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Managing the Coming Clash Between Solar Development and Environmental Protection

Written by Robert Selna, Selna Partners, LLP

Solar panels continue to drop in price, generate power more efficiently, and attract private developers who consider solar a good investment and pro-environment. As a result, it appears likely that the State of California will reach its goal of generating sixty percent of its electricity with renewable energy sources by 2030. 

It is also clear that large solar projects that generate the most power at the lowest price, require large amounts of flat, undeveloped property proximate to power substations. In California, the property meeting this criteria tends to be agricultural.  This reality sets the stage for conflicts between groups that share similar goals: on one hand are renewable energy proponents hoping to reduce the state’s reliance on greenhouse gas-emitting energy sources; the other is environmentalists and open space advocates, including those concerned about the state’s declining acreage of farmland and the native wildlife habitats and species that live and around it. 

The Nature Conservancy estimates that California will need between 1.6 and 3.1 million acres of solar and wind facilities by 2050 to decarbonize the electricity system and support a complete transition to green energy. The Nature Conservancy has noted that “with so much development on the horizon, it’s imperative that energy planners incorporate impacts to nature when making decisions about a clean energy future.”

Some of California’s local jurisdictions that feature large swaths of agricultural land and open space have started to address the inevitable clash between renewable energy development and nature conservation. They have identified areas for solar development where there is “least conflict” with productive farmland and imperiled plants, animals and natural habitats. For example, Santa Clara and Contra Costa Counites have conducted studies and UC Berkeley completed a similar analysis focused on the San Joaquin Valley. 

The counties that are not working to address the coming conflicts associated with the expected boost in solar development are doing so at their own peril and, instead, may see such disputes resolved by the courts, potentially at a high cost to taxpayers. 

There are a few common sense actions that county governments can take to help avoid clashes, but local government agencies and elected officials must give the actions priority to get them done in a timely fashion, as the demand for solar land rapidly expands. Examples include 1) completing solar mapping studies to understand least conflict areas; 2) executing general plan and zoning code amendments and related environmental reviews to provide solar developers and the public with more certainty about where large solar installations may be sited; and 3) educating agencies and the public about renewable energy, the state’s goals and the best approaches to achieving such aspirations. 

I have seen firsthand how the failure to prepare for the inevitable tension between solar development and land preservation can lead to bad results. My law firm currently represents an association of 250 property owners, cattle ranchers, environmentalist and proponents of good government called Save North Livermore Valley (“SNLV”). 

For more than six months, SNLV has been at odds Alameda County over the County’s decision to process solar development permit in eastern Alameda County. The developer proposes to place approximately 460 acres of ground-mounted solar panel facilities and storage batteries in North Livermore Valley, situated between the City of Livermore and the Altamont Pass. 

Alameda County features hundreds of thousands of agriculture acres on its east side and provides an example of a jurisdiction that has publicly committed to the laudable goal of providing more renewable energy for residents and contributing to the state’s renewable energy goals. Unfortunately, the County essentially ignored the coming battles that pit solar developers against farmers and environmentalists. The county is a cautionary tale for counties that fail to address the tension that occurs when solar companies set their sites on developing ag land and open spaces. 

One County’s Commitment to Renewable Energy 

The tension could have been avoided. A decade ago, Alameda County started down a path to provide clear guidance to solar developers and conservationists, but never completed the work. Now, the 460-acre project, called, Aramis, is causing the very tension the County sought to once avoid. That’s because the project is proposed for North Livermore Valley, which has long been the site of ranchland and is subject to a voter initiative intended to protect agricultural land, wildlife habitats, watersheds, “and the beautiful open space of Alameda County from excessive, badly located and harmful development.” 

The County’s support for solar originated in 2009. That’s when Alameda County Supervisor Scott Haggerty spearheaded the start of East Bay Community Energy (“EBCE”), a non-profit that contracts with clean energy projects to provide more renewable power for residents of the East Bay. Haggerty represents East County, which includes Livermore and is, by far, the County’s most agricultural area. According to County staff reports, “EBCE has brought greater levels of renewable energy at competitive prices to residents of Alameda County….A major goal of the EBCE is to encourage and invest in renewable energy, including solar at the local level.” (citation?)

In East Alameda County between 2008-2012, developers proposed two utility-scale solar projects on land historically used for cattle grazing before the County completed studies on the best locations to site large solar facilities in east county. In 2012, the Supervisors instructed to the County’s planning staff to complete the studies and a general plan amendment before any new large-scale solar projects were approved in east county. Unfortunately, that direction appears to have been ignored. 

