[Congressional Record Volume 151, Number 162 (Friday, December 16, 2005)]
[Senate]
[Pages S13794-S13797]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Feingold, Mr. Harkin, and Mr. 
        Hagel):
  S. 2131. A bill to amend title 9, United Stares Code, to provide for 
greater fairness in the arbitration process relating to livestock and 
poultry contracts; to the Committee on the Judiciary.
  Mr. GRASSLEY. Mr. President, I rise to re-introduce the Fair 
Contracts for Growers Act of 2005. This bill would simply give farmers 
a choice of venues to resolve disputes associated with agricultural 
contracts. This legislation would not prohibit arbitration. Instead, it 
would ensure that the decision to arbitrate is truly voluntary and that 
the rights and remedies provided for by our judicial system are not 
waived under coercion.
  I certainly recognize that arbitration has tremendous benefits. It 
can often be less costly than other dispute settlement means. It can 
also remove some of the workload from our Nation's overburdened court 
system. For these reasons, arbitration must be an option--but it should 
not be a coerced option.
  Mandatory arbitration clauses are used in a growing number of 
agricultural contracts between individual farmers and processors. These 
provisions limit a farmer's ability to resolve a dispute with the 
company, even when a violation of Federal or State law is suspected. 
Rather than having the option to pursue a claim in court, disputes are 
required to go through an arbitration process that puts the farmer at a 
severe disadvantage. Such disputes often involve instances of 
discrimination, fraud, or negligent misrepresentation. The effect of 
these violations for the individual farmer can be bankruptcy and 
financial ruin, and mandatory arbitration clauses make it impossible 
for farmers to seek redress in court.
  When a farmer chooses arbitration, the farmer is waving rights to 
access to the courts and the constitutional right to a jury trial. 
Certain standardized court rules are also waived, such as the right to 
discovery. This is important because the farmer must prove his case, 
the company has the relevant information, and the farmer can not 
prevail unless he can compel disclosure of relevant information.
  Examples of farmers' concerns that have gone unaddressed due to 
limitations on dispute resolution options include; mis-weighed animals, 
bad feed cases, wrongful termination of contracts, diseased swine or 
birds provided by the company, fraud and misrepresentation to induce a 
grower to enter a contract, and retaliation by companies against 
farmers who join producer associations.
  During consideration of the Farm Bill, the Senate passed, by a vote 
of 64-31, the Feingold-Grassley amendment

[[Page S13795]]

to give farmers a choice of venues to resolve disputes associated with 
agricultural contracts.
  I have some letters supporting this legislation and ask unanimous 
consent that they be printed in the Record.
  I also ask unanimous consent that the text of bill be printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                      Organization for Competitive


                                                      Markets,

                                   Lincoln, NE, November 15, 2005.
     Re: Fair Contracts for Growers Act.

     Hon. Charles Grassley,
     U.S. Senate,
     Washington, DC.
       Senator Grassley:
       1. The Organization for Competitive Markets would like to 
     express its support for your Fair Contracts for Growers Act. 
     Arbitration has a role in dispute resolution in the livestock 
     industry, and in other economic sectors. It should not be an 
     abuse tool. Your bill will remedy this.
       2. The U.S. Constitution, Amendment 7 says this: ``. . . 
     the right of trial by jury shall be preserved . . .''. The 
     law says citizens can waive this right, but the law also says 
     waivers should be knowing and voluntary.
       3. It is a fact integrators and packers have more 
     information and sophistication, and more power, when 
     contracting with producers. Producers rely on integrator/
     packer representations when making business decisions 
     including contract signing or rejection. Mandatory 
     arbitration clauses are not explained or negotiated, but 
     merely included in boilerplate language.
       4. Producers are unable to knowingly and voluntarily waive 
     their right to a court-resolved future dispute. This is true 
     because they cannot anticipate the type of possible disputes 
     which may arise. The American Medical Assn, American 
     Arbitration Assn, and American Bar Assn have agreed with this 
     principal in the context of consumer health care contracts.
       5. Producers must be provided real, not illusory, choice. 
     Your bill leaves producers free to agree to arbitration once 
     a dispute arises, but prohibits this forced ``choice'' 
     before. Thank you for your efforts for U.S. livestock and 
     poultry producers.
           Respectfully,
                                                       Keith Mudd,
     President.
                                  ____



