9 C.F.R. § 201.42

Custodial accounts for trust funds

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(a) Payments for livestock are trust funds. Each payment that a livestock buyer makes to a market agency selling on commission is a trust fund. Funds deposited in custodial accounts are also trust funds.

(b) Custodial accounts for shippers' proceeds. Every market agency engaged in selling livestock on a commission or agency basis shall establish and maintain a separate bank account designated as “Custodial Account for Shippers' Proceeds,” or some similar identifying designation, to disclose that the depositor is acting as a fiduciary and that the funds in the account are trust funds.

(c) Deposits in custodial accounts. The market agency shall deposit in its custodial account before the close of the next business day (the next day on which banks are customarily open for business whether or not the market agency does business on that day) after livestock is sold (1) the proceeds from the sale of livestock that have been collected, and (2) an amount equal to the proceeds receivable from the sale of livestock that are due from (i) the market agency, (ii) any owner, officer, or employee of the market agency, and (iii) any buyer to whom the market agency has extended credit. The market agency shall thereafter deposit in the custodial account all proceeds collected until the account has been reimbursed in full, and shall, before the close of the seventh day following the sale of livestock, deposit an amount equal to all the remaining proceeds receivable whether or not the proceeds have been collected by the market agency.

(d) Withdrawals from custodial accounts. The custodial account for shippers' proceeds shall be drawn on only for payment of (1) the net proceeds to the consignor or shipper, or to any person that the market agency knows is entitled to payment, (2) to pay lawful charges against the consignment of livestock which the market agency shall, in its capacity as agent, be required to pay, and (3) to obtain any sums due the market agency as compensation for its services.

(e) Accounts and records. Each market agency shall keep such accounts and records as will disclose at all times the handling of funds in such custodial accounts for shippers' proceeds. Accounts and records must at all times disclose the name of the consignors and the amount due and payable to each from funds in the custodial account for shippers' proceeds.

(f) Insured banks. Such custodial accounts for shippers' proceeds must be established and maintained in banks whose deposits are insured by the Federal Deposit Insurance Corporation.

(g) Certificates of deposit and/or savings accounts. Funds in a custodial account for shippers' proceeds may be maintained in an interest-bearing savings account and/or invested in one or more certificates of deposit, to the extent that such deposit or investment does not impair the ability of the market agency to meet its obligations to its consignors. The savings account must be properly designated as a part of the custodial account of the market agency in its fiduciary capacity as trustee of the custodial funds and maintained in the same bank as the custodial account. The certificates of deposit, as property of the custodial account, must be issued by the bank in which the custodial account is kept and must be made payable to the market agency in its fiduciary capacity as trustee of the custodial funds.

(Approved by the Office of Management and Budget under control number 0580-0015) [47 FR 32696, July 29, 1982, as amended at 54 FR 26349, June 23, 1989; 68 FR 75388, Dec. 31, 2003; 88 FR 62696, Sept. 13, 2023]

Notes of Decisions

Cited in 15 cases (1 in the last 5 years), 1960–2022 · leading case: Cent. Bank of Mississippi v. Butler, 517 So. 2d 507 (Miss. 1987).

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Cent. Bank of Mississippi v. Butler, 517 So. 2d 507 (Miss. 1987). · cites it 2× “CMLE, being subject to the Packers and Stockyards Act, 1921, [1] was required to maintain a custodial account pursuant to 9 C.F.R. § 201.42 (1987), which describes payments for livestock as "trust funds.”

N.P. Deoudes, Inc. v. Snyder (In Re Snyder), 171 B.R. 532 (Bankr. D. Md. 1994). · cites it 8× “at 655 , quoting 9 C.F.R. § 201.42 (emphasis added). Moreover, the trust provisions at issue in the two PSA cases were established by regulation, 9 C.”

Baugh v. Matheson (In Re Matheson), 10 B.R. 652 (Bankr. S.D. Ala. 1981). · cites it 2× “Specifically, 9 CFR 201.42 is applicable here: Sec. 201.”

Nat'l Bonding & Accident Ins. v. Petersen (In Re Petersen), 51 B.R. 486 (Bankr. D. Kan. 1985). · cites it 2× “There the debtor was a market agency under the Packers and Stockyards Act and, like debtor here, was required to maintain a custodial account under Department of Agriculture Regulation 9 C.F.R. § 201.42 . However, the case is distinguishable in that Matheson, the debtor, was the…”

Cobb v. Yeutter, 889 F.2d 724 (6th Cir. 1989). · cites it 4× “9 C.F.R. § 201.42 . 1 In July 1986, an administrative hearing was held before an AU.”

Mahon v. Stowers, 416 U.S. 100 (1974). “42, 9 CFR § 201.42 , deals specifically with the subject of custodial accounts, and provides- in subsection (a) that payments made to a market agency or licensee are to be considered trust funds until a payee custodial account has *112 been paid in full.”

United States v. Ocala Live Stock Mkt., Inc., 861 F. Supp. 2d 1328 (M.D. Fla. 2012). · cites it 4× “” See 9 C.F.R. § 201.42 . Custodial account funds cannot be mingled with other operating funds, and withdrawals are permitted from the custodial account only to remit the net proceeds due to a consignor or to pay other lawful marketing charges.”

Rowse v. Platte Valley Livestock, Inc., 604 F. Supp. 1463 (D. Neb. 1985). “Platte Valley should have paid to the Rowses the portion of the proceeds still in its hands once Lenhart learned the full facts, as it had done for the Rezac Brothers after the Rezacs complained that Kaba had not paid them for cattle he purchased from them and sold through…”

Davis v. United States (In Re Farmers & Ranchers Livestock Auction, Inc.), 46 B.R. 781 (Bankr. E.D. Ark. 1984). “For instance, 9 C.F.R. § 201.42 requires a market agency to maintain a custodial account, (a trust fund) and outlines procedures governing deposits, withdrawals and accounting methods in that connection.”

Hyatt v. United States, 276 F.2d 308 (10th Cir. 1960). · cites it 2× “7 The petitioners had been ordered to establish and maintain the custodial account by reason of prior difficulties, pursuant to 9 CFR § 201.42 . 8 Petitioners used the custodial account to finance personal business, not in an isolated transaction, but in a series of deals the…”

Smeed v. Carpenter, 274 F.2d 414 (9th Cir. 1960). · cites it 2× “42, 9 C.F.R. § 201.42 . It is also required under the regulations that a dealer, as defined in the act, 7 U.”

Lich v. Cornhusker Cas. Co., 774 F. Supp. 1216 (D. Neb. 1991). “Pursuant to 9 C.F.R. § 201.42 , Brigham was required to place any funds received from selling livestock on commission into a custodial account, to be kept in trust for livestock sellers.”

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