Common Sense Steps Can Avoid Conflict

A general plan is county’s most fundamental planning document. In Alameda County, a general plan amendment could have clarified locations where solar installations were allowed and provided a map to reflect the locations. For instance, a general plan might have permitted large solar installations in East County except for in areas identified as scenic routes, or where wineries concentrated vineyard land. 

Zoning divides counties into districts and applies different regulations in each district. Within the districts, zoning dictates the specific uses that are allowed and dictates the scale and scope of those uses. Zoning also includes the uses that are permitted as of right, or conditionally permitted – meaning permitted if they meet certain conditions. In Alameda County, a zoning amendment regarding large-scale solar installations might have limited the contiguous acreage of solar facilities so that they did not occupy a disproportionate amount of land. An amendment also could have dictated that solar projects compensate for any land they occupy by preserving an equal amount of rangeland elsewhere. 

Under the California Environmental Quality Act, general plan and zoning amendments require an environmental impact report (“EIR”). An EIR is intended to help understand the ecological implications of the proposed amendments.  As an example, if a proposed zoning amendment allowed utility-scale solar in an area known for migrating species, the EIR would alert the county and the county might modify the locations to avoid the conflict. 

Mapping studies indicating solar installation locations least likely to impacts the environment have helped counties amend their general plans and zoning districts. In one example, UC Berkeley completed a mapping study throughout the San Joaquin Valley using four mapping components:  1)  Areas that allow for the movement of species; 2) Occupied or potential rare species and communities; 3) Conservation lands that already prevent or restrict development such as dedicated conservation lands and federally-designated critical habitat; and  4) Expertly-identified conservation priority areas.

Finally, given the State of California’s necessary efforts to transition to renewable energy and a corresponding interest from developers to install solar facilities on California ag land, governmental agencies’ decisions must be well-informed. It is not enough for a county agency to know that more solar is needed. A more nuanced understanding is required to evaluate circumstances in which renewable energy development goals conflict with other environmental priorities. 

The Transition to Renewable Energy 

Currently California is transitioning from fossil fuel power sources to renewables including solar, but the transition cannot happen overnight. To be a truly reliable source of energy, solar requires battery storage, otherwise the state’s power grid loses its renewable power at night. Battery storage technology needs more work to work effectively for the grid, but advances are being made. 

Since 2015, California’s solar generation has increased by 350% and accounts for fifty percent of all green energy sources in the state. In recent years, California has actually produced too much solar power during the day and has had to “curtail” the solar power by off-loading it to other states. 

State statistics show that more solar is on the way. According to the California Energy Commission, 9,460 solar facility projects have obtained permits but have not yet completed construction. Many of those are expected to come online in the next five years. As a result, the nascent clash between solar developers and those advocating to preserve agriculture land and open space is only expected to increase. 

County governments can better manage and possibly avoid some of these disputes with timely least-conflict studies and mapping, land use amendments and education. They should not delay!

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The Complexities of Enforcing Cannabis Contracts in Federal Court

By Robert Selna, 
Selna Partners, LLP

Since California legalized commercial cannabis in 2018, the expected “green rush” has fallen short of expectations. Forecasts of enormous profits have given way to the reality that the state’s cannabis industry is confronted by unique challenges, which have curtailed revenue and caused many businesses to close. A well-documented short list of industry hurdles includes disproportionately high taxes, a shortage of local business permits, competition from a thriving black market, and commercial banking limitations.

A lesser known, but equally important hurdle is the difficulty of enforcing cannabis industry contracts in federal court. As an alternative to state court, federal court is attractive for many reasons, including generally faster case resolutions, judges who never face election, and more exacting expert evidence standards. The federal court option took on new relevance in March when state courts began to close due to COVID-19. Superior courts recently began to hear cases remotely, but the courts’ backlog is enormous and is expected to stay that way for some time. 

For the cannabis industry, enforcing a cannabis industry contract in federal court – even when a defendant contractor has clearly violated an agreement – is not simple. Instead, it is nuanced, and depending on the specifics of the subject matter in dispute, may not succeed, even though the party seeking to enforce the contract may be in the right. 

The well-established California cannabis industry hurdles noted above, and challenges associated with enforcing cannabis contracts in federal court, have collided in a single case that our law firm, Selna Partners LLP, filed in the San Francisco-based federal Northern District court. 