                                           Iowa Farmers Union,

                                                         Ames, IA.
     Hon. Charles Grassley,
     U.S. Senate,
     Washington, DC.
       Dear Senator Grassley: I am writing on behalf of Iowa 
     Farmers Union, Women, Food and Agriculture Network (WFAN) and 
     the Iowa Chapter of National Farmers Organization to express 
     our strong support for the Fair Contracts for Growers Act, 
     and to thank you for your leadership in introducing this 
     legislation.
       Contract livestock and poultry producers are being forced 
     to sign mandatory arbitration clauses, as part of a take-it-
     or-leave-it, non-negotiable contract with large, vertically 
     integrated processing firms. These producers forfeit their 
     basic constitutional right to a jury trial, and instead must 
     accept an alternative dispute resolution forum that severely 
     limits their rights and is often prohibitively expensive. 
     These clauses are signed before any dispute arises, leaving 
     farmers little if any ability to seek justice if they become 
     the victim of fraudulent or abusive trade practices.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control over the information needed for growers to argue 
     their case. In a civil court case, this evidence would be 
     available to a grower's attorney through discovery. In an 
     arbitration proceeding, the company is not required to 
     provide access to this information, thus placing the farmer/
     grower at an extreme disadvantage. Other standard legal 
     rights that are waived through arbitration are access to 
     mediation and appeal, as well as the right to an explanation 
     of the decision.
       Many assume that arbitration is a less costly way of 
     resolving dispute than going to court, but for the producer, 
     the opposite is usually true. The high cost of arbitration is 
     often a significant barrier to most farmers. The up-front 
     filing fees and arbitrator fees can exceed the magnitude of 
     the dispute itself, with farmers being required to pay fees 
     in the thousands of dollars just to start the arbitration 
     process.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon. 
     Independent family farmers all over the U.S. will benefit 
     from a law that stops the abuse of arbitration clauses in 
     livestock and poultry contracts.
           Sincerely,
                                                   Chris Petersen,
     President.
                                  ____



