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Published May 14, 2012, 08:32 AM

Legal wrangling continues

FARGO, N.D. — The far-flung case of Grafton, N.D., farmer Tom Grabanski rolls on — his many enterprises and legal challenges from North Dakota to Colorado to Texas continue, with legal filings revealing ongoing frustration by all parties.

By: Mikkel Pates, Agweek

FARGO, N.D. — The far-flung case of Grafton, N.D., farmer Tom Grabanski rolls on — his many enterprises and legal challenges from North Dakota to Colorado to Texas continue, with legal filings revealing ongoing frustration by all parties.

Central to the case is Grabanski, 43, and his wife, Mari, who filed a joint personal Chapter 11 bankruptcy in Fargo, N.D., on July 22, 2010. Agweek first published articles about the case in November 2010.

Since then, the Grabanskis’ personal bankruptcy alone has accumulated hundreds of docket entries, adversary lawsuits and appeals by creditors. The Grabanskis have sought at least 15 requests for time extensions during the case, for various purposes.

There are various “adversary” cases that alleged debts should not be discharged because of fraud or other reasons.

AgCountry Farm Credit Services closed its adversary case June 6, 2011, following land transactions in the Grafton area. Another adversary lawsuit in the bankruptcy, filed by Colorado Farms Partnership, a North Dakota partnership closed but reopened in July. PHI (Pioneer Hybrid International) Financial Services, the biggest creditor, has an ongoing case regarding its $7.5 million debt. Farmer John Keeley and his wife, Dawn, of Grafton, former partners of the Grabanksi couple in Texas farming operations, filed an adversarial action on Nov. 15, 2010, which is still alive. Production Services Inc. ended an adversary action in March 2011, after failing to prove fraud.

There are still separate but related bankruptcies filed by Keeley Grabanski Land Partnership — an involuntary bankruptcy initiated by the Keeleys against their former partnership. It started as a Chapter 11 reorganization and then changed to Chapter 7 liquidation.

Finally, there is the Grabanksi Grain LLC bankruptcy, which involves an insolvent grain elevator in Grafton. (The state Public Service Commission says there are $185,000 in cash sales and another $379,000 in credit sales contracts still to be sorted out. The site was taken over by St. Hilaire Seed, Mentor, Minn., which was sold to Legumex Walker Inc., based in Winnipeg, Manitoba.)

In federal court, bankruptcy cases are handled by Judge Thad Collins of Cedar Rapids, Iowa, after Judge William A. Hill retired on Sept. 15, 2011. There are other filings against DeWayne Johnston, Grabanski’s attorney, in civil courts in North Dakota’s Walsh and Grand Forks counties, contending among other things that he improperly received funds that should have gone to bankruptcy creditors. Johnston of Johnston Law Office in Grand Forks, N.D., has denied wrongdoing.

Hanson Colorado Farms partnership remains embroiled in a dispute with the U.S. Department of Agriculture’s Risk Management Agency. The RMA offered and then pulled a crop revenue insurance program that was flawed because it paid out whether corn was irrigated or not.

“At the end of the day, the government pays $8 million that they should,” Grabanski says. Grabanski says the case held up $8 million in payments, which contributed to his other financial woes. The farmers eventually won the case, but the bankruptcy issues remain.

Still farming

Despite the legal wrangling, Grabanski is farming in the Paris, Texas, area. Grabanski says he’s working for Louie Slominski Jr., a Minto, N.D., farmer. He says the farm is “working out of some storage containers” and that he thinks they’re planting about 4,000 acres of nonirrigated wheat, oats and soybeans.

A bankruptcy judge ordered the family off of the Unruh farmstead in Paris, Texas, a 1,800-acre farm headquarters once owned and rented by the Grabanskis. On about April 17, the Grabanskis moved from the rural, $250,000 custom-built farm house into town. They now live in a rented, 3,200-square-foot house in Paris. The most up-to-date assessor records show the house is owned by Kent Hill, who bought it in June 2011.

Meanwhile, the Grabanskis have applied to the bankruptcy court to sell their home in Grafton. Some of the creditors in their personal bankruptcy have objected, or have claimed that the Grabanskis “abandoned” the Grafton home about Jan. 28, 2011. They say that even if the house were sold, as the Grabanskis wish, North Dakota state law would allow them to keep only $100,000 of the proceeds. The Grabanskis replied they had “no intention” of abandoning their “homestead” and had continued to insure, pay taxes, utilities and maintenance on the house. The issue was scheduled for discussion on May 11.

At the same time, Johnston, Grabanskis’ lawyer, has also been under fire.

On Nov. 11, several of the Hanson and Tallackson plaintiffs filed suit in Walsh County District Court, asking that Johnston and his law office be disqualified from representing both Grabanski and his accountant Jennifer Tibert. The plaintiffs argued that the two clients’ testimonies differed too much, creating an “impermissible conflict of interest.” On May 3, Judge Laurie Fontaine ordered that Johnston stop representing Tibert.

