At the time, the buyers – Carwell Elevator, Inc., of Cherry Valley and Poinsett Rice and Grain, Inc., of Waldenburg – were pleased because the Supreme Court had found in their favor, overruling several of Circuit Court Judge Collins Kilgore’s findings in the process. The two companies were also much closer to recouping nearly $600,000 in check-off funds they’d paid to the Rice Research and Promotion Board (RRPB) between 1996 and 1999.

For the rest of the rice industry the ruling was a cause for alarm. And still is. As the case is now back in Judge Kilgore’s court, it has become apparent that fall-out from the decision could affect any link on the rice food chain.

Here’s why: in a unanimous decision, the Supreme Court not only ruled in Carwell and Poinsett’s favor, it also made the case a class-action suit. Now, potentially any first-point rice buyer can get their 1996-1999 assessments back.

Gulf Rice

In a mid-1990s referendum, those in the rice industry were asked to vote on a rice tax. Still called a “check-off” (although it no longer fit the legal definition) the tax required $.0135-per-bushel from both farmers and first-point buyers. It passed and the voluntary rice check-off was no more.

As a first-point buyer, Gulf Rice Arkansas, Inc., balked at paying the new tax and filed a lawsuit. Gulf’s argument involved unfair taxation.

“We didn’t even get to vote,” says Roger Gilmore, vice president of operations at Gulf. “We just got a letter saying, ‘You will begin paying this amount.’ Well, that’s not right.”

It’s fundamentally unfair to have one group of people voting on the rights of another, says Gulf attorney David Fuqua. “Would the folks on the west side of town want the folks from the east side to be voting on the taxes they’ll pay? No. And it turned out that there’s no way this election could be fair to millers…the election was fundamentally unfair.”

Gulf attorneys filed a summary judgment motion in Kilgore’s Little Rock court and claimed the referendum was a violation of due process principles under the federal constitution. Eventually, Judge Kilgore agreed declaring the assessment unconstitutional. His decision was appealed to the Arkansas Supreme Court by the RRPB. The board lost the appeal.

During the pending litigation, Gulf Rice continued to pay the assessments. Wisely, the RRPB had set the funds aside, says Fuqua. “So once the highest court ruled on it, the board went ahead and paid the money back.”

At the end of the Gulf litigation in 1999, the Arkansas legislature quickly passed a new “check-off” law replacing the one brought in through referendum. Once signed into law, the millers’ window of recoup opportunity was held to between 1996 and 1999.

Next up

Having seen Gulf win its case, Carwell and Poinsett (which share some ownership) filed their own suit in February 2000. Seeking refunds of $134,000 and $445,000 respectively, the two said that since, under the Gulf case, the check-off law was found to be illegal, a class action should have been declared.

Judge Kilgore said Carwell and Poinsett were incorrect as the Supreme Court decision only addressed Gulf’s concerns. Further, he said, the companies had no right to a refund because too much time had lapsed.

This time, it was the mills turn to appeal to the state Supreme Court. In March, the court’s rulings were released.

“The Supreme Court said the case needed to go back to (Judge Kilgore’s) court for further review,” said Todd Williams, Jonesboro-based attorney for Carwell and Poinsett. “It isn’t entirely decided how this will be dealt with. I don’t think there’s anything left to try, but Judge Kilgore has some decisions to make about how to proceed. I’d think there will be small legal steps taken over the next few weeks, and this will be ready for resolution before the end of the year.”

Regardless, the Supreme Court let the class-action genie out of the bottle.

“The Supreme Court said this is now a class action,” says Williams. “To what extent there are other (first-point) rice buyers out there wanting their assessments back too, I have no idea.”

And now?

Fuqua says if other first point buyers ask for refunds, “this will definitely present a significant issue for (the RRPB) as to how to pay. Significant? There’s no doubt about that.”

It’s telling that in a May 2002 filing (made to the Supreme Court while representing the RRPB in the Carwell/Poinsett case), Arkansas Assistant Attorney General Arnold Jochums argued that Kilgore’s dismissal of the suit was proper because, “there is no fund from which a refund might be made.”

While citing case law, Jochums says it is “undisputed” that funds collected “have been expended…Therefore, there are no ‘funds that rightfully belong to’ the appellants that could be refunded.”

While the Supreme Court ultimately rejected Jochum’s argument, the fact that he made it is unsettling to many.

“What happens if all the millers want their money back? It could get ugly really quick,” says Fuqua. “The Supreme Court said this was a class action and told (Judge Kilgore) to get the process started. It’s cut and dried and unless someone has a very novel approach that I’ve never seen, this is a class action all the way. The Supreme Court sent the case back down for the specific purpose of administering a class action.”

And when talking about first-point buyers, don’t forget that seed companies must be considered as well.

“Any seed company that bought rice seed seems to be eligible for getting their check-off dollars back too,” says Gilmore. “And seed companies handle a tremendous amount of rice.”

The belief that there is currently no money set aside to pay the first-point buyers back, led the Arkansas Rice Growers Association (ARGA) to file an intervention in the case on July 10. Using delineations made in the check-off law – growers responsible for research, millers for promotion --as their rationale, ARGA says any repayments to mills should be made at the expense of promotion and not research.

“We’re intervening to protect the money that rice producers pay into research,” says John Alter, a rice producer from Dewitt and vice president of ARGA. “Any refunds made stemming from this class-action suit should be made from the promotion side of the ledger. Any refunds will have to come from future collections and we don’t want research damaged in any way.”

ARGA, says Alter, neither agrees nor disagrees with the Carwell/Poinsett suit.

“We’re talking about millions of dollars that the promotion board would have to pay out. Now, unless the membership in the two huge cooperatives stand up and raise hell, the co-ops won’t ask for their funds back. But even then – if it’s only independents -- big money might have to be paid back.”

Shortsighted?

The Rice Research and Promotion Board is scheduled to meet Aug. 6 and, among other business, will discuss the checkoff issue. Since the board has yet to meet on the subject, George Dunklin (current RRPB vice chairman who will be named chairman on Aug. 6) says he speaks only for himself.

“My initial reaction is I’m very surprised by these first-point buyers asking for their money back based on what happened seven years ago,” he said. “In my opinion, for a company to take advantage of this against the industry they represent and support would be very shortsighted.

“The buyers of rice, along with the farmers, knew about this check-off collection. The money, as was decreed by law, was to be spent promoting rice here and around the world,” said Dunklin, who farms near Dewitt. “That’s exactly what was done with the funds. To go back and make this ruling into a windfall for these companies is indefensible.”

Does Dunklin take issue with the Supreme Court’s ruling?

“I disagree with it, but I also don’t see how the first point buyers can go back and ask for their money back. If it were me, it would be hard to reconcile that…I want to make sure the farmers know how I feel about rice buyers potentially asking for their money back.”

The big co-ops, the big mills and seed companies aren’t likely to join a class action, says Dunklin.

“But that still leaves a number of buyers who could be eligible for a refund. And the money that would be paid back would come out of future promotion dollars. We’re (currently) experiencing a nice price rebound that could be jeopardized (as a result).”

An invitation

While Carwell and Poinsett asked for the state Supreme Court to order a refund be made to them, the court instead put the burden of refunds back on the Circuit Court.

The last sentences of the majority opinion read, “A decision on a refund must first be decided in the trial court. This case is remanded for the trial court to require proper notice and proceed with an illegal-exaction class suit.”

First-point buyers should soon be getting an invitation to litigate.

e-mail: dbennett@primediabusiness.com