                                     Center for Rural Affairs,

                                                        Lyons, NE.
       Dear Senator Grassley: I am writing on behalf of the Center 
     for Rural Affairs to express our strong support for the Fair 
     Contacts for Growers Act, and to thank you for your 
     leadership in introducing this legislation.
       The Fair Contracts for Growers Act is very timely. With the 
     rapid rise of vertically integrated methods of agricultural 
     production, farmers are increasingly producing agricultural 
     products under contract with large processors. Under these 
     contracts, it is common for farmers and growers to be forced 
     to sign mandatory arbitration clauses, as part of a take-it-
     or-leave-it, non-negotiable contract with a large, vertically 
     integrated processing firm. In doing so, the farmer is forced 
     to give up their basic constitutional right to a jury trial, 
     and instead must accept an alternative dispute resolution 
     forum that severely limits their rights and is often 
     prohibitively expensive. These clauses are signed before any 
     dispute arises, leaving farmers little if any ability to seek 
     justice if they become the victim of fraudulent or abusive 
     trade practices.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control of the information needed for a grower to argue their 
     case. In a civil court case, this evidence would be available 
     to a growers' attorney through discovery. In an arbitration 
     proceeding, the company is not required to provide access to 
     this information, thus placing the farmer/grower at an 
     extreme disadvantage. Other standard legal rights that are 
     waived through arbitration are access to mediation and 
     appeal, as well as the right to an explanation of the 
     decision.
       In addition, it is often assumed that arbitration is a less 
     costly way of resolving dispute than going to court. Yet for 
     the farmer, the opposite is usually true. The high cost of 
     arbitration is often a significant barrier to most farmers. 
     The up-front filing fees and arbitrator fees can exceed the 
     magnitude of the dispute itself, with farmers being required 
     to pay fees in the thousands of dollars just to start the 
     arbitration process.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon.
       The Center for Rural Affairs believes this is important 
     because of the number of small and mid-size farms that enter 
     into contract livestock production. Small and mid-size farms 
     that don't have the capital to invest in starting their own 
     livestock operations often look to contract production as 
     mechanism for diversifying their farming operations as well 
     as their cash flow. However, when these farmers and ranchers 
     are not allowed equal legal protection, their entire farming 
     operations lay at risk.
       Moreover, farmers who enter into contracts with meatpackers 
     and large, corporate livestock producers will never have the 
     power or negotiating position that those companies will enjoy 
     in virtually every contract dispute. Producers often lack the 
     financial and legal resources to challenge vertical 
     integrators when their rights are violated. A legal agreement 
     between smaller farm operations and integrators should, 
     therefore, provide at least as much legal protection for 
     producers as it does for the integrator.
       Although the impetus behind this legislation emanates from 
     the poultry industry, the rights of farmers who raise hogs 
     and other livestock under contract are also threatened. And 
     the increased use of production contracts in these sectors 
     has made this issue that much more important to farmers in 
     the Midwest and Great Plains as well.
       Thank you for your leadership in recognizing these 
     concerns, and your willingness to introduce commonsense 
     legislation to stop the abuse of arbitration clauses in the 
     livestock and poultry contracts.
           Sincerely,
                                                   Traci Bruckner,
     Associate Director, Rural Policy Program.
                                  ____

                                           Sustainable Agriculture


                                                    Coalition,

                                Washington, DC, November 17, 2005.
     Senator Chuck Grassley,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Grassley: I am writing on behalf of the 
     Sustainable Agriculture Coalition in support of the Fair 
     Contract for Growers Act and to thank you for your leadership 
     in introducing this legislation.
       The Fair Contracts for Growers Act is necessary to help 
     level the playing field for our farmers and ranchers who 
     enter into production contracts with packers and processors. 
     The rapid rise of vertically integrated production chains, 
     combined with the high degree of concentration of poultry 
     processors and meatpackers, leave farmers and ranchers in 
     many regions of the country with few choices, or only a 
     single choice, of buyers for their production. Increasingly, 
     farmers and ranchers are confronted with ``take-it-or-leave-
     it,'' non-negotiable contracts, written by the company. These 
     contracts require that farmers and ranchers give up the basic 
     constitutional right of access to the courts and sign 
     mandatory arbitration clauses if they want access to a market 
     for their products. These clauses are signed before any 
     dispute arises, leaving the producers little, if

[[Page S13796]]