On Jan. 3, PHI sued Johnston Law Office for $150,000, and Johnston personally for $20,400, for improperly taking money from an account on G&K Farms, a name for a defunct farming entity of Grabanski and Keeley that PHI alleged was “set up solely for insulating the SURE (Supplemental Revenue Assistance Program) payment” to the Texas farm “against claims of secured and/or judgments creditors, including PHI.”

Uncivil words

Parties to the legal wranglings are losing patience.

Roger Minch, a Fargo-based attorney was local counsel for Production Services Inc., a crop input provider in Texas, who filed an unsuccessful adversary suit that alleged Grabanski misrepresentations amounted to fraud that led them to improperly extend $1 million in credit to Grabanski, and that their debt should not be set aside in the bankruptcy. PSI lost that case, but Minch calls it the “case from hell.” He says it’s generated more paperwork than any other he’s seen locally, except perhaps the Steiger Tractor case in the mid-1980s. Minch now represents corporate owners who bought out the interests of fatigued former Texas landowners in a related bankruptcy.

Jon Brakke of Fargo, PHI’s local attorney in the matter, in court documents filed last September asked that the Grabanskis’ personal Chapter 11 bankruptcy be dismissed because the couple was “continuing to consume the resources of the estate” and that there is no reasonable likelihood that they could propose a plan that would be acceptable to creditors.”

Duane Gaustad of Grand Forks, attorney for the so-called Hanson and Tallackson group of creditors, objected to the motion to dismiss the case and asked the court to appoint an examiner, but that never happened. Gaustad wrote the Grabanskis had told the court and creditors that their “total debt exceeds $28 million” of which more than $13 million is classified as a “personal guarantee of other debt.” Gaustad wrote that they’d “engaged in acts of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity” in managing their affairs. He said they had “formed and or operated entities during the course of the bankruptcy” for the “purpose of diverting, not reporting and/or not accounting for money and assets for which the debtors have a direct or indirect benefit.”

Grabanski today says the $28 million figure isn’t exactly true. “There’s always two ways to write a story. My goal is to pay everybody back.”

Sometimes emotional, he says he’s rediscovered his Roman Catholic faith, and has already paid some people back. Asked how much he really owes, Grabanski says, “I really don’t know how to answer that.”

A notable account

Choice Financial, based in Grafton, is one of the creditors that lent money to the Grabanski/Keeley entities. In October 2011, their then-attorney, Michael Gust of Fargo, challenged the Grabanskis and their attorney for creating an account at First Federal Community Bank of Paris, Texas, on Sept. 21. They deposited $328,000 from federal crop disaster payments (SURE program) that were earned in 2008. (Richard Olson of Minot, N.D., later became Choice Financial’s attorney.)

When Johnston was compelled to provide accounting for it he showed that the account within days of its creation had paid out $150,000 in legal fees to his Johnston Law Firm, and $40,000 to Tibert, Grabanski’s accountant, and was down to $500 within days.

John Keeley somehow discovered Grabanski had set up the checking account on G&K Farms, an entity that Keeley had once been a partner in, but was dissolved. The G&K Farms farming entity, and the Grabanski and Keeley Land Partnership names were not to be used after April 30, 2009. Only the GKLP went into bankruptcy, but not G&K Farms, which was simply defunct.

Reorganize, disclose

On Jan. 13, Johnston produced a long-awaited “reorganization plan” for the Grabanskis’ personal bankruptcy, and a financial disclosure. There were several objections to it.

The repayment schedule says PHI is owed $7.5 million but would be repaid some $3 million, at no interest over seven years, according to the plan.

On Feb. 1, Choice Financial objected to the financial disclosure statement and plan. Among other things, Choice Financial was skeptical of the reorganization because Grabanski said he was an “employee of Louis Slominski Jr.,” a long-time friend and business associate from Minto, N.D., “in an operation conducted by Slominski” and was making $46,800 a year. Attorneys said Grabanski intended to service less than 25 percent of what they agree they owe.

On March 2, the Keeleys asked the court to show why Grabanski isn’t in contempt of court for “willfully making multiple false disclosures to the court regarding” compensation. They said it appeared Johnston had been paid from the SURE account at First Federal Community Bank without the payments being approved by the court. Johnston denied the allegation, saying he was owed the money for work for entities outside the bankruptcy.

On March 3, Bruce Gering, the trustee in the reorganization, harshly criticized the proposed reorganization plan. It included “vague, unsupported general statements that are of no value in determining whether a hypothetical creditor” could support it, he said.

On March 7, Judge Collins ruled that Slominski had a fraudulent lease with KGLP on Texas land that could be “set aside” as a “fraudulent transfer” because of its timing just before Keeley had filed an involuntary Chapter 11. After Choice Financial seized Grabanski’s machinery in August 2010, Slominski slipped into the control role and entered into a three-year lease, with a 20 percent share rent, and allowed the Grabanskis to live “rent-free in a 3,500-square foot house on the Unruh property,’ paying all living expenses, including health insurance and other costs from the checking account.”

“Slominski said he was just trying to keep it all afloat,” Collins wrote. He was trying to keep his own farm going in North Dakota, but was “trying to keep a roof over the Grabanski’s heads, keep them fed and keep them farming.”

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