The U.S.D.A Grain Inspection, Packers, and Stockyard Administration (GIPSA) continues to catch producers being off guard and assessing civil penalties in excess of $1,500—per contract—or other civil actions for marketing and production contracts which do not meet minimum federal requirements. If your contract does not meet the minimum standards it should be cancelled and replaced with a new compliant contract, which includes the appropriate required disclosures.
GIPSA requires generous considerations regarding terminating the contract, even when the other party breaches the agreement. The contract must include a cancellation date otherwise and disclose terms for cancellation or termination in event of a breach. The grower must be afforded a reasonable time to remedy or dispute the alleged breach, before the contract can be terminated. The disclosure should also outline the type of notice required and be (1) made in writing, (2) describe the alleged breach, (3) specify the contract which was been breached, (4) date of breach, (5), options to remedy the breach, and (6) reasonable date by when the breach must be remedied. However, GIPSA allows for immediate termination of the contract if the breach affects food safety or animal welfare.
Second the contract must conspicuously note on the first page whether there is any chance the grower is required to make a capital investment during the term of the contact. A capital investment is generally any investment with a combined amount greater than $12,500 per structure. The parties should validate the capital investment against the contract language to ensure it is covered by an applicable disclosure.
Lastly, the contract must include provisions related to arbitration and jurisdiction for enforcement. The parties can choose any state to enforce the terms of the contact as long as the state maintains a reasonable relation to the contract. However, the forum for any dispute must be in the federal district where the contract is performed; usually where the production facility is located. If the contract requires arbitration there must be a declaration, in bold, which notifies the grower of the arbitration contentions and allows them to accept or decline the arbitration provisions. The arbitration provisions need to include formalities concerning process, cost, and whether the arbitration limits any other legal remedies.
It is important to ensure the proper declarations are included in a contract to prevent civil fines or cancellation of the contract. Whether you are using the same contract you have used for the last ten years or entering a new one it is important to have your experienced legal counsel confirm it meets federal requirements.
The above article was authored by Pat Wier, Associate Attorney at Lamson, Dugan & Murray, LLP