Does the South Dakota cooperative-association exemption from the wholesale dealer bond requirement also exempt out-of-state cooperatives doing business in South Dakota, and when does that exemption become available to a foreign cooperative that was already operating in SD before the 1965 Cooperative Act took effect?
Plain-English summary
SD's wholesale dealer law (SDC 1960 Supp. 4.2402, as amended by Chapter 9, Session Laws of 1963) defined as a "dealer at wholesale" anyone who bought, sold, contracted for, or trucked eggs, poultry, poultry products, or dairy products in wholesale lots for resale. Wholesale dealers had to post a bond. But subparagraph (3) carved out an exemption for "Cooperative Associations having not more than forty percent of non-member patrons."
The 1966 question was whether that exemption reached foreign (out-of-state) cooperatives doing business in SD. The wrinkle was the 1965 Cooperative Act (Chapter 23, Session Laws of 1965), which restructured how foreign cooperatives operated in SD. Section 11.1150 of the 1965 Act said that on issuance of the Secretary of State's certificate of authority, a foreign cooperative becomes entitled to all the same rights, exemptions, and privileges as an SD-organized cooperative for the same purposes. So a properly authorized foreign cooperative would in principle get the SDC 4.2402(3) exemption.
But Section 11.1156(2) added a transition rule. A foreign cooperative that had already been admitted to do business in SD before July 1, 1965 is not subject to the new 1965 Act until after June 30, 1967, unless the cooperative voluntarily opts in earlier by applying to the Secretary of State for an amended certificate of authority. That two-year delay was designed to give existing foreign cooperatives time to align with the new framework.
The AG read those two sections together. The exemption flows from being subject to the 1965 Act's authorization framework. A foreign cooperative pre-admitted before July 1, 1965 that has not opted in is not yet subject to the 1965 Act, so it cannot yet claim the cooperative-exemption rights that come with that framework. After June 30, 1967, or upon earlier voluntary opt-in, that foreign cooperative gets the exemption.
The bottom line was a qualified no to the specific question asked. The exemption can apply to a foreign cooperative, just not immediately and not automatically for foreign cooperatives that were already operating in SD before July 1, 1965 and have not yet opted in to the new Act.
Currency note
This opinion was issued in 1965-66. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The SDC 1960 Supp. and 1965 Session Laws cited here have been superseded by modern SDCL Title 47 (corporations and cooperatives) and Title 39 (food and drugs). The 1965 Cooperative Act's transition rules expired in 1967, so the timing question itself is moot. Current rules on foreign cooperative authority and wholesale dealer bond requirements should be looked up directly in current SDCL.
What the opinion meant at the time
For a foreign cooperative doing business in SD before July 1, 1965 (the typical large interstate dairy or egg co-op operating across the upper Midwest), the opinion meant the cooperative exemption from the wholesale dealer bond was not yet available. The cooperative either had to keep posting the bond until after June 30, 1967, or had to voluntarily file with the SD Secretary of State for an amended certificate of authority to come under the 1965 Cooperative Act early.
For SD's agriculture inspectors enforcing the wholesale dealer bond rule, the opinion told them that pre-1965 foreign cooperatives could not invoke the cooperative exemption automatically. Inspectors needed to check whether the cooperative was operating under the pre-1965 framework or had opted in to the 1965 Act.
For the Secretary of State's corporate filings staff, the opinion identified opt-in applications under § 11.1156(2) as the pathway for foreign cooperatives wanting the exemption before July 1967. Each applying cooperative would get an amended certificate of authority subject to the 1965 Act's terms.
For SD-organized cooperatives, the opinion did not affect them. They were already SD entities, so the cooperative exemption applied as long as their non-member patronage stayed at or below 40 percent.
For state legislators reviewing how the 1965 Cooperative Act was working in practice, the opinion identified a real friction point that the transition rule had created: a foreign cooperative caught between the old framework (no automatic exemption) and the new (exemption available, but only on opt-in or after a two-year wait).
Common questions
Q: Who was required to post a wholesale dealer bond?
A: Anyone who bought, sold, contracted for, or trucked eggs, poultry, poultry products, or dairy products in wholesale lots for resale. The definition is broad and captured most commercial wholesalers in those product categories.
Q: Why did cooperatives get an exemption?
A: Cooperative associations operate on a member-patron model. SD legislative policy in the 1960s treated cooperatives as fundamentally different from for-profit dealers and exempted them from many regulatory burdens that applied to ordinary wholesalers. The 40 percent non-member-patron cap kept the exemption from being abused by cooperatives operating largely as for-profit dealers in disguise.
Q: What about foreign (out-of-state) cooperatives?
A: They could get the same exemption, but only if they had been admitted to do business in SD under the 1965 Cooperative Act framework. Section 11.1150 of the 1965 Act gave foreign cooperatives admitted under the Act the same rights and exemptions as SD-organized cooperatives.
Q: What was the timing issue?
A: Section 11.1156(2) of the 1965 Act delayed application of the new framework to foreign cooperatives already admitted in SD before July 1, 1965, until after June 30, 1967, unless the cooperative voluntarily opted in earlier.
Q: Could a foreign cooperative opt in early?
