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Published September 19, 2011, 02:55 PM

Dairy drama: A timeline

By: Mikkel Pates, Agweek

By 2009, Prairie Ridge Management was managing activities at Excel Dairy in Thief River Falls, Minn., New Horizons Dairy in Hoffman, Minn., Veblen East Dairy and Veblen West (the old MCC Dairy), as well as Lone Tree Dairy in Cottonwood, Minn.

Intertwined were another set of side businesses for raising calves, heifers or different phases, all involving a complex program of cattle movements. The company also was feeling the effects of numerous environmental breeches, as well as a volatile commodity market.

Here, we continue the timeline as the company principals struggled with these factors and hints of what might be coming next.

2009

- April 15: Vantage Cattle Co., established. Investors: Aaron Anderson, Duayne Baldwin, Jay and Jorden Hill, Richard Millner, Dennis Pherson Jr., Lenny Pherson, Wayne Viessman and Michael Wyum. This is a heifer-raising operation, taking cattle after Shortfoot, raising them to freshening age. Some of this was happening in the Sidney, Mont., area.

- May 20: Veblen East and Veblen West both cited for manure being above freeboard for basins and affected by high winds.

- June 12: Excel Dairy fails deadline to empty manure from three basins.

- Sept. 21: Veblen East Dairy Limited Partnership members are jointly and severally obligated for a $4.5 million in guarantees to AgStar. (Those include Jay and Jorden Hill, Richard Millner, Dennis Pherson Jr., Duayne Baldwin, Mark Wyum.)

- Oct. 23: South Dakota Department of Environment and Natural Resources issues a notice of violation regarding both Veblen East and Veblen West dairies about manure levels being too full in pits. Manure levels were lowered, but not sufficient to be in compliance.

- Nov. 17: South Dakota DENR finds evidence of discharges from both

Veblen East and Veblen West in the Little Minnesota River and received reports and complaints associated with Big Stone Lake.

- Dec. 3: Jim Nickeson files personal bankruptcy (09-10263). Nickeson is a shareholder and former MCC Dairy director and sometime partner with Rick Millner. Nickeson lists 32 creditors, including $217,000 for Farm Plan, and $100,000 for Wells Fargo Business line, Carol Stream Ill.

- Dec. 3: Central Livestock Association and Genex Cooperative, Shawana, Wis., sue Millner and Nickeson.

2010

- Jan. 20: MPCA denies pollution permit reissuance to the Dairy Dozen in Minnesota’s Marshall County, noting Rick Millner’s “history of routinely modifying feedlot facilities without authorizing from the MPCA, allowing discharges to waters of the state, violating the state ambient air quality standards, and noncompliance with permit and administrative order requirements.”

- March: Prairie Ridge ends management of the dairy operations at Veblen East. U.S. Bankruptcy Judge Charles Nail grants Trustee Forrest C. Allred motion to sell Veblen West Dairy to AgStar for $8.7 million and its cattle for $800 per head, or about $2.96 million for 3,700 head.

- March 28: Millner, in an affidavit (sworn to notary public Karen Hornseth, one of his partners), says — among other responsibilities — he is managing partner/general manager for Vantage Cattle Co. L.L.P. He describes Vantage Cattle as a 7,000-cow heifer ranch in Sidney, Mont.

n April 2: Minority shareholders ask that MCC Dairy’s receiver request a forensic audit.

- April 7: Veblen West Dairy L.L.P. bankruptcy. Ownership percentages: Viessmans, 27.2; Phersons, 21.7 percent; Rick Millner, 15.2; and Wyums, 10; Hills, 7. The same day, Dairy Dozen-Milnor L.L.P. (Five Star Dairy) bankruptcy. Ownership percentages: Phersons, 27.3; Viessmans, 18; Rick Millner, 13.6; Hills, 13.5; and Wyums, 7.1.

- Late April: Steve Weiss’ company, VAST (Value-Added Science and Technologies), Mason City, Iowa, appointed receiver for Veblen East March 3, 2010, issues a report. To assess the Veblen East situation, the report says six VAST people had worked 14-hour days for the first seven days and three to five employees work similar hours each weekday after, and one to three on weekends. VAST describes “poor quality of the books and records” and an inability to verify or corroborate information. Among other things, VAST describes Veblen East as being the “common paymaster” for several dairies, the Bullpen Restaurant, Prairie Ridge Management and Hill Farms. “These other entities are to reimburse VE (Veblen East) promptly upon each payroll, but typically VE will carry a receivable for a month or more, even in the ‘ordinary course,’” the report says. The entities have different ownerships, but “Prairie Ridge Management under Rick Millner’s direction, has adopted an “all-for-one, one-for-all” approach, where a cash shortfall in one entity is made up for by cash availability in another entity, resulting in cash advances without regard to underlying operating transactions,” the report says. “Due to the symbiotic and parasitic relationship created among the related entities, VE (Veblen East) is dependent on several of its affiliates to continue to operate,” the report says. It identifies a number of environmental issues not complied with.

