Mentor, Minn., seed firm's failure may leave farmers holding the bag
Attorneys representing North Dakota farmers who are still owed money by Mentor, Minn., based Anderson Seed Co. are growing more worried that their clients will not end up with very much.
Mike Gust, a lawyer whose Fargo firm represents some of the farmers, said he spoke recently to a lawyer at Rinke Noonan, the St. Cloud, Minn., law firm that's representing Anderson.
"They were certain that the sale proceeds, after secured creditors were paid off, would not be sufficient to pay all (farmer) claims in North Dakota and that they had a $280,000 bond in North Dakota that the Public Service Commission would be, at some point, handling," Gust said of the conversation.
According to the state Public Service Commission, Anderson owes more than 20 farmers $1.4 million for sunflower seeds delivered to elevators in Cass and Pierce counties. The commission is seeking to take over those facilities.
Most of Anderson's assets and that of a sister company, the St. Hilaire (Minn.) Seed Co., were bought by Winnipeg-based Legumex Walker Inc., in a $19 million deal in mid-February. Left out of the deal was Anderson's plant in Redfield, S.D.
Lowell Bottrell, a partner in Gust's firm, said recent moves by LWI involving the Redfield plant are worrisome for his clients.
He said he feels the bond requirement for elevators in North Dakota and in many other states is too small and should be raised to protect farmers.
In South Dakota, the bond requirement is even less than in North Dakota at $100,000. Anderson owes more than 40 farmers $2.6 million for seeds delivered to the Redfield plant, according to the state's Public Utilities Commission.
In Minnesota, the bond requirement is $125,000. The number of farmers Anderson owes money to has not been reported.
Bottrell, who has been involved in several insolvency cases, said the bond amounts were fitted for agricultural prices that were far lower than today. Bonds currently are set on the bushel capacity of elevators and brokers, and should be set on the dollar amount they handle, he said.
"You've got wheat at $8 a bushel; you've got soybeans at $12. You've got corn at $6, plus," Bottrell says. "What's one semi-load of corn worth? What's one semi-load of soybeans worth? One load gets delivered. That'll eat up most of the bonds you'll find in North Dakota. There's very few bonds that are anywhere close -- anywhere close to the values going through the elevator."
"Elevators don't fail in a week, they fail over a period of time," he said. "So if an elevator gets crosswise in its contracts, and people don't deliver under contracts that they have, things may build up for 60 days before they're paid. Now you're backwards 60 days in all of this grain going through the facility. Where do you think that puts the liability at? It's substantial."
Just the three farmers that his firm represents and the money they are owed exceeds the $280,000 bond available for the more than 20 farmers owed money, he said.
Bottrell suggested North Dakota start a new fund that would be available for all farmers and all commodities during elevator failures. For example, he said, "Why not have a fund out there that if you took 1 cent a bushel for any one of these commodities, and set up a fund, and capped that fund out at $10 million, the Legislature could do it without ... making elevators pay a lot more for bonds."
The state has a fund already, but is specific to only one kind of contract.
A more immediate concern for Bottrell is a recent move by LWI to add a $2.6 million mortgage modification to the Redfield plant. US Bank has an $11.1 million lien on the plant.
At the same time, a new company called BinCo Holdings, located at the same address as Anderson's law firm Rinke Noonan and US Bank's office building in St. Cloud, has filed a quitclaim deed in Spink County, S.D., that says it's now the owner of the Redfield Anderson plant.
The company took ownership subject to the US Bank mortgage, which has not been satisfied, according to county records.
Bottrell said he worries LWI's move could make the company a secured creditor of the plant, meaning it'd be in a position to foreclose on the plant in case of default. He wondered if the $2.6 million will go to satisfy part of US Bank's debt.
This ultimately could put farmers and other unsecured creditors in a worse position to collect, he said.
North Dakota law is unique in that it considers farmers unsecured "unless they can find grain left in the facility," he said. "Grain in the facility belongs to the farmers until the farmers are paid," he said. "Security interest to a lender doesn't attach to the grain inventory until all of the farmers are paid."
But there may not be any grain left in the North Dakota elevators.
Gust said that, in his call with Rinke Noonan attorney Gary Leistico, "I told him we need to explore what grain is at the (North Dakota) facilities. He assured me that, at the point of sale, there was no grain in the North Dakota facility to be had."