CHS versus Anderson SeedJury trial set in fall.
By: Mikkel Pates, Agweek
MENTOR, Minn. — Principal figures in the Anderson Seed Inc. insolvency case declined to talk to Agweek about the status of farmer and creditor claims totaling $5 million, but a lawsuit by CHS Inc. in Minnesota may eventually offer a window into precisely what made the company fail.
CHS, based in Inver Grove Heights, Minn., is suing the defunct Anderson Seed of Mentor, Minn., for $1.4 million on behalf of CHS Midwest Cooperatives of Pierre, S.D., which sold sunflower seed to Anderson Seed and its processing plant in Redfield, S.D.
Among other things, CHS is asking to “pierce the corporate veil” and hold company president Ron Anderson and his daughter, Stephanie, the company’s manager, personally responsible for the claims. The Andersons and their lawyer have worked to block some of CHS’s inquiries and deny that the Andersons should be personally responsible for the corporate debts.
The case was filed a few days after Anderson Seed had been declared insolvent and assets sold in February 2012. The case initially had been scheduled to go to a court trial before Minnesota District Judge Kurt Marben on April 15 in Crookston. But that date was cancelled and a four-day jury trial is scheduled for Nov. 18 to 21.
Separately, the North Dakota Public Service Commission and the South Dakota Public Utilities Commission still are working to distribute bonds to farmers and others who say they’re owed $5 million. In North Dakota, a Grand Forks lawyer has been hired to pursue repayments that go across three state jurisdictions.
In a separate inquiry, Dave Lunzman, an Aberdeen, S.D.-based investigator for the South Dakota Attorney General’s office, notified farmer creditors on March 28 that he is still looking into the case to see if there may be criminal issues.
Lunzman says “a subpoena has been sent for a large volume of information regarding (Ron) Anderson and Anderson Seed.” Lunzman, who declined to offer a comment to Agweek, told farmer/creditors it would take “some time to gather the large volume and then go through the information” he was requesting.
Ray Martinmaas, a farmer from Orient, S.D., acknowledged receiving Lunzman’s update, and says he is looking forward to finding out whether it or the CHS suit could help him recover $47,000 that his family is owed.
‘Battered down’ family
Agweek approached Ron Anderson for an interview about what happened to his family company. At first, Anderson said he might be willing to talk about it to correct misinformation. But he also didn’t know if there would be any advantage other than “entertainment “at his expense.
After consulting with his lawyer, Anderson declined. In declining the interview, Anderson acknowledged he and his family had been “battered down” by the events. He said he is in the process of liquidating unspecified assets, but didn’t elaborate on what that might mean for CHS or for farmers and other creditors.
On Feb. 14, 2012, Legumex Walker Inc., an expanding Winnipeg, Manitoba-based grains company, bought St. Hilaire (Minn.) Seed and some assets of Anderson Seed.
Craig Anderson, Ron Anderson’s son, worked for Legumex Walker, but by early March 2013, had resigned for other opportunities.
Craig also declined an interview, on advice of lawyers. He had been named general manager of Anderson Seed in its later months of operation, but he was not named in the CHS lawsuit. He confirmed he’d recently moved his family to East Grand Forks, Minn. Craig Anderson confirmed he is working to start over and build a new edible bean company in the northern Red River Valley.
CHS sued on four counts alleging fraud Feb. 23, 2012, in Polk County. CHS claims damages of $1.4 million — both for unpaid seed and for eroded market position losses on seeds that had been contracted, but couldn’t be delivered.
In documents filed March 19, 2012, naming Ron Anderson and Stephanie Anderson as defendants. Jon Brakke, a Fargo, N.D., attorney in the Vogel Law Firm, who often represents CHS in the region, is the attorney for the plaintiffs.
Here is how Brakke’s briefs describe events and allegations:
According to CHS, from January to May 2011, Anderson Seed negotiated to buy 160,000 hundredweights of sunflowers from CHS. CHS says Anderson Seed arranged transportation in October and November, 2011. Anderson Seed took delivery of nearly 22,966 hundredweights and failed to pay the $687,117 owed for the delivered seed. At the same time, Anderson negotiated other contracts for sunflowers “with a large number of other sellers and taking delivery from those sellers.
“Prior to the time Anderson Seed started negotiating purchase contracts” with CHS “and long before it took delivery under those contracts, Anderson Seed was hopelessly insolvent,” but concealed this from CHS. CHS notes that on Sept. 30, 2011, Anderson Seed had current assets of $3.9 million and current liabilities of nearly $21.9 million.
