in market agency, dealer and packer bonds.
Sec. 201.32 Trustee in market agency, dealer and packer bonds.
Sec. 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 Sec. 201.10, which
specifies the requirements and procedures for registration for those
persons desiring to operate as market agencies or dealers as defined in
Sec. 301 of the P&S Act. One comment suggested modifying Sec. 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 Sec. 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
Sec. 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
[[Page 36278]]
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 Sec. 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 Sec. 201.29, which requires
market agencies, packers and dealers to file and maintain bonds. The
comment indicated no particular concern regarding the language in
Sec. 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 Sec. 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
Sec. 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
Sec. 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 Sec. 201.32 which refers to
trustees named in market agency, dealer, and packer bonds. Both
comments suggested Sec. 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
Sec. 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 Sec. 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
Sec. 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
[[Page 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 Sec. 201.33 is
sufficiently clear and does not believe it is necessary to define
``date of transaction'' or to modify paragraph (d). In addition,
Sec. 409 of the P&S Act provides a basis for when payment is due in
subject transactions. Under Sec. 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 Sec. 201.33 in its present form.
The proposed changes in Sec. 201.27(b)(1) and (b)(2) and in
Sec. 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 Sec. 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
Sec. 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 Sec. 201.27(b) to read as follows:
Sec. 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 Sec. 201.32, or
(2) A trust agreement governing funds which may be drawn by a
trustee as provided in Sec. 201.32, under one or more irrevocable,
transferrable, standby letters of credit, issued by a Federally-insured
bank or institution and physically received and retained by such
trustee.
* * * * *
3. Revise Sec. 201.34(c) as follows:
Sec. 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