California Cannabis Industry Hurdles

We represent a large, vertically-integrated California cannabis company that cultivates and distributes cannabis, and sells products at retail outlets in several cities. The company, which started its operations in 2010 under non-profit medical regulations in the existence at the time, is now fully-licensed and compliant under California law. As such, it has been hit hard by regulations and taxes. The company pays a city gross receipts tax, and state excise, sale and cultivation taxes, making the company’s effective tax rate approximately 40 percent. In addition, the company’s ability to expand has been limited by the fact that only one-third of California’s 540 cities and counties permit commercial cannabis (state law dictates that personal use is legal everywhere). An added dilemma is competition from the black market, which is estimated to sell eighty-percent (80%) of the cannabis cultivated in California. 

Adding to the companies’ woes is the absence of standardized commercial banking for the California cannabis industry. Despite our client’s compliance with all state and local laws, and a business model that has had more success than many, through 2019, the company had not been able to maintain a banking relationship with a traditional bank or credit union. This forced our client to hold revenues in a steel vault and deliver cash tax payments to government agencies in armored cars, among other workarounds. The company also often paid vendors and employees in cash. 

Cannabis Industry Banking is in Short Supply

The reason for the traditional banking shortage is straightforward:  marijuana (the federal government’s term for cannabis) is listed as a controlled substance, and is therefore, illegal to grow, import, possess, use, or distribute in the U.S., despite the fact that 43 states have legalized medical and/or adult-use cannabis. Meanwhile, the vast majority of banks and credit unions are regulated by the federal government.

Recognizing the expansion of state-legal cannabis, the U.S. Treasury Department, has issued guidance for banks that want to serve cannabis companies while avoiding prosecution. The guidance directs banks to provide on-going “suspicious activity” reports to the Treasury Department regarding the practices of their cannabis clients and whether they appear to comply with state laws, or instead, are illegal operators. The number of banks and credit unions willing to take on these responsibilities is incrementally increasing, but the conventional wisdom is that there still are only 300-400 such institutions in the U.S. 

In 2019, our client sought a solution and was introduced to a payment processor in Seattle, Washington, where, similar to California, commercial cannabis is regulated. A contract was signed for executing payments to vendors, employees and the State of California taxing authority and our client deposited approximately $8 million with the Seattle-based payment processor. 

Things went as planned for several months, but then the payment processor began delaying payments or failing to make them altogether. Lacking a viable alternative, the cannabis company stuck with the payment processor despite its poor service. The company hit a tipping point when the processor claimed to have made a $1.2 million tax payment to the California Department of Tax and Fee Administration (CDTFA), which the CDTFA documented that it never received. 

Confronted with proof from the CDTFA that the $1.2 million never arrived, the processor vowed to clear up the problem, but failed to do so. Our client finally demanded its remaining $3 million (including the $1.2 million returned). The processor stopped making payments and returning phone calls altogether. 

The processor’s refusal to return the $3 million left our clients with few options for getting their money back or paying the state and vendors. State court justice has been slow in most jurisdictions for decades. COVID-19 has only made that situation worse. Also, filing a lawsuit in state court against an out-of-state operator made the case vulnerable to the Seattle-based defendant’s motion to remove the case to Washington. 

Reporting the issue to law enforcement was an alternative, but when recouping funds is the top goal, a California company asking the Seattle police department to investigate what could be described as a contract dispute, did not appear to be the most efficient solution. 

Cannabis-Related Contract Claims and the “Illegality Defense”

In the end, our firm and our client believed that the best bet for getting the $3 million back efficiently was to file a breach of contract and fraud case in federal court. But while federal court was the top choice available, we knew it would not be easy. 

It is hard to argue that the processor did not breach the payment processing contract. It had our client’s money and failed to make payments that it agreed to make. But the analysis does not end there, because the processor, like defendants to cannabis contract disputes before it, is relying on the so-called “illegality defense.” In short, the defense is that, because cannabis is illegal under federal law, a federal court cannot enforce a contract that involves a cannabis company. In essence, the argument is as follows: “the merits of the case do not matter because the parties contracted to do something illegal and a federal court cannot review a case involving an illegal contract.” 

If the illegality defense were iron clad, our client’s case would have been dead on arrival. Fortunately, the reality is far more subtle. While there are older federal cases standing for the principal that federal courts cannot enforce “illegal contracts,” judges interpreting those cases have inserted a key exception to that baseline rule. The now well-established exception is that a federal court may enforce an illegal contract (or parts of an illegal contract) if, in doing so, the court fashion a legal remedy that does not compel future unlawful conduct. 

