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so before we turn to questions um i just want to reiterate one last time what a deal or statutory trust is uh we've found that as we've worked with folks throughout this process it sometimes takes here at a time or two for it to sink in so i'm going to do that one last time as a reminder and maybe get started uh send in some questions and natalie will talk to us about how we send those questions in but just as a reminder a dealer statutory trust is a change in priority and it's a change in the priority only when a livestock dealer fails to pay for livestock and what that priority is is its priority for the unpaid sellers of livestock to that dealer that they have the ability to go get those livestock back if the dealer still has the livestock so they've got priority in the livestock or if those livestock have turned around and been resold they're going to have lot priority in the proceeds or receivables from those livestock and with that i'll turn it to you natalie to talk us through how the question and answer is going to work thank you chelsea and so it looks like some of you have already sending in questions thank you for doing so but just in case you have any questions about how to submit those there are two options so you can either text your questions to 660-833-1368 or you can use the chat feature and zoom and send your question to the panelist so we have quite a few questions coming in in the chat side of things so we'll go ahead and get started with those our first question is i know this was mentioned in the intro but has this led to apprehension on the parts of lenders to extend credit not that we're aware of um and and i think that the the usda study um indicated they didn't anticipate a lot of apprehension there um we worked with quite a few lenders as we went through this process and generally um what are considered trust assets you know livestock that have not been paid for are probably not the assets that a lender is looking at when they're determining how big of a line that they're going to lend to somebody okay we have another question in our chat it says i could see a scenario in which livestock are commingled in the buyer's existing inventory will the rules of the dealer statutory trust address the requirement for the unpaid seller to identify the livestock they sold without payment jared you want to take that one or i can sure i think that it's important to remember whose job it is to demonstrate which livestock are which um the important thing to remember if you're a producer is that you just need to demonstrate in order to demonstrate a valid claim that you sold some livestock didn't get paid for them and the amount of them um it would then be the dealer's responsibility to say okay these are actually my cows that that are separate from this or that i've already paid for uh and and parse that out but it is not the seller of livestock responsibility to to figure out exactly which animals they need to be paid for so for any attorneys on the line there's kind of a presumption of co-mingled livestock there's a presumption that those are trust assets and then that presumption would have to be fought by the dealer to show no they're not but um with livestock or funds there's that presumption correct all right so we have several people both texting and chatting can you please define dealer what is the legal definition who or what is considered a dealer so since you said legal definition i'm going to take the packers and stockyards act out and i'm going to read the legal definition it doesn't read as you know for plain language as it possibly could have um this law was written in 1921 and so um it some of the terminology is probably not you know the way we would write it today but there's so much case law and um interpretation behind that that we don't change the definition of the dealer it is what it has always been we're not making any changes there the term dealer means any person not a market agency engaged in the business of buying or selling in commerce livestock either on his own account or as the employee or agent of the vendor or purchaser um that's seven usc 201 the definition of dealer and law i'll tell you what that means kind of in practice is someone who is in the business of buying and reselling livestock that that is what they do for a living all right i also think sometimes sorry natalie to interrupt you i think sometimes it's you're fine it's good to say what a dealer is not um sometimes the terms order buyer and dealer are used anonymously and i know chelsea mentioned that earlier um in the presentation but just to the to the extent um maybe you didn't catch it an order buyer under the law is something that is actually different than a dealer despite the fact sometimes um folks use those terms interchangeably an order buyer is somebody that's buying on behalf of someone else and that person is then directly invoiced for those livestock sometimes order buyers actually are buying for dealers and sometimes people wear multiple hats but it's important to ask who's paying for the livestock or who's supposed to be paying for the livestock to kind of determine if you're an order buyer or a dealer all right our next question comes from the text line feedlots by cattle directly in the country are feedlots included under dealer trust no they are not um and solomon valley is actually the case that you might want to look at if you want to see kind of the rationale there um but the courts and usda have been clear that feedlots are not dealers they are a different entity type um so i think that that probably begs one of the questions i get pretty common and that is um hey this dealer trust sounds fantastic but why just dealers why can't it be broader why can't i have this protection no matter who i'm selling to currently you have the protection when you're selling to a packer and now under the new law you have it when you're selling to a dealer you also have dual layers of protection when you're selling to a livestock auction um all of these entities are bonded auctions also have a physical custodial account which is a trust account the short answer is that those