Herdshare Arrangements Ruled Legal in Ohio

Judge rules careful herdshare arrangements are a legal deal in Ohio

Ruling overturns state’s aggressive campaign against raw milk operators.

By David G. Cox

Judge Jonathan P. Hein of Ohio’s Darke County Court of Common Pleas issued a decision on December 29, 2006, in the case of Carol Schmitmeyer, a Versailles, Ohio dairy producer who had been operating a herdshare program in order to make raw milk legally available to people who wanted to consume it.

Judge Hein’s decision vacated an earlier decision of the Director of Agriculture that revoked Ms. Schmitmeyer’s dairy producer’s license because Director Dailey believed Ms. Schmitmeyer’s herdshare operation constituted an illegal “sale” of raw milk. In his decision, however, Judge Hein stated that there are “various deficiencies” in the law which are “fundamental to a correct interpretation of the law” and that the Director’s decision to revoke Ms. Schmitmeyer’s license was similarly deficient.

A herdshare operates on the principle that persons (usually city dwellers) buy an ownership interest in a herd of dairy cows; they board those cows at a farmer’s farm; and they pay a periodic boarding fee to the farmer in exchange for the farmer taking care of, tending to and providing feed to the herd. The herdshare owners in essence become “shareholders” in the dairy farm and receive as a dividend on their investment the raw milk that comes from their share.

The farmer earns extra income by receiving the boarding fee and the purchase price of the “shares” in the herd, while the shareholders receive raw milk in accordance with the law and have the satisfaction of knowing where their milk comes from and how it is produced. It is an arrangement that pleases everyone involved.

Everyone, that is, except the Ohio Department of Agriculture (ODA). In 2006, the ODA relentlessly and ruthlessly pursued herdshare operators throughout the state, claiming they were illegally selling raw milk and putting the entire public’s health at risk. For example, just in 2006 alone, ODA revoked the license of an Amish farmer who took a $2 donation for one gallon of raw milk; arrested in conjunction with federal authorities a farmer in Cincinnati who was delivering raw milk to his shareholders (and who was carried away in an ambulance because he suffered a mild heart attack); attempted to revoke the commercial feed registration of two Washington County women who use raw milk as an ingredient in their pet food products; and attempted to conduct a secret investigation into a herdshare program operated by a married couple in Butler County.

And in September, ODA revoked the producer’s license of Carol Schmitmeyer which could have put her out of business because her family derived 87 percent of its economic livelihood from her producer’s license.

Ms. Schmitmeyer argued in her appeal that because the law was so vague, i.e., “sale” or “sold” were not defined, that there was no way to determine whether ODA’s interpretation and application of the law was reasonable, arbitrary or capricious. ODA had gone on record in the past as allowing a farmer and his family to consume raw milk from the family farm’s cows, but insisted that shareholders in a herdshare did not have similar rights.

Judge Hein in his decision stated that “if the herdshare agreement is a circumvention of the law, so is the Department’s inexact practice of allowing owners and their families, etc. to consume raw milk. Consequently, too much subjectivity results from the “Department’s practice of allowing some as yet undefined persons (owners, family members, etc.) to consume raw milk at as yet undefined locations (on farm, etc.).”

Ms. Schmitmeyer also argued that before her license could be revoked, ODA was required by law to provide her with “a reasonable amount of time to correct the alleged violations. Indeed, and as a precautionary measure, Ms. Schmitmeyer had sent two letters to ODA in the spring of 2006 requesting assistance and guidance from ODA on what her herdshare operation needed to do to comply with the law, yet both letters were ignored by ODA.

As it turned out, the first time Ms. Schmitmeyer had a hint that something was wrong was when she received a letter in the mail from ODA proposing to revoke her license. Judge Hein stated in his decision that “the Department avoided its duty to [Ms. Schmitmeyer] by not engaging in discussion with her (and other herdshare owners) regarding the issues now before this Court. Due to the failure of the Department to articulate specific problems with the herdshare agreement, ODA failed to provide Ms. Schmitmeyer with an opportunity to correct the alleged violations.

In essence, Judge Hein’s decision vindicates Ms. Schmitmeyer in her ordeal. Judge Hein’s decision also validates herdshare agreements in Ohio when they are drafted in a manner consistent with contract law and when they provide for a transfer of ownership in the herd, whether partial or complete transfer, from the farmer to the shareholder. Therefore, unless and until the statute is changed or administrative regulations are issued to provide clarity on the issue, herdshare agreements appear to be legal in Ohio.

Ms. Schmitmeyer has filed with Judge Hein a motion to recover her attorney’s fees and costs from ODA. She hopes for a favorable ruling given the facts of this case.

Editor’s Note: Atty. Cox reported in late February that the ODA is appealing Judge Hein’s decision. The department also submitted to Schmitmeyer what was termed a settlement offer, and she is preparing a counter offer. Briefs on the appeal are due by both sides by the end of April.

David G. Cox is an associate with the Columbus, Ohio, law firm of Lane, Alton and Horst LLC where he practices agricultural and environmental law. This article is not intended to be nor should it be construed as either legal advice or the opinion of the firm. It first appeared in the Winter 2007 edition of the Ohio Ecological Food and Farm Association News (www.oeffa.org) and is reprinted with permission.

SOURCE: http://www.newfarm.org/features/2007/0307/rawmilk/cox.shtml