At first blush, it may seem hard to imagine how it would be possible to enforce a contract that involves an “illegal” company and not compel future illegal conduct. But, as it turns out, such circumstances are common in the cannabis industry, in which cannabis companies are paying vendors and individuals to perform services that are not inherently unlawful. Our case provides examples of potential orders that would not compel unlawful conduct:  a requirement to pay the CDTFA taxes that are required under the state’s cannabis laws and payments vendors such as PG&E. Returning  a company’s so that it can make such payments also would seem to pass the test. 

So, what are the key issues that courts consider when deciding whether to enforce an illegal contract? Based on California federal cases, it appears that the court’s top consideration is whether the court’s order would further a specific violation of federal law. In the case of cannabis, the law in central law at issue is the Controlled Substances Act (CSA) and its prohibition on manufacture, importation, possession, use, and distribution of marijuana. Other relevant laws include money-laundering statutes, which prohibit transactions in which the funds involved in the transactions are derived from illegal activity. The definition of “transaction” is key to this crime and would require a much longer explanation than is appropriate for this article. 

Given the context, in cannabis breach of contract cases, where defendants have raised the illegality defense, courts have mulled whether they can order a remedy that makes the plaintiff whole, such as restitution, for example, but is neither derived from – nor results in – the manufacture, importation, possession, use or distribution of marijuana. 

A few examples where the court found that it could not enforce a contract involving cannabis are as follows: Tracy v. USAA, where the court ruled it could not require an insurance company to pay for the replacement of the plaintiff’s marijuana plants; J. Lilly v. Clearspan, in which the court determined that awarding lost profits from a marijuana cultivation operation would further violate the law; and Hemphill v. Liberty Mutual, in which the court ruled it could not require Liberty Mutual to pay for the future use of medical marijuana expenses, because doing so would violate the Controlled Substances Act.

In contrast, federal courts have enforced cannabis-related contracts (or parts of them) where the result would not violate the CSA or other federal statutes. In Bart Street III, a case that involved financial transactions, the court said it could enforce parts of two promissory notes between a lender and a cannabis cultivation company because each note included provisions that directed defendants to use the loaned funds for solely legal acts (paying off prior lenders and purchasing property).

A court used a similar analysis in Ginsburg v. ICC Holdings There the court stated, “[E]ven if a contract is illegal, it is not automatically unenforceable. Under federal law, the illegality of contract defense involves a balancing of the ‘pros and cons of enforcement,’ taking into account the benefits of enforcement ‘that lie in creating stability in contract relations and preserving reasonable expectations’ and the ‘costs in foregoing the additional deterrence of behavior forbidden by the statute.’”

Ginsburg appeared to be influenced by a line of cases starting with Bassidji v. Goe. Bassidji, did not involve marijuana, but its analysis was followed by a Northern District case, Mann v. Gullickson, which involved a contract between two companies that served the cannabis industry. Both courts opined that “[A] court only needs to dismiss a claim for breach of contract when the contract is “illegal” if the lone remedy available would, itself be illegal.

The case between our client, the vertically integrated California cannabis company, and the Seattle-based payment processor is on-going. Central to our argument is that a court order, in which our clients’ funds were returned,  or which compelled payments to the State of California and legal vendors, such as PG&E would not violate the CSA or federal statutes. 

The story of our case is to be continued, but any California cannabis company which is considering suing for breach of contract should give serious consideration to the pros and cons of both state and federal court. Filing a case in federal court, while likely more complex, may still be the best choice. 

Robert Selna is a founding partner of Selna Partners, LLP. The law firm serves clients across California combining specialized practices in the real estate and cannabis/hemp industries with decades of experience handling complex commercial litigation, class actions and product liability litigation.  Rob has built upon his real estate work and experience with local and state government to represent clients in the real estate and cannabis industries. He advises developers on zoning, environmental and subdivision laws and the many other legal details that complicate nearly all projects. His transactional work includes leases and purchase and sale agreements. Rob specifically advises cannabis clients on licensing, regulatory matters and legislation, entity formation, contracts, real estate transactions, litigation and taxes. He can be reached at robert@selnapartners.com, (415) 601-5385.

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Volt Institute

Written by Tyler Richardson and Kevin Fox

It’s an exciting time at VOLT Institute. Two years of planning for scaled-out manufacturing training is finally coming to fruition. New equipment is arriving and being assembled. Additional instructors are coming onboard. Guided by an advisory board comprised of local employers, the organization seeks to adjust and move forward quickly. This includes changes to allow for operations amidst a global pandemic.