are the only entities that are regulated by the packers in stockyards your markets packers dealers and order buyers your feedlots and farmers are not regulated by packers in stockyards and there wasn't really the appetite within the industry to see those entities start to become regulated and so in terms of what is already part of the system and what was kind of politically feasible this was you know probably as far as the protection was able to go at this time candidly it's also the area where we've probably seen more frequent defaults and large defaults when they do occur okay our next one is coming from the chat line so a lender's position is only modified in regards to the particular cattle that have not been paid for it does not apply to a lender's position for all they're paid for cattle is that correct correct so i think that that is one thing that that helps improve comfort level as people start to understand oh this really is a fairly narrow set of assets okay our next question is what happens when a dealer is operating strictly on a float and does not have a lender note um so so the in that case the dealer doesn't have a lender dealer statutory trust would still apply that that that individual if they happen to default um the unpaid seller would have priority in livestock if the dealer still has livestock or say they've sold them to a feed yard and the feed yard has paid the dealer and those funds are still there then they would have priority in those funds um we did talk about how this is not a perfect tool i think where we've seen some issues in the past is when a dealer has a lender and maybe they see things aren't going great um the old law kind of almost incentivized a lender to encourage a dealer to keep doing business and pick the opportune time to cut off their line of credit and suck those funds up under a dealer trust they couldn't do that those funds priority would go to the unpaid seller if that dealer is unbanked they don't have a lender that's not something that could occur but the deal or statutory trust would still apply that protection would still be there um but to be clear if there are no funds or no cattle the the trust payout is not going to be that lucrative so um i think it's going to be a good protection we'll see it play out probably you know as we see defaults moving forward but it's not a perfect tool obviously good business practices still matter you never want to sell to somebody you think isn't going to be able to pay for livestock you don't want to have to have the experience of going through this process it's just nice that the protection exists if it happens to occur right our next question is based on the current legal definition anyone can be deemed a dealer by a court of law i'm not sure i understand that question jarrah what what are your thoughts i think that um it's a little bit less it matters less if a court of law uh would deem a dealer a dealer i think that in reality we would be looking at what the circumstances of a transaction are and if that individual meets a threshold uh amount of business so that threshold chelsea mentioned was a hundred thousand dollars so uh the reason that that threshold exists is to prevent the accidental dealer scenario where i go to the market i buy a bull for myself i get him home decide don't like the looks of him i'm actually just go you know down the road and sell them to my neighbor you know i'm not a dealer under you know this this definition i have not done unless it was a really expensive bull have not done uh enough uh business to hit that that threshold so the combination of what's the nature of the transaction is it a buy and resell plus how much annual business is this person generating from those transactions makes you arrive at the position that you are a dealer now there's obviously it's a little clearer if that person's a registered dealer um which you know is usually the case if somebody is doing it um for their business and that list is actually available on usda backyards division website um most people who are livestock dealers know they're livestock dealers um and they are registered and bonded by usda um just to reiterate with jairus i think it's a really good point you've got this definition of dealer which has been in the law since 1921 maybe it's not perfect but we generally know what it means it's somebody who's in the business of buying and reselling livestock that's the definition of dealer in order for a dealer statutory trust to apply not only do you have to meet that definition but you also have to meet the threshold requirement under this new law that congress put in of doing at least a hundred thousand dollars of dealer business a year okay the next question we have is are buying stations considered dealers generally yes depends on how they're doing business it depends on if they are buying and reselling there are sometimes like a packer could have a buying station and they are just collecting animals for their own packing facility at that point they're not a dealer they are a packer it depends on how they're doing business the most common variation of a buying buying station would be a dealer business in that they're buying packaging and reselling quickly jared do you have anything to add to that no i was just going to preface with a very lawyerly it depends all right the next question is what happens if the customer the order buyer does not pay their bill can you claim that under the dealer trust since the order buyer is also liable as the agent that's a great question and i'll kind of take an initial run at it chelsea if you don't mind and then if you kind of want to back clean up on it i think that's helpful so i'm going to make a couple assumptions uh in in this situation i'm going to assume that we're using the legal definition of order buyer which is someone who is buying on behalf of someone else and so you would not have a deal or trust claim against the order buyer because the order buyer themself is not a dealer in this situation now um as an aside you could still file on that person's bond so just don't forget that piece um i'm going to also make the assumption that the order buyer is is buying for a dealer and