Requiring milk processors to hold payments in trust for milk producers until full payment is received, with funds in escrow considered held in trust.

HOUSE BILL No. 2254
AN ACT concerning agriculture; relating to financial accounts used to hold and disburse
milk producer funds; defining milk producer to include any cooperative association
that sells or markets milk on behalf of members; requiring milk processors to hold
payments in trust for milk producers until full payment is received, with funds in
escrow considered held in trust; allowing milk producers to require escrow accounts
for payments, with specific conditions for deposits and account management;
specifying that funds in trust or escrow are the property of the milk producer;
exempting milk processors from escrow or trust requirements if certain conditions are
not met; prohibiting milk processors from purchasing raw milk without compliance
with federal milk marketing orders and agreed provisions; holding milk processors
liable for unpaid raw milk, including purchase price, interest and attorney fees.
Be it enacted by the Legislature of the State of Kansas:
Section 1. As used in this act:
(a) "Act" means sections 1 through 5, and amendments thereto.
(b) "Association" means the same as defined in K.S.A. 17-1602,
and amendments thereto.
(c) "Cooperative" means the same as defined in K.S.A. 17-1602,
and amendments thereto.
(d) "Milk processor" means the same as defined in K.S.A. 65-771,
and amendments thereto.
(e) (1) "Milk producer" means the same as defined in K.S.A. 65-
771, and amendments thereto.
(2) "Milk producer" includes any cooperative association that sells
or markets milk on behalf of a person described in paragraph (1).
(f) "Purchase price" means an amount of money, based on
estimated butterfat content at the time of delivery, that a milk processor
agrees to pay a milk producer for a purchase of raw milk.
(g) "Timely payment" means a payment made within three days
following the payment due date under a milk marketing order or similar
terms in a contract.
Sec. 2. (a) (1) Except as provided by subsections (b) and (d), a
milk processor shall hold in trust all payments received from the sale of
milk for the benefit of the milk producer from whom the milk was
purchased until the milk producer has received full payment of the
purchase price for the milk.
(2) For the purposes of this subsection, funds placed in escrow in
compliance with subsections (b) through (e) are held in trust.
(b) (1) (A) Except as provided by subsection (d), a milk producer
who sells milk to a milk processor may require the milk processor to
establish an escrow account for the benefit of the milk producer.
(B) If a milk producer requires a milk processor to establish an
escrow account under this subsection, the milk processor shall deposit
all payments received from the sale of any milk or dairy product into
the escrow account until the milk producer has received full payment of
the purchase price for the milk.
(2) (A) A milk processor required to establish an escrow account
under this section shall, on receipt of a payment from the sale of milk
or dairy products, deposit into the account a sum of money determined
by multiplying the total amount of all payments received by the milk
processor from the sale of milk or dairy products by the fraction
determined by dividing the total quantity of milk purchased by the milk
processor for sale as milk or dairy products into the quantity of milk
sold by the milk producer to the milk processor.
(B) The milk processor shall continue to make payments into the
escrow account until the milk producer has received full payment of the
purchase price for the milk.
(3) (A) An escrow account required under this section shall be
established for the benefit of the milk producer as a segregated,
interest-bearing account with a financial institution located in this state,
the deposits of which are insured by the federal deposit insurance
corporation or the federal savings and loan insurance corporation.
(B) If a milk processor is required to establish more than one
escrow account under this section, the milk processor may combine the
accounts into a single account.
(C) If the funds accumulated in a combined escrow account are
HOUSE BILL No. 2254—page 2
insufficient to pay all the milk producers who have not received full
payment and for whose benefit the account was established, the agent
of the institution with whom the escrow account is established shall
distribute the funds in proportion to the amount then due to each milk
producer.
(4) On presentation of proof of identity satisfactory to an agent of
the institution with which the escrow account is established, the agent
shall promptly distribute any funds accumulated for the benefit of the
milk producer to the milk producer or, if required by an applicable
federal milk marketing order, to the federal milk administration.
(5) This subsection shall not apply to a purchase of raw milk by a
milk processor until there has been a failure to make a timely payment
to a milk producer in accordance with section 3, and amendments
thereto. Once the entire amount due for the purchase is received by the
milk producer, the requirements of this subsection shall terminate in
regard to such purchase.
(c) Funds held in trust by a milk processor or in an escrow account
are the property of the milk producer.
(d) A milk processor is not required to establish an escrow account
or maintain payments in trust under subsection (a) or (b) for a payment
if:
(1) Full payment of the purchase price is not received, and the
milk producer does not give written notice to the milk processor, by the
end of the 30 th business day after the final date for payment of the
purchase price in accordance with section 3, and amendments thereto;
or
(2) a payment instrument received by the milk producer is
dishonored, and the milk producer does not give written notice to the
milk processor, by the end of the 15th business day after the day that the
notice of dishonor was received.
Sec. 3. (a) A milk processor may not purchase raw milk from a
milk producer unless:
(1) Payment of the purchase price is made according to the
provisions prescribed by an applicable federal milk marketing order;
(2) any additional provisions are agreed on by both the milk
producer or such producer's agent and the milk processor; and
(3) the medium of exchange used is cash, a check for the full
amount of the purchase price or a wire transfer of money in the full
amount.
(b) For purposes of this act, a payment delivered by a milk
processor to the applicable federal milk market administrator on behalf
of a milk producer in compliance with the terms of an applicable
federal milk marketing order is considered to be delivery of payment to
the milk producer.
Sec. 4. This act does not apply to transactions between a
cooperative association, while acting as a marketing agent, and its
members.
HOUSE BILL No. 2254—page 3
Sec. 5. A milk processor who fails to pay for raw milk as provided
by this act is liable to the milk producer for:
(a) The purchase price of the raw milk;
(b) interest on the purchase price at the highest legal rate, from the
date that possession is transferred until the date that the payment is
made in accordance with this act; and
(c) a reasonable attorney fee for the collection of the payment.
Sec. 6. This act shall take effect and be in force from and after its
publication in the statute book.
I hereby certify that the above BILL originated in the HOUSE, and passed
that body
Speaker of the House.
Chief Clerk of the House.

Passed the SENATE ______________________________________________________________________________
President of the Senate.
Secretary of the Senate.
APPROVED __________________________________________________________________________________________________
Governor.