While the debates over masks, indoor dining, and county-specific guidelines continue, VOLT Institute never missed a beat. VOLT staff developed and implemented a comprehensive plan to keep students engaged and progressing toward in-demand careers in manufacturing with higher wages and job security. When school closures began in late March, VOLT had remote learning in place and students transitioned seamlessly. By April, other VOLT Institute training opportunities also moved into the virtual realm. 

The Supervisor Development Academy operated in partnership with Ag Safe began meeting online with workshops adjusted to two hour time blocks instead of four. Admittedly, there were concerns that this training for frontline supervisors to tackle real world situations while managing teams would not be as effective in a virtual space, but Ag Safe trainer Angelina Ceja reported that feedback from participants in this workshop remains positive. Volt’s Supervisor Development Academy gives supervisors a foundation to develop skills essential to furthering their personal and organizational success. The program addresses leadership, communication, conflict resolution, planning, and team building with an emphasis on building peer-to-peer relationships.

VOLT Institute’s popular efficiency training, Career Accelerator Program (CAP), taught by Beaudette Consulting INC. was made available remotely as well. This valuable curriculum focuses on organizational change management, continuous improvement, employee engagement, process improvement, and critical thinking problem solving are the “soft skill” training industry demands. Student survey results indicated that the length of time for each of the online training sessions was appropriate and engaging and either met or exceeded expectations. 

VOLT Institute campus reopened June 15 it was with strict COVID-19 protocols in place including mandatory wearing of masks. To ensure social distancing, students comfortable returning to the downtown Modesto campus continued their training on campus by appointment. One-on-one instruction is being offered by VOLT instructors to help students make up time lost during the mandatory shutdown.

Through it all, VOLT administration continues developing new partnerships with regional manufacturers such as the new internship program with Flowers Baking Co. This partnership gives VOLT students an opportunity to receive valuable work experience. Recently, two VOLT graduates have been accepted into E. & J. Gallo Winery’s maintenance apprenticeship program. Other VOLT graduates have started new careers in manufacturing at California’s oldest family-owned dairy, Crystal Creamery and the world’s largest plastic pipe manufacturer, JM Eagle.  Reports from VOLT alumni about promotions and wage increases are too numerous to list but VOLT is especially proud of its 96% job placement rate. 

VOLT also partnered with Valley First Credit Union to provide loans to students. This allows students looking to improve their long-term wage outcomes to apply for funding with most payments deferrable until the program is complete. The application process is online and very user-friendly. In addition, students get to participate in financial wellness training. Before the availability of the loan program, some potential students were deterred by the cost, which is low compared to similar programs of VOLT’s caliber but still represented a modest financial investment.

VOLT’s Senior Leadership Series in partnership with Next Gear Consulting is back. The series is designed to teach top level manufacturing and other executives important skills in strategic planning, building a positive company culture and leadership. Taught by Kristi Marsella, CEO of Next Gear Consulting, and former VP of Human Resources at G3 and E. & J. Gallo Winery, this series is a great opportunity to improve leadership skills. 

One of the most in demand technical skills for plant maintenance mechanics to have as the fourth industrial revolution progresses is a solid understanding of the internet of things. The implementation of complex automation has become the standard throughout industry. VOLT Institute’s partnership with Automation Group to teach both introductory and intermediate Programmable Logic Controls (PLC) courses as part of the award-winning industrial maintenance mechanics programs in a 20-hour boot camps are efficient and helpful for participants. Three boot camps are being offered for the summer session through August and September with assistance from California Manufacturing Technology Consulting (CMTC). Reduced student capacity for the training helps accommodate social distancing protocols.

As VOLT continues to receive deliveries from Amatrol, unpack and install new mechatronic, process control, and advanced electrical training equipment from the shipping crates, the vision first conceived three years ago starts to fall into place. Unskilled or semi-skilled workers have the opportunities to acquire the aptitude and the attitude to be competitive in a fast-paced manufacturing environment. They can earn higher wages with job security while fueling a vibrant, healthy economy in the Central Valley Region by strengthening each company’s most valuable asset: their people. All this happens while simultaneously hearing the voices from the advisory board and responding to the needs of investor partners in a rapidly evolving manufacturing industry. Training in electro-mechanical work with advanced programmable logic controls experience and access to nationally-recognized certifications such as National Institute for Metalworking Skills (NIMS) coupled with the new technology training are a pathway for long term sustainability for California’s Central Valley manufacturing industry. 