in that situation you would be filing also on that dealer's bond and a dealer trust claim against that dealer who is the principal of the order buyer who was actually sitting on your seats so there's not a dealer trust claim as to the order buyer because they're not acting as a dealer in that situation but there is to their principal who is a dealer there's bond claims available to both i think jerry handled that really well and i suck at baseball [Laughter] okay the next question in our chat is if you know whose pocket generally would the millions of dollars been removed to pay the unpaid sellers if this trust had been in position in the large loss with eastern livestock fifth thirds bank if i understood the question who ended up with the money in eastern fifth thirds bank which was eastern's bank and a bankruptcy trustee that i i added up how much that bankruptcy trustee got paid and it was hefty um so lawyers a trustee and fifth third bank which was eastern's bank as opposed to hundreds of producers dozens of livestock auction markets that had sold to eastern and ended up with what jared talked about less than five cents on the dollar in bond claims we also saw that preferential transfer issue that jared talked about occur in eastern where you had that bankruptcy trustee say oh you know sorry you didn't get paid for that last load oh by the way anything you sold to eastern in the last 90 days money that's already in the bank we're gonna pull that into this bankruptcy and share that with other creditors we saw claims like that in eastern and we would not in a world with deal or statutory trust which is where we are today okay we've got one more question in the chat and then i'll move on to those that i'm getting through text at the moment um does this help small sellers as well as large sellers yes does not matter what size the seller is just matters that the purchaser is a livestock dealer okay now i'll move on to those questions we're getting in through text so this one is if registered dealer buys cattle directly from a rancher farmer and they don't pay is the rancher farmer protected under the dealer statutory trust i would caution the use of protected um i would prefer the word eligible for a claim yes just because the claim exists it could be valid i again would hesitate to say they are protected because that gives you some feeling of guarantee but they would absolutely have a claim if it was a rancher or farmer selling directly to a dealer absolutely all right the next one we've got here is can a bank lose their lien if their customer is deemed a dealer jarrah can you explain to me the difference in a lean and statutory trust sure um so i think that this is a fairly common question that we've um seen from some folks and so um it's important to remember that liens and trusts are different concepts so a lien is an entitlement to first priority in an asset owned by a person and so you can give that lien to someone either by agreement like like a bank lien or by statute like a mechanics lien so i take my car in it gets worked on there's a statutory mechanics lane that goes on that car so those are liens a trust is a legal instrument or concept that holds an asset the trust can either be created by agreement again my farm is held in trust or by statute like the dealer statutory trust so the difference between a lien and the difference is with the lien the dealer owns the cattle right away but the dealer's bank has the right to take them away from the dealer if something goes bad with a trust the trust holds the asset so that the cattle or the money for the benefit of the seller until the dealer pays for them at that point the lien is you know still the bank still has the lien first in line to those paid for cattle so my answer to natalie natalie's question is going to be no that a dealer statutory trust does not change a bank's lien the only thing it changes is when do cattle and proceeds from cattle become the asset of the dealer their customer and it is at that point that that lien attaches correct all right the next question we have up here is are feedlots covered when selling fats to the packer yes not under the dealer statutory trust but under the packer statutory trust so this same um uh this same tool has existed in law for quite some time as it relates to selling to packers and again it doesn't matter who the seller is it just matters that that purchaser is a packer but uh yes this pat this same statutory trust protection exists when selling to a packer it's a packer statutory trust okay and we've got some more questions coming in the chat so all situations are different but let's say a simple one transaction default occurs what is an approximate time frame for completion for payment to the unpaid seller that's a great question um and honestly um it will depend a little bit um what we can say is um what we've experienced previously with packer defaults which in general terms are quite a bit more complex a lot more moving parts um and the the one great example i have there is that we had a west coast packer a couple summers ago default it's a pretty simple default honestly they went belly up and they just didn't get people paid and they had enough money to pay the unpaid sellers of livestock but not enough money to pay their other creditors um we filed trust claims and sometimes that takes a minute just to get kind of things put together um but filed those trust camp claims timely for about eight markets on the west coast and those folks receive payment i would say generally speaking within three months um i will tell you that that was the summer i believe of 2018 and i am still getting documentation from that bankruptcy where unsecured creditors which had there not been a packer trust um would have been the sellers of livestock um are still fighting over the remaining assets so in the big scheme of things uh three months was pretty quick in the context of uh the steelers statutory trust i mean we'll have to kind of see it'll be a little bit dependent upon how complex the situation is uh how many players are involved but um you know generally speaking the faster you get your claims filed when you are aware of a problem the