Among other things, the VAST report says 254 heifers from Vantage Cattle Co., a Montana firm associated with Millner, had been delivered to VE since the receivership. VAST said the heifers had “serious quality issues” and that the $1,900 per-animal price was “approximately two times the current market value for heifers of excellent quality,” and that the agreement between VE and VCC to purchase the heifers had expired Dec. 31, 2009, and would not be honored. Meanwhile, Choice Financial, the Grafton, N.D., lender to Vantage Cattle, on March 19 called a working capital note and swept the cash from deposit accounts. Brian Johnson of Choice Financial told VAST it would seek payment for the 254 heifers delivered the week of March 19. “However, based on the prepayment on the books and records of VE and the Assignment agreements which were observed, it is likely that VCC owes a considerable amount to VE, payment for which is seriously in doubt,” Vast says. On March 23, Johnson confirmed that Choice had agreed with Millner to “extend through May 15” and returned money that had been swept, and that Vantage Cattle had agreed to liquidate if there wasn’t “something worked out with AgStar” by May 15.

- May 10: Millner resigns management position at Veblen West L.L.P. The company now wants someone “without a conflict or ownership interest in the management company Prairie Ridge Management L.L.C.”

- July 2: Veblen East Dairy L.P. bankruptcy filed (10-10146). The report lists $35.3 million in assets and $61.5 million in liabilities, with some 312 creditors listed. A month later, trustee Lee Ann Pierce, is appointed. Ownership percentages: Viessmans, 30; Rick Millner, 19; Hills, 12, Phersons, 12; and Michael Wyum, 6.

Agstar Financial Services of Mankato, Minn., lists $42 million in claims, including $6.4 million unsecured. Capitaline Financial Services of St. Paul lists $4 million in claims, unsecured. Some $10.9 million in claims are for creditors holding “unsecured, nonpriority claims. Larger ones are listed as Dana Banish $531,000; Riley Brother Construction, Morris, Minn., $475,292; Stockman Supply of West Fargo, N.D., $446,000; as well as South Dakota Revenue Department, $112,844; and Marshall County Treasurer, $115,500. The owners — Dairy Dozen-Veblen L.L.P. — said they were owed $649,830 for excise and use taxes related to construction. Entities controlled by Prairie Ridge Management said they were owed information: Prairie Ridge Management itself, $507,000; Five Star Dairy, Forman, N.D., $1 million, and New Horizon Dairy of Hoffman, Minn. $782,500 for “goods and services.”

Also, Hanul Professional Law Corp. of Santa Ana, Calif., the outfit that arranged foreign investors for green cards, was owed another $2 million.

Also, Dairy Dozen Veblen L.L.P. bankruptcy filed (10-10147). Final trustee report. Among other things, 32 limited partners had claims of $10 million, and will receive $1,014, according to the proposal. Hanull Professional Law Corp. claimed $2.45 million in claims, but will receive $248. Ken Lyons is owed $533,422 and is proposed for payment of $54.09. General electric Capital Corp. claimed $179,281 and the proposed payment is $18.18.

- July 22: AgStar Financial Services PCA moves on limited partnership members because they’re “jointly and severally liable” for the $4.5 million loan from Sept. 21, 2009.

- Sept. 15: Vista Family Farms offers the high bid for Veblen East at $21.3 million in an in-court auction, at 1 p.m. Vista later reveals its lender is Cargill. Vista organizers are Wayne Viessman, but now also Robert Jameson, West Fargo, N.D. (Stockman’s Supply, a creditor in earlier actions); and now farmer Jeff Topp, a farmer in Grace City, N.D. Vista took steps to acquire silage in the event it was successful. Topp, Jameson and Viessman make a loan totaling $2.5 million to Prairie Ridge Management to acquire a silage pile. The dairy auction was scheduled Sept. 15. But early on Sept. 13, Trustee Pierce separately phoned Topp and Millner to say Vista could bid on the dairy only if they agreed to provide the “prevailing bidder” an option to buy the silage as it was used. “Having no choice,” Vista agrees. The “back-up bidder” is Whetstone Valley Dairy L.L.C. The court allows that if the Vista bid failed to close, a backup bid by Whetstone could be successful. According to Vista, AgStar was a potential credit bidder at $13.6 million, but separately “also provided the financing for Whetstone to bid at the auction,” which Vista described as a “defacto” credit bid. AgStar attempted to increase its bid from $13.5 million to $16 million for the facility and $800 per head for the cows. Confident in having prevailed at the auction, Vista attempted to get permits from Marshall County Zoning and the South Dakota Department of Environment Natural Resources. They said they later learned that Trustee Pierce and Whetstone had a “side agreement” where Whetstone’s earnest money would be refunded, even though bidding procedures “required that the deposits would be irrevocable.” (Whetstone Valley Dairy L.L.C. was organized Sept. 15 gent/board members, Steve Myers and Michael Crinion, Brookings, S.D.)

