Administrative Rules of the State of Montana

BEFORE THE DEPARTMENT OF AGRICULTURE

OF THE STATE OF MONTANA

In the matter of the adoption of New Rules I, II, and III, and amendment of ARM 4.12.1018, 4.12.1020, and 4.12.1031 pertaining to Commodity Dealer Licenses

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NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION AND AMENDMENT

TO: All Concerned Persons

1. History of this rulemaking proposal: As seen in MAR Notice No. 4-19-262, a public hearing was held on September 4, 2019, at 10:00 am. In response, the department decided to rewrite the proposal.

On April 17, 2020, at 10:30 a.m., the Department of Agriculture will hold a public hearing in Room 225 of the Scott Hart Building, at 302 N. Roberts, Helena, Montana, to consider the proposed adoption and amendment of the above-stated rules drafted based on the previous comments.

2. The Department of Agriculture will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Agriculture no later than 5:00 p.m. on April 10, 2020, to advise us of the nature of the accommodation that you need. Please contact Cort Jensen, Department of Agriculture, P.O. Box 200201, Helena, Montana, 59620-0201; telephone (406) 444-3156; fax (406) 444-5409; or e-mail [email protected]

3. The rules as proposed to be adopted provide as follows:

NEW RULE I CONDITIONED, SUSPENDED, OR REVOKED LICENSES FOR COMMODITY DEALERS (1) Upon receiving a complaint, after an inspection, or when receiving an application, the department may issue a full, conditional, or suspended license consistent with this rule to ensure the producer's safety and maintain a competitive fairness consistent with Montana antitrust laws.

(2) The department may issue a conditional license if a request is received from the licensee and modifications are deemed to be in the best interest of producers, and the alternative is not issuing a license at all.

(3) All appeals, either formal or informal, of a conditional, suspended, or revoked license are subject to the MAPA dispute process. Informal appeals are sent by letter to the director and do not require an attorney.

(4) The department's anticipated uses of conditional, suspended, and revoked licenses are listed in (a) through (c).

(a) Conditional licenses are limited in scope and differ in the amount, type, or length as requested by the licensee as the result of an inspection or as initially issued by the department. Conditional licenses will clearly state results and whether a license will become a full license or move into a suspended/revoked status.

(b) Suspended licenses can be caused by incomplete paperwork, bonding, and/or failing to comply with a financial statement filing date pursuant to ARM 4.12.1020. Suspensions last for the period of the license or until the license is reinstated by correcting the purpose for the suspension.

(i) Partially suspended licenses can prevent licensees from entering into new contracts; and/or

(ii) Fully suspended licenses can prevent licensees from receiving commodities under current contracts until payment is rendered to the grower; and/or

(iii) Voluntarily suspended licenses can be allowed if a company ceases operation in Montana, needs to restructure, or plans to change management.

(c) Revoked licenses are voided by the department due to falsified paperwork, the inability to pay a producer, or a court order. The department may refuse to relicense an entity with a revoked license for up to five years.

AUTH: 80-4-403, MCA

IMP: 80-4-403, MCA

REASON: The department is authorized to modify commodity dealer licenses to ensure payment to producers. The proposed new rule provides common modifications and their associated triggers to help industry anticipate the department's action when responding to a variety of situations that arise in the commodity trade. No economic impact is associated with the proposed rule.

A similar rule was proposed on August 9, 2019, on page 1104 of the 2019 MAR Issue No. 15 (MAR Notice No. 4-19-262, NEW RULE I MODIFIED LICENSES FOR COMMODITY DEALERS). The department will not adopt this rule proposal and intends to adopt the current rule instead after receiving and responding to comments from industry stakeholders.

NEW RULE II PENALTY MATRIX FOR COMMODITY DEALERS AND WAREHOUSE LAWS (1) The look back period for all offenses is five years prior to the occurrence of the new violation, except for when operating as a commodity dealer without a license, which is eight years.

Violation	1st time (or accidental)	2nd (or intentional)	3rd

Required paperwork submitted one month or more late or incomplete with no risk to the farmer/customer	Warning	Warning	$100 dollars per additional month and possible suspension of license until the paperwork is submitted

Required paperwork submitted one month or more late or incomplete paperwork, with risk to the farmer/customer	Warning	$250 dollars per additional month and possible suspension of license until the paperwork is submitted	$250 dollars per additional month and possible revocation of license

Required language not included in commodity contract (i.e., deferred payment) or warehouse receipt not provided	Warning	$100 per contract or missing receipt up to a maximum fine of $5000	$200 per contract or missing receipt up to a maximum fine of $10,000 and possible revocation of license

Paperwork includes false or misleading material statements about buying, financial records, bonding, warehouse receipts, or storage capacity	Up to $250 and possible suspension of license until the paperwork is corrected	The lowest corrected bonding cost amount or $10,000, possible suspension, or revocation of license	The lowest corrected bonding cost amount or $100,000, or revocation of license

Failure to post required testing information or retain samples as required by law	Warning	$250	$500

Operating as a commodity dealer or warehouse without a license	The higher bonding cost amount or $500	The higher bonding cost amount or $10,000 (no more than $100,000)

AUTH: 80-4-403, 80-4-429, MCA

IMP: 80-4-421, 80-4-426, 80-4-427, 80-4-428, 80-4-429, 80-4-502, 80-4-601, MCA

REASON: The proposed penalty matrix implements House Bill 50, passed in the 2019 Regular Session of the Montana Legislature. Civil penalties are defined for entities that fail to obtain proper licenses or are in violation of other commodity dealer/warehouse laws. Fines are designed to discourage entities from not properly licensing and bonding.

