HBA-SEP C.S.H.B. 2586 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2586 By: Swinford Agriculture & Livestock 4/3/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Public grain warehouses are critical to the marketing of agricultural products. Producers store their commodities in warehouses until the commodities are ready for sale and often use negotiable warehouse receipts as collateral to finance their farming operations. To protect farmers by ensuring commodities against loss, Texas enacted the first grain warehouse law in the 1950s. The grain warehouse industry has undergone changes in the past few years, including the corporate consolidation of farms and grain warehouses and improvements in technology and trade practices. These changes necessitate modifications to laws pertaining to grain warehouses. C.S.H.B. 2586 provides a new licensing option for multiple facilities, revises the bond rate minimum and maximum, and increases administrative penalties. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas Department of Agriculture in SECTION 1 (Sections 14.015 and 14.065, Agriculture Code) of this bill. ANALYSIS C.S.H.B. 2586 amends the Agriculture and Property codes relating to the regulation of public grain warehouse operators. The bill amends the Agriculture Code to set forth provisions regarding the confidentiality of business information, the authority of the department to intervene, following appropriate notification, in legal actions relating to public grain warehouses, and receivership affecting warehouse assets (Secs. 14.012-14.014). The bill authorizes the department, in regulating public grain warehouse operators, to perform certain actions and to adopt rules. The bill removes provisions authorizing the State Office of Administrative Hearings to perform certain actions in hearings conducted in regard to warehouse regulation (Sec. 14.015). The bill authorizes a warehouse operator, under certain conditions, to operate multiple public grain warehouses or facilities within an area no larger than 60 miles in diameter under a single set of complete records (combination) if specified conditions are met and a single license covering the combination is obtained from the department (Sec. 14.022). The bill provides that to issue, renew, or amend a license, the department must determine that, in addition to other requirements, an applicant has filed a proper financial statement and proof of proper casualty insurance, and the applicant has met the net worth or deficiency bond requirements. The bill also provides that the warehouse be suitable for inspection by department personnel (Sec. 14.023). A warehouse operator is prohibited from using increased warehouse capacity without first obtaining written approval from the department (Sec. 14.024). The bill increases the amount that a license applicant's bond on file with the department must be from an amount not less than $15,000 nor more than $500,000 based on various rates correlated to the first, second, and third million bushels of storage capacity, to not less than $20,000 based on six cents per bushel of storage capacity. The bill removes the provision authorizing the department, in considering the reissuance of a license, to accept a certificate from a surety stating that a bond be filed with the department has been renewed or continued. The applicant is prohibited from using a single bond to cover more than one individually licensed facility, more than one combination, or more than one individually licensed facility and one or more combinations. The bill specifies that certain deposits, in lieu of a bond, are authorized to be deposited with the department for the term of the license plus two years. The bill removes the provision authorizing a warehouse operator to deposit negotiable securities approved by the department as providing the same protection as a surety bond for the grain depositor (Section 14.031). Liability under the bond ceases to accrue on the effective date of cancellation. Notwithstanding cancellation, the department or a depositor is authorized to collect under the bond for any claim that arose during the period during which the bond was in effect, provided that the claim is filed within the applicable limitations period (Sec. 14.033). The bill sets forth provisions regarding the cancellation of a letter of credit or certificate of deposit or cash (Secs. 14.034 and 14.035). The bill provides that a casualty insurance policy of the applicant must insure all grain that is or may be in the public grain warehouse for its full market value against loss by or due to water or other fluid, malicious mischief, vandalism, theft, intentional waste or destruction, or smoke. The bill specifies that an applicant who certifies in writing at or before the time the certificate of insurance is due that all grain within the warehouse at the time the license is effective is or will be owned by the applicant free of any lien is not required to file a certificate of insurance. The applicant shall file the required certificate of insurance on or before the first day any grain not owned by the applicant free of any lien is stored for hire, handled for hire, or shipped for hire (Sec. 14.041). The bill sets forth provisions regarding insurance cancellation, additional insurance, and warehouse operator obligations (Secs. 14.042, 14.043, 14.051 and 14.052). A warehouse operator is required to use one set of serially numbered and sequentially issued receipts for all warehouses operated under a single license and each receipt form must conform to department rule. The warehouse operator is required to provide the department with an exemplar of the receipt forms and an affidavit from the printer showing the number of receipts printed and their serial numbers before issuing any receipt from the printed set. The exemplar and affidavit must be provided each time a new set of receipts is printed. The bill authorizes the warehouse operator to use an electronic receipt system if the provider of the electronic receipt system has been approved by the department or by the United States Department of Agriculture or any other federal agency that issues a license for the operation of a public grain warehouse. The bill removes provisions requiring the department to supply all receipt forms unless the department approves a privately printed receipt form requested by the warehouse operator and removes other provisions regarding receipts (Sec. 14.053). The bill specifies that a warehouse operator is prohibited