better and quicker things can can move so a little bit of an indirect answer i thought it was a good answer personally but it also makes me want to hear you repeat the time frame in which you would have to file a claim if a dealer failed to pay in order to have a valid statutory trust claim for sure it's the same time frames as we would have for a packer statutory trust claim so it's 30 days from the transaction so in the dealer context 30 days from sale day um or 15 days from the receipt of a dishonor or from being made aware that you've received a dishonored instrument so that means this 15 days from when you received the nsf notice back from the bank that that check was no good all right our next question is if there is no money left and no cattle is there a way a producer can protect themselves through insurance not not a producer unfortunately um there is a payment protection insurance that's available to livestock auction markets um that's actually a product that livestock market insurance agency offers and we have many markets that cover that carry that coverage but unfortunately that is not a product that's on the marketplace for producers all right and i believe you answered this question previously uh jarrah but if a seller receives a bad check how long do they have to file a valid trust claim yeah and it's it's a good question to repeat you have 15 days from the day that you receive that notification back it's important to remember um that you know that can be passed that 30-day threshold of when the initial sale took place so you could have received the check on day 29 and then found out 15 or 14 days later that it was it was dishonored you would still have a valid trust claim all right our next question is if you sold cattle within the 90 days when eastern filed for bankruptcy and they wanted you to return the money to the bankruptcy court and you refused to return it what can they do to you yeah so i mean if ever here's your here's your free bit of advice for the day if ever you receive a letter from a bankruptcy trustee that says give this money back tell them no as an initial matter because there are defenses to preferential transfer claims unfortunately you need to invite or you need to involve legal counsel to help kind of walk through those defenses um but there are certain defenses for preferential transfer unfortunately you know if a court were to determine that that really was a a true preferential transfer in bankruptcy um they can they can take the money from you unfortunately but yeah your free advice for the day is if you ever receive a letter asking for money say no [Laughter] all right we've got another question in our chat box here have there been any claims since the dealer statutory trust became law and has the law worked as expected not that we're aware of and we had a um zoom call with packers in stockyards about a week ago and i think they would have told us had there been a claim already it's been in effect for two weeks now um a little more and that i'm aware of there hasn't been a claim but keep in mind there could have been a default in those two weeks and we're not within the time frame by which someone would have to file that claim within 30 days so there could be an ongoing situation that there's just no claim filed yet or there could be a claim filed that we're unaware of one one thing i might add is um i think this has been a pretty effective tool for the livestock industry with packer statutory trust that's worked out pretty well in many situations and actually um the the statutory trust concept was modeled by the fruit and vegetable industry with the perishable agriculture commodity act and um they might actually be a little more synonymous with the dealer situation than even um the packer trust and in fruits and vegetables there typically is an intermediary kind of a dealer that buys and resells and that paca statutory trust has been in place um for since the 80s and has done a pretty good job for the fruit and vegetable industry okay we've got an attendee that would like to rephrase a previous question so if a lender has a customer that is not a dealer and the lender has a valid ucc lien can they lose their lien if a court determines that customer is a dealer because of the current legal definition so the simple answer is no you can't lose your lean um unless it's somehow determined to be invalid or some crazy thing like that but the the existence of dealer trust or packer trust or whatever kind of trust has no impact on that lien existing um the only thing that would change is if you're your customer um who is a dealer doing a hundred thousand dollars worth of dealer business a year um that they didn't pay for some livestock then those livestock are trust assets they're not the dealer's assets thus the lien is not doesn't apply to those specific animals i think jared answered that well and i mean at the end of the day that that individual either is a dealer or not right um maybe they're an unregistered dealer that's in violation of the law in that case that's the only time where i could see their status changing and maybe whether or not a statutory trust applies changing if they're just a producer it doesn't change anything even if they are a dealer it doesn't change your lien it just changes whether there's a statutory trust in place for unpaid sellers and that assets don't become that customer's assets until they pay for them all right more questions rolling in here chelsea and jarrah our next one is will dealer trust follow through if the livestock transfers through several hands i.e dealer sells to another dealer and then another dealer so you know part of what we do as as lawyers is try to unravel uh complicated livestock transactions um and it's a little theoretical but um it kind of depends on on who defaulted um i think maybe what the question is trying to hint at is you know if many steps down the way i have these cattle and three steps to go somebody didn't pay for them do i have a concern about it if you paid for them no those are your cattle the assets are part of the trust potentially but if you paid for them they're yours kind of goes back to the if you're a buyer in the ordinary