A: Yes, by applying to the Secretary of State for an amended certificate of authority indicating election to come under the 1965 Cooperative Act. Once amended, the cooperative was subject to the 1965 Act (and entitled to its exemptions, including the cooperative exemption from the wholesale dealer bond).
Q: Did the AG analyze whether the SD-organized cooperative exemption applied even before the 1965 Act?
A: The AG focused on foreign cooperatives in this opinion. SD-organized cooperatives were not part of the question. The pre-1965 SDC framework presumably handled SD cooperatives differently from out-of-state ones.
Q: Is the 40 percent non-member-patron rule still in effect?
A: The cited SDC provisions have been replaced by modern SDCL. Any current cooperative classification rule should be looked up directly in current law.
Background and statutory framework
SD's wholesale dealer regulation in the mid-1960s sat in SDC Title 4 (Agriculture). SDC 1960 Supp. 4.2402, as amended by Chapter 9, Session Laws of 1963, defined "dealer at wholesale" broadly and required a bond from anyone who met the definition. The bond protected producers from non-payment by wholesale buyers and protected consumers from unaccountable distributors of perishable products.
The cooperative-association carve-out at subparagraph (3) reflected SD policy treating member-patron cooperatives differently from for-profit wholesalers. Cooperatives operate on a non-profit, member-benefit basis: producers organize and own the cooperative jointly, the cooperative purchases or markets on their behalf, and surpluses flow back as patronage refunds. The cap at 40 percent non-member patronage prevented cooperatives from drifting into for-profit operation without losing the exemption.
The 1965 Cooperative Act (Chapter 23, Session Laws of 1965) overhauled the framework for cooperative organization and foreign cooperative authority. Section 11.1150 made the basic equivalence rule: an authorized foreign cooperative gets the same rights and exemptions as an SD-organized one. Section 11.1156 added transition rules for cooperatives that were already operating in SD before the new Act. Subsection (2) extended a two-year grace period during which pre-1965 admitted foreign cooperatives stayed under the old framework, with an opt-in path through the Secretary of State.
The 1966 AG opinion reads those sections together with the dealer bond exemption. The exemption is one of the rights that flows from cooperative status under the new Act. Pre-1965 foreign cooperatives that have not yet come under the new Act are not yet entitled to the exemption. After June 30, 1967, all foreign cooperatives doing business in SD would be subject to the 1965 Act and could claim the exemption (subject to the 40 percent non-member patronage limit).
The transition rules in Section 11.1156(2) are typical legislative response to the practical problem of changing a regulatory framework that businesses are already operating under. The Legislature did not want to disrupt existing foreign cooperative operations on July 1, 1965, but it also did not want a permanent two-tier system. The two-year window struck a balance, with opt-in available for cooperatives that wanted the new Act's benefits earlier.
Citations and references
Statutes:
- SDC 1960 Supp. 4.2402 (as amended by Chapter 9, Session Laws of 1963)
- Chapter 23, Session Laws of 1965, § 11.1150
- Chapter 23, Session Laws of 1965, § 11.1156
Source
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain, the linked landing page is authoritative.
Statutes. Non-Resident cooperative associations entitled to exemption under provisions of SDC 1960 Supp. 4.2402 (3) as amended by Chapter 9, Session Laws of 1963.
You have requested an opinion of this office for an answer to the following question:
"Does the exemption contained in Paragraph (3) section 4.2402 exempt out-of-state cooperatives doing business within the State of South Dakota from the bond requirements of the present"
SDC 1960 Supp. 4.2402 as amended by Chapter 9, Session Laws of 1963 reads as follows:
"Any person who shall buy or sell, contract to buy or sell, or handle on account of or as agents for another, and any person who shall similarly engage in the business of assembling and trucking for such purposes, any eggs, poultry, poultry products or dairy products in wholesale lots, for the purpose of resale, with or without an established place of business, shall, for the purpose of this chapter be deemed a dealer at wholesale. Provided, however, that the following shall not be deemed a dealer at wholesale within the meaning of this chapter;
"(3) Cooperative Associations having not more than forty percent of non-member patrons."
Section 11.1150 of Chapter 23, Session Laws of 1965 reads as follows:
"Foreign cooperative authority. Upon issuance of the secretary of state's certificate of authority a foreign cooperative is entitled to all rights, exemptions and privileges of a cooperative organized for the same purposes under the laws of this state."
Section 11.1156 of Chapter 23, Session Laws of 1965 states in part:
"(2) No foreign cooperative admitted to do business in this state before July 1, 1965, is subject to this Act until after June 30, 1967 but any such cooperative may elect to become subject to the provisions hereof at any time thereafter by making application to the secretary of state for issuance of an amended certificate of authority to that effect;
Therefore, a foreign cooperative admitted to do business in the state prior to July 1, 1965 would not be entitled to the exemption contained in SDC 1960 Supp. 4.2402 (3) until after June 30, 1967 unless and until such foreign cooperative has elected to become subject to the provisions of Chapter 23, Session Laws of 1965, in accordance with the provisions of Section 11.1156 thereof.
In the light of the statutes quoted above, it is my opinion that the answer to your specific question must be and is a qualified "NO".