New Law will Resolve Court’s Disagreement over Priority to Failed Grain Handler Proceeds

Peggy Hall, Asst. Professor, OSUE Agricultural &  Resource Law Program

The Ohio legislature has already addressed a legal issue that recently created discord on Ohio’s Sixth District Court of Appeals.  In its recent decision in Ohio Department of Agriculture v. Central Erie Supply & Elevator Association, the appeals court disagreed over how to interpret the statutory lien provisions in Ohio’s Agricultural Commodity Handler’s Law.  The majority held that the  statutory lien favors farmer claimants over all other interests while the dissent argued that the statute is “entirely silent” on the issue of priorities between farmers and competing parties who have security interests in the proceeds of a failed grain handler.  Obviously attuned to the problem, the Ohio legislature revised the  law just over a month ago to include language that removes any doubt on the matter.

Ohio’s Agricultural Commodity Handler’s law contains many provisions designed to protect farmers from the risks of doing business with a grain elevator or other grain handler.  If a handler suffers financial distress before paying farmers who’ve deposited grain with the handler, the law establishes an automatic statutory lien on behalf of the farmers.  The law grants the Director of the Ohio Department of Agriculture power to enforce the statutory lien against the grain handler and distribute lien proceeds among the unpaid farmers.  The law also states that the commodity handler’s law takes precedence over any conflicting provisions for secured transactions in another section of Ohio law, Ohio Revised Code section 1309.

In the Central Erie Supply case, the question before the court was whether the statutory lien for the farmers had priority over a $425,691 security interest established by Citizens Banking Company, a creditor of the failed grain handler.  The panel of judges examined the commodity handler’s law and reached opposite conclusions.  The majority concluded that the law conflicted with R.C. section 1309 and thus took precedence over the bank’s security interest that was established under section 1309.  The dissent argued that the language about conflicts between the different laws referred only to the issue of how to distribute proceeds between farmers and did not pertain to other security interests established under R.C. section 1309.  Both sides did agree, however, that the issue of priority between farmers and other security interests is a matter for the legislature, not the courts.  “Yet, unless and until the legislature acts, we are bound to interpret the law as it is currently written, not as we wish it to be,” stated dissenting Judge Yarbrough.

The Ohio legislature did act on the matter–and did so before the court had even issued its ruling.  In late June of this year, the legislature approved S.B. 66 (see our earlier post) and added this language to the commodity handler’s law:  “The lien established under this section shall have priority over all competing lien claims asserted against the  agricultural commodity assets.”   The legislation ascertains that upon its effective date of October 11, 2013, a statutory lien established under the commodity handler’s law will be first in line ahead of all other liens claimed against the assets of a failed grain handler.  Until October 11, the Central Erie Supply decision bolsters an argument seeking the same order of priority stated in the new law.   Based on the recent actions of the legislature and the court of appeals, the commodity handler’s statutory lien now has a few more teeth.

Read the Central Erie Supply decision here, S.B. 66 here and the Agricultural Commodity Handler’s Law here.

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