§ 4.1-25-06 — Surety bond, trustee agreement, or other security or assurances

If it appears the financial condition of any applicant or licensee who purchases milk from a
dairy producer is not adequate to reasonably assure payment to dairy producers when due for
the milk to be purchased, or in lieu of annually filing with the department an audited financial
statement as required in section 4.1-25-05, the department shall require from an applicant or
licensee security or other assurances in one of the following forms:
1. The filing of a surety bond acceptable to the department. The amount of the surety
bond must be determined on the basis of average purchases of milk from dairy
producers during the previous year. If payment for milk purchased from dairy
producers is made on a weekly basis, the amount of the surety bond must be at least
in an amount equal to the average weekly purchases of milk. If payment for milk
purchased from dairy producers is made on a semimonthly basis, the amount of the
surety bond must be at least in an amount equal to the average semimonthly
purchases of milk. If the period of payment for milk purchased from dairy producers is
made on a basis involving periods of time greater than semimonthly, the amount of the
surety bond must be at least in an amount equal to the average purchases of milk for
that greater period of time. The amount of the bond for each period of payment must
also include an amount equal to at least the average purchases for three days
following the close of the period of payment. The amount of the surety bond of any
licensee who pays assignments to creditors of a producer of milk at a lesser frequency
than the licensee pays the producer must also include an amount equal to the value of
assignments from the prior payment period. The commissioner must be named as
obligee, but the bond or draft must be held for the purpose of protecting, and for the
benefit of, any dairy producer, and the full and complete payment to that dairy
producer for all milk purchased by the licensee. The aggregate liability of the bonding
company or the department to all dairy producers may not exceed the amount of the
bond.
2. Providing an amount of protection for dairy producers equal to the amount of
protection provided in subsection 1. The security must be held by the department
solely for the protection of dairy producers, in one or more of the following forms:

a. Cash deposited with a bank or trust company and held under an escrow
agreement with the department;
b. Bonds of the United States deposited with the department;
c. Stocks, bonds, or other marketable securities at current market values, which
have regularly reported quotations, deposited with the department; or
d. A certified bank draft, certified check, irrevocable letter of credit, or certificate of
deposit held in favor of the department.
3. The filing of an agreement providing complete control over all manufactured or
processed milk and dairy products by a trustee to be selected at least annually by the
dairy producers. The trustee shall file a trustee's bond and contracts signed by the
owner or operator and the purchaser of the dairy products requiring that payment for
all dairy products sold be made to the trustee. The trustee shall maintain a separate
bank account for that purpose and at least annually shall render a true and correct
account of trustee dealings to the department and to the dairy producers.