     any, ability to seek justice if they become the victim of 
     fraudulent or abusive trade practices.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon. Many basic 
     legal processes are not available to farmers and ranchers in 
     arbitration. In most agricultural production contract 
     disputes, the company has control of the information needed 
     for a grower to argue a case. In a civil court case, this 
     evidence would be available to the grower's attorney through 
     discovery. In an arbitration proceeding, however, the company 
     is not required to provide access to this information, thus 
     placing the grower at an extreme disadvantage. In addition, 
     in most arbitration proceedings, a decision is issued without 
     an opinion providing an explanation of the principles and 
     standards or even the facts considered in reaching the 
     decision. The arbitration proceeding is private, closed to 
     effective pubic safeguards, and the arbitration decisions are 
     often confidential and rarely subject to public oversight or 
     judicial review.
       Moreover, there is a growing perception that the 
     arbitration system is biased towards the companies. This 
     private system is basically supported financially by the 
     companies which are involved repeatedly in arbitration cases. 
     The companies also know the history of previous arbitrations, 
     including which arbitrators repeatedly decide in the 
     companies' favor. This arbitration history is rarely 
     available to a farmer or rancher involved in a single 
     arbitration proceeding.
       Arbitration is often assumed to be a less costly way of 
     resolving disputes than litigation. But this assumption must 
     be tested in light of the relative resources of the parties. 
     For most farmers and ranchers, arbitration is a significant 
     expense in relation to their income. One immediate 
     financial barrier is filing fees and case service fees, 
     which in arbitration are usually divided between the 
     parties. A few thousand dollars out of pocket is a 
     miniscule expense for a well-heeled company but can be an 
     insurmountable barrier for a farmer with a modest income, 
     especially when the farmer is conflict with the farmer's 
     chief source of income. This significant cost barrier, 
     when coupled with the disadvantages of the arbitration 
     process, can effectively deny farmers a remedy in contract 
     dispute cases with merit.
       The Sustainable Agriculture Coalition represents family 
     farm, rural development, and conservation and environmental 
     organizations that share a commitment to federal policy 
     reform to promote sustainable agriculture and rural 
     development. Coalition member organizations include the 
     Agriculture and Land Based Training Association, American 
     Natural Heritage Foundation, C.A.S.A. del Llano (Communities 
     Assuring a Sustainable Agriculture), Center for Rural 
     Affairs, Dakota Rural Action, Delta Land and Community, Inc., 
     Future Harvest-CASA (Chesapeake Alliance for Sustainable 
     Agriculture), Illinois Stewardship Alliance, Innovative 
     Farmers of Ohio, Institute for Agriculture and Trade Policy, 
     Iowa Environmental Council, Iowa Natural Heritage Foundation, 
     Kansas Rural Center, Kerr Center for Sustainable Agriculture, 
     Land Stewardship Project, Michael Fields Agricultural 
     Institute, Michigan Agricultural Stewardship Association, 
     Midwest Organic and Sustainable Education Service, The 
     Minnesota Project, National Catholic Rural Life Conference, 
     National Center for Appropriate Technology, Northern Plains 
     Sustainable Agriculture Society, Ohio Ecological Food and 
     Farm Association, Organic Farming Research Foundation, and 
     the Sierra Club Agriculture Committee. Our member 
     organizations included thousands of farmers and ranchers with 
     small and mid-size operations, a number of whom have entered 
     into agricultural production contracts or are considering 
     whether to sign these contracts. As individuals, these 
     farmers and ranchers do not have the financial power or 
     negotiating position that companies enjoy in virtually every 
     contract dispute. We agree with Senator Grassley that, in the 
     face of such unequal bargaining power, the Fair Contract for 
     Growers Act is a modest and appropriate step which allows 
     growers the choice of entering into arbitration or mediation 
     or choosing to exercise their basic legal right of access to 
     the courts.
       Thank you for your leadership in recognizing these 
     concerns, and your willingness to introduce commonsense 
     legislation to stop the abuse of mandatory arbitration 
     clauses in livestock and poultry contracts.
           Sincerely,

                                              Martha L. Noble,

                                          Senior Policy Associate,
     Sustainable Agriculture Coalition.
                                  ____