In the midst of a global pandemic, one thing stands out. Strategic planning is how to move forward. The ability to be nimble is a key component to the success of any strategic plan. If the plan doesn’t work, change the plan, not the goal. VOLT Institute is proud to be part of the solution for California’s Central Valley manufacturing industry. Higher wages and job security are very good ways to attract new talent to the California manufacturing industry and grow quality of life for those already living in the area. Whether the talent is new to the area or locals with deep roots one thing is certain: VOLT will continue to thrive and provide the quality of training everyone in the area deserves. 

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Alternatives to Bankruptcy: What Should Business Owners Know?

Bennet G. Young
Jeffer Mangels Butler & Mitchell LLP

The coronavirus pandemic has upended many sectors of the economy in unprecedented ways. Supply chains are disrupted. Businesses that rely on face to face interaction with their customers such as retailers and restaurants, are subject to financial distress. In turn, companies that supply products to businesses impacted by COVID-19 may also experience pressure as their customers delay or cancel purchases or are unable to pay their bills.

These stresses are likely to cause some owners of distressed businesses to explore their legal options. Bankruptcy is only one alternative for a struggling company Two other options are an assignment for the benefit of creditors (ABC) and a voluntary workout. These strategies are available to address a failing company; which can be faster and equally or more effective, at a lower cost, without the publicity of a bankruptcy filing. Business owners should be aware of these non-bankruptcy options and the circumstances in which they can be useful. 

Any discussion of bankruptcy alternatives must start with bankruptcy. Bankruptcy is the most widely known insolvency proceeding and, as the usual course taken by a failing company, forms the baseline. Any alternative should be compared to the likely outcome of a bankruptcy case. The business owner then can balance the bankruptcy and non-bankruptcy alternatives available to him or her to choose a strategy that is the best fit. 

One useful alternative to bankruptcy is an assignment for the benefit of creditors. This procedure, commonly known as an ABC, is a recognized state law procedure to sell the assets of a failing business while shielding the purchaser from liability for the old company’s debts. Usually, a distressed company is running out of cash and has limited runway to sell itself; an ABC provides a non-bankruptcy method to effectuate a prompt sale of the business. 

In an ABC, the company, called the assignor, transfers its assets to a third party, called the assignee, that typically is selected by the company. In legal terms an ABC is a trust in which the assignor transfers title to its assets to the assignee in trust for its creditors. The assignee is a fiduciary tasked with selling the assets and paying the proceeds pro rata to creditors. The assignee must give notice to creditors of the assignment and of the deadline to file claims and creditors can file claims with the assignee.

In California, no court filing is required to commence an ABC. This lowers the publicity dramatically. The proceeding is not secret or confidential, but it is not public in the way that filing a bankruptcy case is. Instead, an ABC is a matter of contract between the distressed company and the proposed assignee. The company’s board and shareholders must approve the ABC. 

The process is fast and flexible. Because the company picks the assignee, an ABC lends itself well to pre-packaging. A distressed company seeking a prompt sale, a potential buyer of the business, and the proposed assignee can negotiate a sale in advance of the ABC occurring on the understanding that the sale will be completed through the ABC. All parties know what to expect and the process can proceed on the parties’ schedule, with no delays imposed by court processes or availability. This enables a sale of a distressed business as a going concern to take place quickly with little uncertainty and minimal disruption to operations. 

Used in this manner, an ABC is a viable alternative to a sale of the business in a bankruptcy chapter 11 case. The speed and flexibility of the ABC process are its chief virtues. Since there is no court the process is usually less expensive than a chapter 11 bankruptcy case and the sale can often be completed more quickly than would occur in a chapter 11. The process provides an efficient method to sell a small to medium size failing company on a going concern basis. 

The ABC process is not without its downsides. A distressed business must weigh these downsides against the speed, flexibility and lower transaction costs of the ABC process. The most important is that the purchaser will not get a court order validating its purchase as it would in a bankruptcy. The purchaser must rely on the integrity of the process to shield it from the distressed company’s creditors. Furthermore, there is no automatic stay to restrain foreclosure as there would be in a bankruptcy case, so the cooperation of the assignor’s secured lenders is essential. Unlike in a bankruptcy case, there is no power to assign leases or contracts without consent. This can cause complications if the company’s contractual relationships are a major asset. Finally, by handing the company to the assignee, the business owner will lose control. This is not necessarily a negative, as it enables the business owner to move on to new opportunities. 