CHS says audited financial statements indicate Anderson Seed liabilities increased by $18.3 million from Sept. 30, 2010 to Sept. 30, 2011, and the company posted a net loss of $14.4 million in the year running Oct. 1, 2010 to Sept. 30, 2011. Working capital went from $243,000 to a negative $17.9 million.
Who knew what, when?
Market shifts and Anderson Seed’s “failure to properly cover” its 2010 contracts caused a loss, according to CHS, which adds that this would have been known to Anderson Seed prior to negotiating contracts with CHS in early 2011.
“Apparently realizing its difficulties, Anderson Seed negotiated a sale of all of its assets” to Legumex. “All proceeds went to Anderson Seed’s secured lender — U.S. Bank or to Anderson personally,” CHS alleges. “Documents obtained from U.S. Bank indicate Anderson Seed had committed to the sale of all of its assets by early October 2011,” which was before the time it arranged for pick-up of the majority of the sunflowers purchased from CHS.
CHS then said it appeared “proceeds received by Anderson Seed from its sale of commodities” obtained from CHS and others “went to pay down the debt to U.S. Bank” adding that without those commodity proceeds, the money Anderson Seed received from Legumex in the sale on Feb. 14, 2012, “would not have been sufficient to pay the debt to U.S. Bank.
“Wholly apart from its insolvency, Anderson Seed knew that, based on its debt to U.S. Bank” it “would never be able to pay for the crops it was contracting to purchase” from CHS and others. CHS says Ron Anderson was “directly involved in contract negotiations” with CHS and that Stephanie also was involved and arranged pick-up from sellers “and would have been familiar with the financial situation of the business.”
Avoiding the trust?
Meanwhile, CHS notes that the state of North Dakota believed the company was “fraudulently transporting sunflowers out of Anderson Seed’s warehouses in North Dakota in an effort to deprive the statutory trust fund under North Dakota law … thus allowing the crop to be sold and proceeds paid to U.S. Bank.”
CHS contends that Minnesota law requires that if a party to a contract is “so insolvent it has no reasonable expectation of being able to perform on the contract, it is fraud for the party not to disclose this fact.”
The company says Ron, and Stephanie, as general manager, “could not be shielded from liability since they were only acting as agents” of Anderson Seed. “Committing fraud is never part of the duty of an officer or manager,” CHS states. CHS contends that an officer who neglects to perform duties imposed by law “is liable for all debts incurred” under state law.
CHS says Ron and Stephanie Anderson operated Anderson Seed to defraud CHS. “The possible reason for that fraud is that, at least Ron Anderson, was a personal guarantor of the debt Anderson Seed owed U.S. Bank,” CHS says. “Only by raising money through the resale of crops fraudulently obtained” from CHS and “additional monies produced by the sale of Anderson Seed’s assets” was Ron Anderson able to pay the debt to U.S. bank in full.
“As part of the sale of the assets of Anderson Seed, Ron Anderson apparently pocketed as much as $1 million,” CHS argues.
A company called BinCo Holdings LLC, on Feb. 14, 2012, became the owner of the former Anderson Seed sunflower processing plant in Redfield, Minn. Brakke, for CHS, says it is “clear that BinCo is a wholly owned subsidiary of Anderson Seed and should be considered a successor in interest to Anderson Seed.”
Andersons deny fraud
Anderson’s attorney, Gary R. Leistico of the Rinke Noonan law firm in St. Cloud, Minn., asked for a dismissal of CHS’ fraud and “piercing the corporate veil” claims, and requested a protective order on information.
Leistico says CHS is on a “fishing trip” for financial information and “lacks any” factual basis to seek personal liability. He says the personal and confidential financial information sought by CHS would be “irrelevant.”
“The Andersons’ have a right not only to see their private financial information protected, but to be protected from lawsuits without any factual basis,” Leistico says. He says the basis for piercing the corporate veil is “nothing but mere averments based solely on reckless speculation.” He says there is no evidence that Anderson had intentions to not pay for the seed.
In part of his briefs, Leistico says Legumex had paid a $2.6 million advance to Anderson Seed, requested by U.S. Bank, and in exchange, Legumex received a security interest.
Ron Anderson says none of the proceeds from the sale of assets had been paid to him or any other owner or director of Anderson Seed.