                               National Family Farm Coalition,

                                Washington, DC, November 17, 2005.
     Senator Charles Grassley,
     Hart Building,
     Washington, DC.
       Dear Senator Grassley. I am writing as president of the 
     National Family Farm Coalition to express our strong support 
     for the Fair Contracts for Growers Act, and to thank you for 
     your leadership in introducing this legislation. As you know, 
     the National Family Farm Coalition provides a voice for 
     grassroots groups on farm, food, trade and rural economic 
     issues to ensure fair prices for family farmers, safe and 
     healthy food, and vibrant, environmentally sound rural 
     communities here and around the world. Our organization is 
     committed to promoting food sovereignty, which is stymied by 
     current practices that give farmers unfair and unjust 
     difficulties when they wish to arbitrate a contract dispute.
       Therefore, the Fair Contracts for Growers Act is very 
     timely. With the rapid rise of vertically integrated methods 
     of agricultural production, farmers are increasingly 
     producing agricultural products under contract with large 
     processors. Under these contracts, it is common for farmers 
     and growers to be forced to sign mandatory arbitration 
     clauses, as part of a take-it-or-leave-it, non-negotiable 
     contract with a large, vertically integrated processing firm. 
     In doing so, the farmer is forced to give up their basic 
     constitutional right to a jury trial, and instead must accept 
     an alternative dispute resolution forum that severely limits 
     their rights and is often prohibitively expensive. These 
     clauses are signed before any dispute arises, leaving farmers 
     little if any ability to seek justice if they become the 
     victim of fraudulent or abusive trade practices.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control of the information needed for a grower to argue their 
     case. In a civil court case, this evidence would be available 
     to a growers' attorney through discovery. In an arbitration 
     proceeding, the company is not required to provide access to 
     this information, thus placing the farmer/grower at an 
     extreme disadvantage. Other standard legal rights that are 
     waived through arbitration are access to mediation and 
     appeal, as well as the right to an explanation of the 
     decision.
       In addition, it is often assumed that arbitration is a less 
     costly way of resolving dispute than going to court. Yet for 
     the farmer, the opposite is usually true. The high cost of 
     arbitration is often a significant barrier to most farmers. 
     The up-front filing fees and arbitrator fees can exceed the 
     magnitude of the dispute itself, with farmers being required 
     to pay fees in the thousands of dollars just to start the 
     arbitration process.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon.
       Thank you for your leadership in recognizing these 
     concerns, and your willingness to introduce common sense 
     legislation to stop the abuse of arbitration clauses in the 
     livestock and poultry contracts.
           Sincerely,

                                                George Naylor,

                                                        President,
     National Family Farm Coalition.
                                  ____

                                             Campaign for Contract


                                           Agriculture Reform,

                                                November 18, 2005.
     Hon. Charles Grassley,
     U.S. Senate,
     Washington, DC.
       Dear Senator Grassley: On behalf of the Campaign for 
     Contract Agriculture Reform, I would like to thank you for 
     your leadership in introducing the Fair Contracts for Growers 
     Act.
       With the rapid rise of vertically integrated methods of 
     agricultural production, farmers are increasingly producing 
     agricultural products under contract with large processors. 
     In many cases, particularly in the livestock and poultry 
     sector, the farmer never actually owns the product they 
     produce, but instead makes large capital investments on their 
     own land to build the facilities necessary to raise animals 
     for an ``integrator.''
       Under such contract arrangements, farmers and growers are 
     often given take-it-or-leave-it, non-negotiable contracts, 
     with language drafted by the integrator in a manner designed 
     to maximize the company's profits and shift risk to the 
     grower. In many cases, the farmer has little choice but to 
     sign the contract presented to them, or accept bankruptcy. 
     The legal term for such contracts is ``contract of 
     adhesion.'' As contracts of adhesion become more commonplace 
     in agriculture, the abuses that often characterize such 
     contracts are also becoming more commonplace and more 
     egregious.
       One practice that has become common in livestock and 
     poultry production contracts is the use of mandatory 
     arbitration clauses, where growers are forced to sign away 
     their constitutional rights to jury trial upon signing a 
     contract with an integrator, and instead accept a dispute 
     resolution forum that denies their basic legal rights and is 
     too costly for most growers to pursue.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control of the information needed for a grower to argue their 
     case. In a civil court case, this evidence would be available 
     to a grower's attorney through discovery. In an arbitration 
     proceeding, the company is not required to provide access to 
     this information, thus placing the farmer/grower at an 
     extreme disadvantage. Other standard legal rights that are 
     waived through arbitration are access to mediation and 
     appeal, as well as the right to an explanation of the 
     decision.
       In addition, it is often assumed that arbitration is a less 
     costly way of resolving dispute than going to court. Yet for 
     the farmer,