A similar rule was proposed on August 9, 2019, on page 1104 of the 2019 MAR Issue No. 15 (MAR Notice No. 4-19-262, NEW RULE II PENALTY MATRIX FOR COMMODITY DEALERS AND WAREHOUSE LAWS). The department will not adopt this rule proposal and intends to adopt the current rule instead after receiving and responding to comments from industry stakeholders.

Economic Impact: The number of entities in violation is unknown. The department does not expect to issue fines in the first year of implementation and recognizes that collecting fines, especially minimal amounts, may be problematic. Compliance fines in subsequent years will range between $0 and $100,000.

NEW RULE III RECORDS RETENTION (1) Records required under 80-4-613, MCA must be maintained for at least three years after payment. After that time, a commodity dealer, absent a court order or litigation hold, may dispose of them.

AUTH: 80-4-403, MCA

IMP: 80-4-403, 80-4-613, MCA

REASON: The law provides no clear guidelines on how long records are to be maintained. Three years is consistent with state record retention laws and give most parties a realistic time frame to start litigation and holds for documents balanced against the expense of maintaining them on the grain trade.

Economic Impact: This retention practice will save all licenses the cost of storing records in perpetuity, but the exact amount is hard to calculate and would depend on the size and age of the business.

4. The rules as proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

4.12.1018 TERM OF LICENSES - EXPIRATION (1) A public warehouse license period ~~shall be for the term of~~ is July 1, through June 30~~, or part thereof~~. A public warehouse license ~~shall~~ expires July 1 of each year.

(2) A commodity dealer license period ~~shall be for the term of~~ is July 1, through June 30~~, or part thereof~~. A commodity dealer license ~~shall~~ expires July 1 of each year.

AUTH: 80-4-403, MCA

IMP: 80-4-404, MCA

REASON: Proposed amendments update language to comply with Secretary of State Administrative Rules of Montana standards. No economic impact is associated with these amendments.

These amendments were proposed on August 9, 2019, on page 1104 of the 2019 MAR Issue No. 15. However, the department will not adopt this rule proposal and intends to adopt the current rule instead after receiving and responding to comments from industry stakeholders.

4.12.1020 FINANCIAL STATEMENTS FILING DATE (1) The financial statement accompanying an applicant's original application ~~shall~~ must show a statement closing date that is within six months of the date of application. Thereafter, the licensee applying for renewal ~~shall~~ must submit an annual statement not later than 90 120 days after the close of ~~his~~ their business year.

(2) If the financial statement indicates noncompliance with the financial requirement provisions of the grain act or the licensee fails to submit an acceptable financial statement within 90 120 days of the end of ~~his~~ their fiscal year end, ~~then~~ the department may immediately suspend ~~his~~ their license pursuant to the Administrative Procedure Act, issue a fine, and/or make the license conditional on the paperwork arriving at a specified time.

AUTH: 80-4-403, MCA

IMP: 80-4-421, 80-4-502, 80-4-601, MCA

REASON: Industry requested the department extend timelines for financial statement filings from 90 days to 120 days. Doing so increases the time entities have to acquire the required compliance paperwork and aligns with the current state of the industry. Additional language for late and/or noncompliant paperwork reflects changes made during the 2019 Regular Session of the Montana Legislature in House Bill 50 and Senate Bill 73.

These amendments were proposed on August 9, 2019 on page 1104 of the 2019 MAR Issue No. 15. However, the department will not adopt this rule proposal and intends to adopt the current rule instead after receiving and responding to comments from industry stakeholders.

Economic Impact: Proposed amendments grant additional time to licensees to submit their financial statements which may result in lower ancillary costs, such as accounting fees, for some. The exact amount of these reduced costs is not calculable.

4.12.1031 OTHER COMMODITIES (1) In addition to those specified commodities in 80-4-402, MCA, the following crops are commodities for all purposes:

(a) pulse crops including but not limited to peas, dried peas, chickpeas, and lentils;

(b) beans.; and

(i) Hemp is an oil crop seed commodity covered under the provisions of 80-4-402, MCA, and ARM Title 4, chapter 19, subchapter 1.

AUTH: 80-4-402, MCA

IMP: 80-4-402, 80-4-501, 80-4-601, 80-4-704, 80-18-103, MCA

REASON: While hemp has been treated as an oil crop seed for commodity purposes, the department recognizes this may not be understood by entities seeking to comply with the law. By adding hemp-specific rules and laws, the department cross-references the commodity to make buyers aware of regulations and options.

5. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to: Cort Jensen, Department of Agriculture, 302 N. Roberts, Helena, Montana, 59601; telephone (406) 444-3156; fax (406) 444-5409; or e-mail [email protected], and must be received no later than 5:00 p.m., April 30, 2020.

6. Cort Jensen, Department of Agriculture, has been designated to preside over and conduct this hearing.

7. The department maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name, e-mail, and mailing address of the person to receive notices and specifies for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written request may be mailed or delivered to the contact person in 5 above or may be made by completing a request form at any rules hearing held by the department.

8. The bill sponsor contact requirements of 2-4-302,apply and have been fulfilled. The primary bill sponsor was contacted by email on March 16, 2020.

9. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption and amendment of the above-referenced rules will not significantly and directly impact small businesses.

/s/ Cort Jensen /s/ Ben Thomas

Cort Jensen Ben Thomas

Rule Reviewer Director

Agriculture

Certified to the Secretary of State March 17, 2020.