Editor's note: This article has been updated from the original to include new information regarding Dean Foods payments. The USDA announced an agreement has been reached with Borden Dairy Company for payment of funds related to milk marketing activities in April 2020.
On Feb. 3, Chief Judge Christopher Sontchi, in the U.S. Bankruptcy Court for the District of Delaware, entered the order approving the agreement between Borden Dairy Company, the USDA and the Internal Revenue Service (IRS).
Borden had filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code on Jan. 5, 2020. At the time, Borden operated 12 milk processing plants and nearly 100 branches across the U.S., producing and distributing nearly 500 million gallons of milk annually for customers in the grocery, mass market, club, food service, hospitality, school and convenience store channels.
Following the filing, the company subsequently failed to make payments to five Federal Milk Marketing Orders (FMMOs) and the National Fluid Milk Promotion and Research Board for marketing activity in April 2020. According to court documents, the outstanding USDA obligations totaled about $921,335.
On June 17, 2020, Dana Coale, deputy administrator of USDA’s Dairy program, filed 16 individual proofs of claim with the bankruptcy court. The claims covered obligations from former Borden divisions in Alabama, Florida, Kentucky, Louisiana, Ohio, South Carolina and Texas and involve Appalachian, Florida, Mideast, Southeast and Southwest FMMOs.
Of those, eight claims totaling $483,344 were owed by Borden Company divisions to the USDA for FMMO producer settlement funds, transportation credits, marketing service and administration obligations. It was unclear whether any of the money owed was for producer milk – or limited to FMMO service and administrative fees. The USDA had not responded to Progressive Dairy at this article’s deadline.
The largest individual FMMO claim, for $237,030, involved three Borden divisions in Texas and the Southwest FMMO.
The other eight claims, totaling about $437,990, were owed by Borden Company divisions to USDA’s Dairy Promotion and Research Division, which oversees administration of the national Fluid Milk Processor Promotion Program (MilkPEP). Under that program, U.S. dairy processors marketing more than 3 million pounds of fluid milk per month pay a 20-cent-per-hundredweight assessment on fluid milk processed and marketed in consumer type packages in the U.S.
IRS involved
Under the terms of the agreement, “setoff” funds, a portion of Borden’s 2019 overpayment of taxes due to be refunded by the IRS, will be used to pay the USDA claims.
According to a USDA press release, the agreement means Borden will pay 100% of the money it owes to the USDA. Without the agreement, the USDA would have been treated as an unsecured creditor in the bankruptcy proceeding and received substantially less, by some estimates around 10% of the obligations it was owed.
Per the agreement, the USDA will use these funds to remit monies owed to FMMO-regulated handlers and the Fluid Milk Promotion Board. Handlers will be required to promptly remit payment to any affected dairy producers.
Last June, Judge Sontchi granted approval of the bankruptcy sale of Borden to New Dairy Opco LLC, a partnership between Capitol Peak, a private equity firm led by Gregg Engles, former chair and CEO of both Dean Foods and WhiteWave Foods, and KKR, an existing lender to Borden.
Dean FMMO payments made to DOJ
According to an email to Progressive Dairy, Dean Foods has submitted delinquent payments it owed to the FMMO system for milk procurred last spring, prior to completion of the company’s bankruptcy sale. Payments were made to the U.S. Department of Justice (DOJ), as outlined in a stipulation and court order issued Jan. 15, 2021.
Judge David Jones, in the U.S. Bankruptcy Court for the Southern District of Texas, had ordered the payment of $29.1 million, an amount agreed to between Dean Foods and DOJ, which served as legal counsel for the USDA. The amount represented about 90% of Dean’s delinquent payments for milk marketed through FMMOs from April 1-May 4, 2020.
“USDA is in the process of receiving those funds from DOJ and processing payments to handlers who will then be responsible for remitting monies to impacted producers,” a USDA spokesperson said.
According to the USDA Ag Marketing Service, Dean Foods was fully regulated on nine FMMOs – all except Arizona and the Pacific Northwest. The office confirmed producer settlement fund payments were not made in any of those nine orders. According to court documents, the total owed was more than $32.3 million.
Dean Foods’ $16 million pre-petition debt owed to the USDA was not covered by order.