Another useful option is for the distressed company to attempt a voluntary workout with its creditors. This is not a formal process. Instead, a workout is a matter of negotiation between the distressed company and its creditors. The usual concept is to engage in a process that is substantially similar to what would occur in a chapter 11 bankruptcy case by agreement of the parties, without filing a bankruptcy case and without incurring the large legal fees or impact on the business that will result if a bankruptcy case is actually commenced. Chapter 11 thus forms the backdrop for the negotiations. 

Typically, in a voluntary workout the debtor will invite its creditors to a meeting. At the meeting, the debtor will make a presentation to the creditors in attendance regarding its financial condition, how it got there, and what the debtor intends to do to extricate itself from its predicament. The debtor will request that the creditors agree to a moratorium on collection action, similar to the automatic stay in a bankruptcy case, and that the creditors appoint a committee of creditors to negotiate a workout plan with the debtor. In return, the debtor will usually offer to be completely transparent with its creditors, to provide information regarding the business, and to refrain from engaging in any out of the ordinary course transactions. This creates a structure that mirrors what would occur in a chapter 11 case.

The goal of the process is for the debtor and the appointed committee to negotiate a repayment plan on behalf of all creditors. The plan can take whatever form the parties negotiate. Often the plan will consist of the debtor’s agreement to pay a percentage or even all of its profits or positive cash flow to its creditors over a period of time in exchange for the creditors agreeing to discount their debts in some amount. Another common structure is for the creditors to agree to a discount in return for an immediate cash payment funded by new capital contributed by a new investor. 

Once the debtor and committee have negotiated a plan, the plan is circulated to creditors to accept or reject it. Participation is voluntary. Only creditors that accept the plan are bound, so the debtor generally will insist that a high percentage of creditors accept the plan in order for it to go into effect. If a sufficient number of creditors accept the plan, it will go into effect. If the required majority do not accept, the debtor likely will end up in a chapter 11 case. The plan thus needs to provide a result that is at least as good, if not better, than the result would be in a chapter 11 case.

The voluntary workout thus can be a viable alternative to a chapter 11 case. The benefits of the process are its flexibility and reduced legal fees which can mean more funds available for creditors. A workout often is faster than a chapter 11 case, there is no public filing and therefore less publicity, and the business owner remains in control. On the other hand, a workout depends upon cooperation between the debtor and its creditors. If that cooperation is absent because creditors do not trust the debtor or for other reasons, a voluntary workout might not be possible. The process also depends upon creditors cooperating with one another and accepting equal treatment. There is no automatic stay, so creditors are free to pursue collection actions and to attempt to jump to the head of the line. If some creditors pursue collection actions and seek to improve their position relative to other creditors, the process can break down. Finally, creditor participation in a plan is voluntary. There is no way to bind creditors that reject the plan. Holdouts thus can create major hurdles.

The selection of the non-bankruptcy alternative depends upon the result the business owner desires to achieve. If the goal is to sell the business as a going concern, an ABC is a useful tool. Usually a distressed company is running out of cash and has limited runway to sell itself, and the ABC provides a non-bankruptcy method to effectuate a prompt sale. On the other hand, if the business owner’s objective is to retain his or her stake in the enterprise and to negotiate a payment plan with creditors globally, a voluntary workout can be a less costly way to achieve this goal.

Bankruptcy is not a one size fits all solution. There are other routes available to a distressed business which can be just as effective at a far lower cost. Owners of troubled companies should be aware of these options and should evaluate whether one of them might provide a better fit.

Bennett G. Young is a partner at the law firm of Jeffer Mangels Butler & Mitchell LLP. He represents parties in insolvency matters and has extensive experience in workouts, restructurings, bankruptcies, and assignments for the benefit of creditors. Ben is a member of the Bench-Bar Liaison Committee for the United States Bankruptcy Court for the Northern District of California and is a former Chair of the California State Bar’s Insolvency Law Committee, a past president of the Northern California Chapter of the Turnaround Management Association, and has been a member of the Board of Directors of the Bay Area Bankruptcy Forum. He is recognized by Best Lawyers in America® in the area of bankruptcy. Contact Ben Young at BYoung@jmbm.com

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Innovating Dairy Digester Research

Author: Chris M Brunner
Originally Published on UCANR Food Blog

This episode of Food & Facilities, our host is joined by Chris Brunner and Heather Johnson of Western Institute for Food Safety and Security, and Dr. Pramod Pandey of UC Davis’ School of Veterinary Medicine to discuss innovating dairy digester research.
Open in Spotify to listen.
Dr. Pandey checking samples of biogas collected at UC Davis School of Veterinary Medicine’s lab.
Samples of biogas collected at Dr. Pandey’s lab at the UC Davis School of Veterinary Medicine.