[[Page S13797]]

     the opposite is usually true. The high cost of arbitration is 
     often a significant barrier to most farmers. The up-front 
     filing fees and arbitrator fees can exceed the magnitude of 
     the dispute itself. For example, in one Mississippi case, 
     filing fees for a poultry grower to begin an arbitration 
     proceeding were $11,000. In contrast, filing fees for a civil 
     court case are $150 to $250. Lawyer fees in a civil case are 
     often paid on a contingent-fee basis.
       In addition, the potential for mandatory arbitration 
     clauses to be used abusively by a dominant party in a 
     contract has also been recognized by Congress with regard to 
     other sectors of our economy. In 2002, legislation was 
     enacted with broad bipartisan support that prohibits the use 
     of pre-dispute, mandatory arbitration clauses in contracts 
     between car dealers and car manufacturers and distributors. 
     The Fair Contract for Growers Act is nearly identical in 
     structure to the ``car dealer'' arbitration bill passed by 
     Congress in 2002.
       Thank you again for introducing the Fair Contracts for 
     Growers Act, to assure that arbitration in livestock and 
     poultry contracts is truly voluntary, after mutual agreement 
     of both parties after a dispute arises. If used, arbitration 
     should be a tool for honest dispute resolution, not a weapon 
     used to limit a farmer's right to seek justice for abusive 
     trade practices.
       I look forward to working with you toward enactment of this 
     important legislation.
           Sincerely,
                                                   Steven D. Etka,
     Legislative Coordinator.
                                  ____


                                S. 2131

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fair Contracts for Growers 
     Act of 2005''.

     SEC. 2. ELECTION OF ARBITRATION.

       (a) In General.--Chapter 1 of title 9, United States Code, 
     is amended by adding at the end the following:

     ``Sec. 17. Livestock and poultry contracts

       ``(a) Definitions.--In this section:
       ``(1) Livestock.--The term `livestock' has the meaning 
     given the term in section 2(a) of the Packers and Stockyards 
     Act, 1921 (7 U.S.C. 182(a)).
       ``(2) Livestock or poultry contract.--The term `livestock 
     or poultry contract' means any growout contract, marketing 
     agreement, or other arrangement under which a livestock or 
     poultry grower raises and cares for livestock or poultry.
       ``(3) Livestock or poultry grower.--The term `livestock or 
     poultry grower' means any person engaged in the business of 
     raising and caring for livestock or poultry in accordance 
     with a livestock or poultry contract, whether the livestock 
     or poultry is owned by the person or by another person.
       ``(4) Poultry.--The term `poultry' has the meaning given 
     the term in section 2(a) of the Packers and Stockyards Act, 
     1921 (7 U.S.C. 182(a)).
       ``(b) Consent to Arbitration.--If a livestock or poultry 
     contract provides for the use of arbitration to resolve a 
     controversy under the livestock or poultry contract, 
     arbitration may be used to settle the controversy only if, 
     after the controversy arises, both parties consent in writing 
     to use arbitration to settle the controversy.
       ``(c) Explanation of Basis for Awards.--If arbitration is 
     elected to settle a dispute under a livestock or poultry 
     contract, the arbitrator shall provide to the parties to the 
     contract a written explanation of the factual and legal basis 
     for the award.''.
       (b) Technical and Conforming Amendment.--The table of 
     sections for chapter 1 of title 9, United States Code, is 
     amended by adding at the end the following:

``17. Livestock and poultry contracts''.

     SEC. 3. EFFECTIVE DATE.

       The amendments made by section 2 shall apply to a contract 
     entered into, amended, altered, modified, renewed, or 
     extended after the date of enactment of this Act.
                                 ______