- Sept. 21: Vista Family Farms L.L.C. incorporated, for some reason a week after its bid. Vista was “created for the purpose of acquiring Veblen East Dairy.”

- Oct. 28: Trustee Pierce allowed Whetstone to refund $500,000 for refund money from the auction, says Vista. Vista alleged this resulted in a “sale price that was higher than fair-market-value,” and the result was that Cargill “announced” it no longer was willing to finance Vista’s purchase of the dairy. Vista was unable to close the sale by a Dec. 1 deadline, with alternative financing. The actions of Pierce, Whetstone and AgStar artificially inflated the bidding against Vista, and caused Vista to lose its financing and ability to close. AgStar sees it differently. AgStar later would say the highest bid was made by Vista Family Dairies, L.L.C. for $21.3 million. The bid was for $800 per head per cow and $17.3 million for the facility. Whetstone Valley Dairy L.L.C. submitted a backup bid which was approved by the court in the event Vista was unable to close on the sale. Ultimately, Riverview L.L.P. purchased the cattle and facilities from the trustees. AgStar says the Veblen East Dairy Acquisition, L.L.C. submitted a credit bid in the amount of $16.0 million for the facility and real estate, plus $800 per cow. “At no time was this bid altered in any way,” a spokeperson says. “Vista tried to negotiate a global settlement of all issues. These negotiations eventually failed and Vista lost its financing to purchase the assets of Veblen East. In regards to Whetstone, at no time has Whetstone Valley Dairy, LLC, been a client of AgStar Financial Services. AgStar did not work with Whetstone to up its bid at the September 15, 2010 auction.” Because of a Chapter 11 bankruptcy court order confirmed by the court on April 27, 2011, AgStar continues to lead three lenders in financing Five Star Dairy.

- Nov. 22: The report of the forensic audit of MCC Dairy shows that $400,000 in “pass through” expenses occurred where MCC did not receive any interest payments, and that $40,000 in “pass through” expenses were never paid back.

- Nov. 24: 4,476 replacement heifers owned by Vantage Cattle L.L.P., Veblen, S.D., are auctioned at Yellowstone Livestock Sale Barn in Sidney to satisfy an “Agisters Lien” by Stephen and Shanna Lunderby, DBA Lunderby Livestock.

- Dec. 27: MPCA denies officially denies reissuance of a permit for Thief River Falls dairy (Excel).

2011

- Jan. 28: Riverview L.L.P. acquires Veblen East for $12.8 million, excluding the cows.

- Feb. 22: Dairy Dozen L.L.P. issues final report at conversion to Chapter 7 from Chapter 11 bankruptcy. Lists debts owed of about $675,000, including about $652,000 to Veblen East Dairy LLP, in bankruptcy, and $12,000 to Veblen West.

- April 4: Vantage Cattle Co. L.L.P. registered. Partners: Wayne Viessman, Aaron Anderson, Duayne Baldwin, Jay and Jorden Hill, Richardard MIllner, Dennis Pherson Jr., the Lenny Pherson estate and Michael Wyum.

- April 14: Lake County Dairy L.L.P. established near Ramona, S.D., under management of Prairie Ridge, with consultation by Rick Millner, and ownership by partners, including Wayne Viessman and Mike Wyum. Corporate address is the same as Cliff Viessman Inc., Gary, S.D. The registered agent is National Registered Agents Inc., Sioux Falls, S.D., (also address for Woods, Fuller, Shultz &Smith, P.C.) The “organizer” of the company is Jill R. Radloff, and “at the request of Gail E. Partlow, both lawyers in the Leonard Street and Deinard firm in Minneapolis. The Ramona farm initially is doing calving for Five Star and New Horizon, which formerly had been done at Veblen East. The prior existing zoning is for 700 cows, but company officials have inquired about the procedure for expansion — perhaps to the 1,300-cow level. A separate dairy of similar size is about two miles away.

- Aug. 31: Vista Family Dairies L.L.C. asks the bankruptcy court to force Veblen East to “disgorge” the $500,000 that had paid as a down-payment in bidding process, Sept. 15, 2010.

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