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Published June 16, 2008, 12:00 AM

N.D. Supreme Court to hear grain dispute

North Dakota’s Supreme Court will decide whether grain elevator bonding laws cover farmers who haul their crops outside the state, in a case industry officials say may put producers’ financial safeguards in jeopardy.

By: By Dale Wetzel, The Associated Press , The Jamestown Sun

BISMARCK — North Dakota’s Supreme Court will decide whether grain elevator bonding laws cover farmers who haul their crops outside the state, in a case industry officials say may put producers’ financial safeguards in jeopardy.

“It would really kind of blow the doors open on our grain licensing laws,” Public Service Commissioner Tony Clark said. The commission licenses and regulates North Dakota grain elevators and grain buyers.

Jim Broten, his son, Eric, and the family’s Barnes County farming operation are attempting to recover some of the $336,911 they lost when Minnesota Grain Inc., of Afton, Minn., was declared insolvent in March 2007.

Minnesota Grain operated warehouses in Rhame, in North Dakota’s southwestern corner, and East Grand Forks, Minn. The Brotens delivered barley to the East Grand Forks warehouse for which they were not paid, court documents say.

North Dakota law required Minnesota Grain to carry a $100,000 bond to compensate farmers if the company went broke. The Public Service Commission refused to consider the Brotens’ claims against the bond, saying it covered only deliveries to the Rhame elevator.

Southwest District Judge Allan Schmalenberger, in a ruling last January, agreed with the commission. The North Dakota Supreme Court is hearing arguments in the case Monday.

The Brotens’ attorney, former Agriculture Commissioner Sarah Vogel, believes Minnesota Grain’s business presence in the state should entitle the Brotens to a share of the company’s bond to compensate them for unpaid bills.

“There simply is no exception within (state law) regarding an exclusion for receipts based upon grain delivered out of state,” Vogel’s Supreme Court brief says.

The law, she wrote, “must be interpreted for the benefit of farmers who have not been paid for their grain, not for the benefit of the bond company, insolvent warehouseman, or for ease of administration by the PSC.”

Minnesota Grain’s bond provider, Hartford Fire Insurance Co., of Hartford, Conn., also should have to provide $200,000 in coverage, Vogel says in court filings. She argues the $100,000 bond applied during any year-long licensing period and Minnesota Grain left bills unpaid during two periods.

Minnesota Grain’s bond did not come close to covering the unpaid bills of its Rhame elevator. Five farmers who divided the proceeds were owed about $323,000, PSC records say. Farmers who sold grain to the Rhame elevator on credit were paid $110,314 from a separate insurance fund.

The North Dakota Grain Dealers Association is supporting the Public Service Commission’s view of the case, saying that the state’s grain licensing and bonding laws should not cover transactions in other states.

Should the Brotens’ legal view prevail, grain elevator bonds will become much more expensive and some elevators may not be able to afford the added cost, the association says in a Supreme Court brief.

“To assert that the protections of a bond on a North Dakota warehouse extend to Minnesota is somewhat like ... giving a North Dakotan legal permission to carry with him to Minnesota the 75 mph interstate highway speed limit, when the limit in Minnesota is 70 mph,” the association’s brief says.

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