California leads the nation in agricultural production, producing nearly all the nation’s leafy green vegetables, most nut and fruit varieties, and is ranked first in egg and dairy production.

What that means is that California also produces a lot of agricultural waste materials, including lots of manure.

Historically these waste materials have been used as a rich source of compost. However, researchers at UC Cooperative Extension are researching innovative uses for this material. 

Dr. Pramod Pandey, a faculty member and Cooperative Extension specialist at the UC Davis School of Veterinary Medicine, focuses on better ways to manage waste material for both large and small farms. Dr. Pandey researches how to convert the organic matter in manure and other waste materials into a renewable energy source that can be used to power our state.

Converting manure to renewable energy

California gets over 27% of its energy from renewable resources like solar wind, and hydroelectric. Our goal is 50% renewable energy by 2030. California is taking steps towards this goal by building a network of dairy digesters which use bacteria to break down dairy manure and convert it into biogas. Clean burning fuels, such as biogas, are a sustainable source for generating energy because when they are burned, harmful by products are not produced.

California currently gets 27% of its renewable energy from solar, wind, and hydro-electric sources. California hopes to reach 50% renewable energy by the year 2030, and 100% by 2045.

Big bonus

Dr. Pandey holding dry manure material, ready for reuse as fertilizer.

A bonus is that the solid material left after the digesters have done their job is a fertilizer that can be used to grow the fruits, vegetables and nuts that our state is famous for. This type of fertilizer contains nutrients that are more readily available for plants because the digestion process breaks up organic materials more efficiently than traditional composting. The digestion process also helps reduce the number of harmful bacteria found in manure, making it much safer for use on plants grown for human food.

Dr. Pandey and Tim Van Beek (Van Beek Brothers’ Dairy) inspect the contents of a dairy digester together.

California leading in discovery and innovation

When we think about where agriculture has been and where it is going, innovation, efficiency and environmental sustainability are hallmarks of our approach in California. People like Dr. Pandey are driving forward research and technology to minimize the impact of agriculture production on the environment. When we think about where agriculture has been and where it is going, innovation, efficiency and environmental sustainability are hallmarks of our approach in California. His multidisciplinary approach to solving this complex problem of agricultural waste materials and water/air quality helps improve the economic wellbeing of farmers, and benefits Californians by providing nutrients for safe, healthy, and nutritious food.

While the importance of California’s agriculture might be huge, its footprint on the environment doesn’t have to be, and it is researchers like Dr. Pramod Pandey who are ensuring our state leads in discovery and innovation for many harvests to come.

Dr. Pandey and Tim Van Beek stand in front of dairy cows at the Van Beek Brothers’ Dairy.
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California League of Food Producers (CLFP) Annual Meeting April 30

News Release

California League of Food Producers

For more information:  Lisa Jager, 916-640-8150, lisa@clfp.com

CLFP Annual Meeting April 30

The California League of Food Producers (CLFP) will hold its 2020 Annual Board of Directors Meeting on April 30 via webinar. The meeting will be presided over by outgoing 2019-20 chair Ross Siragusa, The Kraft Heinz Company. Michael Mariani, Mariani Packing Company, Inc., is expected to be elected and welcomed as the 20-21 chair.

Siragusa is Head of Agriculture & Seed for Kraft Heinz and works out of its Stockton, CA, office. Mariani is a Partner with Mariani Packing, which is based in Vacaville, CA.

Members will hear legislative and regulatory updates from CLFP’s Government Affairs Directors Trudi Hughes and John Larrea, as well as information on how the coronavirus is affecting California’s food
processing industry.

CLFP is an association representing the interests of both large and small food and beverage processors throughout the state. CLFP works to help ensure a favorable and profitable business environment for its members and the food processing industry. The association also has affiliate members that provide a wide variety of products and services to the industry

The Food Processing Expo is produced each February by CLFP, and is the largest event of its kind in California. The 2021 Expo will be held February 9-10 at the Sacramento Convention Center.

For more information, visit CLFP at www.clfp.com and the Expo site at www.foodprocessingexpo.org