from obtaining, purchasing, or becoming a surety on a bond for a lost, stolen, or destroyed receipt. The court is prohibited from ordering delivery of grain covered by a lost, stolen or destroyed receipt without requiring an indemnity bond of double the market value of the grain covered by the missing receipt (Sec. 14.055). The warehouse operator is required to issue and keep all scale weight tickets and receipts in numerical order (Sec. 14.057). The bill removes the provision requiring a warehouse operator to permit the department to enter and inspect each public grain warehouse, its contents, and all related records and to render to the department any assistance necessary for an inspection. The bill prohibits the department from collecting an inspection fee for inspections other than a requested or annual inspection unless the inspection is conducted under the terms of an agreed or ordered suspension or probation in response to a complaint, as a follow-up inspection, or to monitor termination of arrangements for the storing, shipping, or handling of grain (Sec. 14.059). The bill prohibits a warehouse operator from charging a fee for loading out grain if the loadout was the result of the misconduct of the warehouse operator. A loadout fee collected during a period of suspension of a warehouse operator's license by the department, after revocation of a warehouse operator's license, or during a period in which criminal charges are pending against a warehouse operator, must be placed in an escrow account by the warehouse operator until a specified date (Sec. 14.064). The bill provides that the burden of establishing proration is on the surety as a matter of defense or is on the department as intervenor on behalf of other depositors. The bill sets forth provisions regarding notice of suit by a person who files an action on a bond, potential bond claims, claims on invalid receipts, and limitations periods on filing an action (Sec.14.065). The bill sets forth provisions regarding appeal of department action by a warehouse operator (Sec. 14.066). The bill provides that a person commits an offense if the person violates a provision regarding the regulation of public grain warehouse operators for which an offense is not expressly provided (Sec. 14.071). The bill specifies that a person commits an offense if the person continues to transact public grain warehouse business after the license holder has been placed on probation except as permitted by provisions regarding operation after probation (Sec. 14.072). The bill provides that a person commits an offense if the person interferes with a sealed warehouse or department inspection or investigation and sets forth provisions regarding the enforcement of provisions regarding public grain warehouse operators (Secs. 14.079 and 14.081). The bill specifies that if a warehouse operator is unable to submit records or property for an inspection of the warehouse due to the condition of the warehouse or stored grain, the department is authorized to seal the warehouse to prevent delivery or receipt of grain except as authorized by the department and to give notice to the operator requiring the operator to cover a grain shortage by specified means. The bill removes provisions requiring such an operator to give additional bond (Sec. 14.082). The bill provides that the department is authorized, rather than required, to revoke, modify, or suspend a license or assess an administrative penalty against, place on probation, or reprimand a license holder for a violation. The bill specifies that the department is authorized to suspend a license without a hearing for one or more periods not to cumulatively exceed 30 days in one licensing period. The bill authorizes the department to seal a warehouse operator's buildings during a period of license suspension or probation and to require the warehouse operator to maintain additional information or operate under conditions or by methods prescribed by the department (Sec. 14.083). The bill authorizes, rather than requires, the department to apply for an injunction if, after notice, rather than after 15 days' notice, an operator refuses to comply with this Act. The bill also authorizes the suit to be brought in Travis County (Sec. 14.085). A person who violates provisions regarding regulation of public grain warehouse operators is liable for a civil penalty of not less than $500 or more than $10,000 for each violation. Each day a violation occurs or continues may be considered a separate violation. The bill sets forth provisions regarding filing suit, and the collection and deposit of the penalty (Sec. 14.086). The bill specifies that the recovery of court costs also applies to a hearing commenced by a warehouse operator relating to the restoration of grain possession (Sec.14.087). The bill removes provisions regarding the warehouse examiners and storage charges of other warehouse operators (Secs. 14.202, 14.203, 14.215). The bill sets forth venue for criminal prosecution, injunctive relief, and administrative action (Sec. 14.088). The bill increases, from $500 to $10,000, the maximum penalty for violations of provisions regarding the regulation of public grain warehouse operators (Sec. 12.020). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2586 modifies the original by removing the provision that the definition of "grain" is designated by rule of the Department of Agriculture (department) and by modifying the applicability of the term "warehouse operator" (Sec.14.001). The substitute removes the provision authorizing the department to classify grain as genetically modified (Sec. 14.015). The substitute specifies that a bond filed with the department by an applicant for a license must be conditioned on faithful performance of certain obligations of a warehouse operator except for a contract for the purchase of grain or to act as a broker for the grain (Sec. 14.031). The substitute adds provisions authorizing a warehouse operator to recover, under certain conditions, cash or a certificate of deposit from the department before the expiration of the specified twoyear period (Sec. 14.035). The substitute removes the provision requiring a licensed public grain warehouse to post a copy of all fees and shrink rates charged by the warehouse operator at the main warehouse facility and at each warehouse facility operating under the license (Sec. 14.058). The substitute restores to current law provisions regarding public warehouse operators that the original had removed (Secs. 14A.001-14A.013).