course of business you take clear title this statutory trust doesn't keep going through to those livestock that you have paid for at that point it's the proceeds that you paid for those livestock that would be the statutory trust assets all right our next question is do you know if the 100 000 minimum is the sum of livestock sales or something like the dealer's gross or net annual income it's not even really um fully defined i think that that's maybe something that we could see some usda interpretation of i'm gonna read the exemption any dealer who's average or sorry it is probably a little bit better to find than not at all any dealers whose average annual purchases of livestock so that is the purchases of livestock i would argue just in their dealer business not in you know unrelated livestock businesses average annual purchases of livestock do not exceed a hundred thousand dollars shall be exempt from provisions of this section so so long as a dealer is purchasing a hundred thousand dollars on average annually of livestock it that they would have the deal or statutory trust apply to their transactions all right that's all the questions that i have at the moment perfect well i i appreciate everybody tuning in tonight um we are gonna turn this into i think a youtube video and probably put that up on our website lmaweb.com um that way if anybody wants to rewatch any of this or share it they're welcome to we also have my contact information here on this last slide uh see good lmaweb.com is my email and my phone number is 816-305-9540 if you think of questions after the fact we'd love to work with you and make sure everybody understands this new protection that we have within the livestock industry and i know that we were capped at 100 attendees and i'm a little shocked but we got past that amount so there's going to be some folks that weren't able to watch this live and so to the extent y'all hear of anybody that was uh not able to join uh please you know direct them to that that recording um so that they can take it in all right well thank you both um i do know that we have one more question that came in so if you have a quick moment um i know you're sure and i got one more by text so if you're gonna add one i'm gonna add one too all right sounds good we might as well we've got them coming in here and we're live so if a dealer keeps ownership of cattle to the end of harvest is the dealer trust so i think what yeah i think what this person's asking is if the person buys livestock and then feeds them even if maybe they're normally a dealer but they buy them and feed them and then take them to harvest those would not be dealer cattle those would be cattle that you're retaining um not reselling so so no those those would not be dealer cattle the the question i got by text message was you talked about this applying to unpaid cash sellers of livestock what is a cash seller of livestock um in this context as it relates to packers and stockyards act not necessarily in bankruptcy or other contacts but in this context a cash seller is any seller where there is not a written credit agreement where that seller and buyer have signed an agreement saying that you can pay by some other terms than what is required by the packers and stockyards act prop payment so as long as you don't have a written credit agreement in place you are a cash seller of livestock and dealer statutory trust would apply um one comment i would make for any livestock auctions in particular if you are requested by a dealer customer or actually anybody to enter into a credit agreement to sign one of these written credit agreements um you would want to think about that a little bit for a couple reasons one reason is that your statutory trust protections would no longer apply if he had a credit agreement in place um the second thing i would want livestock auctions in particular to think about this wouldn't apply to producers but for auctions you have custodial account reimbursement requirements under packers and stockyards and anytime you extend credit to someone you have to put the equivalent of that amount of funds you know so say you have a wednesday sale by the close of the next business day by the close of thursday you would have to put the equivalent of the amount that that individual that you extended credit to purchased into your custodial account as opposed to your current custodial account reimbursement which is you have to put money into the custodial account as you received it and then seven days out you have to make sure that that balance is so um just another consideration if you are a livestock auction in particular and a credit agreement is something you're considering i've got one more question here chelsea um and then i think we'll let all of our sorry what did you say then then we can land the plane that's right that's right we'll let everyone else get back to their evening and but long story short you guys are keeping her awfully late that's okay 23 isn't that significant um but the question is long story short is is it apparent that if i am selling to a dealer to make sure that he is licensed and bonded with usda is that correct that would be nice that would be smart they'll be wise on your account because then you wouldn't ever have to go through any trouble of proving that that individual is a dealer to make sure you have a valid deal or statutory trust claim it's clear that they're a dealer because they're registered and bonded they also have that bond in that case that you wouldn't have otherwise so i think it's good business if someone's acting as a dealer that you make sure that they're licensed and bonded as a livestock dealer agreed all right well i think that's all the questions that we have for this evening like chelsea mentioned earlier if you have any other further questions you'd like to contact her about her contact information is on the screen and we will be sharing this recording of the presentation um through email on our website and on our social platforms so if you know of anyone who missed out on this opportunity and be sure and let them know but thank you all so much for tuning in and thank you chelsea and jared for your time thanks natalie