Judge: Grabanski didn’t mislead CPSFARGO, N.D. — Tom Grabanski, the embattled Grafton, N.D., farmer whose farming activities in Texas and Colorado have led to a series of bankruptcies and lawsuits, has gotten a piece of favorable news.
By: Mikkel Pates, Agweek
FARGO, N.D. — Tom Grabanski, the embattled Grafton, N.D., farmer whose farming activities in Texas and Colorado have led to a series of bankruptcies and lawsuits, has gotten a piece of favorable news.
Judge William A. Hill on Aug. 18 ruled that Grabanski had not deliberately misled creditor Crop Production Services Inc. CPS attorney, Roger Minch of Fargo, N.D., says his client is studying whether to appeal the issue by a Sept. 1 deadline.
Hill’s last day before retirement was Aug. 22, and a replacement hasn’t been officially named.
CPS alleged Grabanski had deliberately misled them into extending operating credit to Grabanski based on fertilizer, seed and chemicals in 2009. In his ruling, Hill says CPS didn’t prove Grabanski deliberately misled them. Grabanski didn’t testify in the case.
CPS, in an April 19 hearing in Fargo, asked that $1.05 million in unsecured debt be “nondischargeable” in a Grabanski-related bankruptcy, on grounds that Grabanski had intentionally misled the company about its financial strength. CPS is a nationwide company, but the officials in this case were from Texas.
CPS or its predecessors had lent money to Grabanski from 2004 to 2006 personally and as G&K Farms, a farming partnership, in which Grabanski was a partner with John Keeley in 2007, 2008 and 2009.
Vance Stroebel, a regional credit manager with CPS, in that hearing, said he gave G&K Farms a $1 million credit limit in 2008. The payments were “a little slower” for the 2008 crop year, but were paid by Jan. 21, 2009. The debt is still there; it has to be handled in a plan, but now is potentially discharged.
Then for 2009, CPS changed its policy to give salesmen authorization to terminate credit without a credit manager’s approval. Randy Parson was the salesman for CPS.
In 2009, Stroebel authorized a $750,000 line of credit, using G&K’s updated documents, accumulated by Parson. Stroebel reviewed Keeley’s and Grabanski’s balance sheets. He testified that Grabanski’s balance sheets then appeared a little “upside down” but didn’t disqualify him. He also reviewed a balance sheet for “Keeley Grabanski Texas” — another company controlled by Grabanski — and admitted he “mistakenly thought it was G&K’s balance sheet.”
The Keeley Grabanski Texas balance sheet listed a purchase of land in the amount of $7.1 million, which Stroebel took to be a “hard asset with equity.” This balance sheet also listed $415,530.10 as cash on hand.
Grabanski’s balance sheet from Dec. 31, 2007, listed $14.7 million in assets and $7.07 million in liabilities and had “cash on hand and no creditors, which meant a equity ratio of about 40 percent. Similarly, Keeley had an equity position of $5.6 million.
Parsons supplied year-end balance documents that showed G&K Farms had $20.5 million in assets, including $17 million in land and $1.5 million in equipment, and a year-end balance of $7.1 million in equity. He also saw that the company had a $4.5 million line of credit at a bank of which $295,000 was left to borrow.
Assumptions not verified
In his ruling, Hill underlines that Stroebel had testified he’d said he “assumed” that Keeley Grabanski Texas was the same as G&K Farms and that he didn’t confirm any figures in the documents, nor did he verify who owned what land on the list of land by contacting Grabanski personally.
“In fact, Stroebel testified he never spoke with (Grabanski) about his application, but CPS’ review policy did not require Stroebel to call” Grabanski,” Hill says. CPS argued that the loans were a kind of package deal, backed up by personal guarantees.
Stroebel extended credit for the 2009 crop year and offered “an additional lending option” by using a “third party” lender. The third party was Pro Partners, a bank connected to Farm Credit Services. Pro Partners asked for two years of tax returns, but Stroebel didn’t have those documents. Instead, he provided Pro Partners with documents showing $20.2 million in assets and $13.3 million in liabilities, demonstrating $6.9 million in equity.
Pro Partners denied the G&K Farms application in April 2009. Meanwhile, Stroebel in March 2009 had reconsidered his loan and moved to collect its outstanding balance. On May 20, 2010, a CPS statement said G&K Farms owed $777,000, plus a service charge of nearly $9,500 a month. Grabanski filed Chapter 11 bankruptcy July 22.
The bankruptcy code says debts that were obtained by fraud are not dischargeable, meaning they don’t go away.
CPS says Grabanski intended to deceive by listing property and assets they didn’t own. But Hill says the documents “clearly stated what entity or person owned each tract” and that Stroebel admitted misinterpreting them and “assumed G&K Farms Keeley Grabanski Texas were the same entity.”
“Stroebel’s own incorrect reading of the document that detailed Keeley Grabanski Texas owned land, not G&K Farms, cannot be construed as intent to deceive on (Grabanski’s) part,” Hill writes.
Hill says it is “quite possible” that the monetary loss suffered by CPS was “due to its own action of revoking the supply of inputs partially through a crop year,” he says. He says the documents G&K provided to CPS were true, but that there is no evidence Grabanaksi “caused them to be made or published with the intent to deceive.”
They said CPS offered credit to G&K Farms in 2009 after “completing its normal annual review and then abruptly revoked that credit only a few months into the season after a third party declined to extend G&K Farms additional credit,” Hill says.
Each party would bear its own attorney’s fees on the issue, he says.