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At issue in a recent court action in the McM Inc. bankruptcy are transactions between McM and Ronald McMartin Sr. and and the Island Lake Irrevocable Trust property his son, Ron McMartin Jr., developed near Detroit Lakes, Minn. Photo taken Dec. 16, 2017, in Becker County, Minn., northeast of Detroit Lakes. Mikkel Pates/Forum News Service/Agweek

Farmer McMartin's daughters agree to sell lake place

FARGO, N.D.—Two adult daughters of bankrupt farmer Ron McMartin Jr., of St. Thomas, N.D., have reached an agreement that will allow the sale of a valuable piece of lake property near Detroit Lakes, Minn.

The property of about 50 acres on Island Lake has been valued as high as $2.5 million. McMartin paid $1.3 million for the property in 2011.

The settlement agreement, designed to avoid a costly court trial on the issue, will allow the trustees to sell property, but gives the daughters, Rachel McMartin of Detroit Lakes and Laura Hagemeister of Fargo, the option to outbid a potential buyer.

The daughters, as co-trustees of the Island Lake Irrevocable Trust, reached the settlement agreement with the trustees of two related Chapter 7 bankruptcies—Erik Ahlgren, trustee for McM Inc., and David Velde, trustee for Ron McMartin Jr. It was filed Tuesday, March 26, in Fargo. The daughters are represented by attorney Michael Gust of Fargo.

Proceeds from the lake property sale will be split 25 percent to the daughters' trust, and 75 percent to the bankruptcy trusts, the agreement says. It doesn't specify how much of the bankruptcy proceeds would go to the McM Inc. versus the individual bankruptcy trusts.

Big operator, big bust

McM at one time was the largest beet producer for American Crystal Sugar Co., with 11,000 acres of the high-value crop. He also produced potatoes, edible beans, corn and soybeans.

But in February 2017, McM filed for Chapter 7 bankruptcy liquidation and later that year filed a separate, personal Chapter 7 case. Claimants filed $62 million in claims on McM, including $43 million for an operating loan from BMO Harris Bank.

That was about two years after McM had transferred the lake place into the Island Lake Irrevocable Trust in a transaction that involved what Ahlgren in bankruptcy motions alleged were a "scam" loan involving Ron Jr.'s father, Ron McMartin Sr. Ahlgren accused Ron Sr. of civil fraud in an attempt to make the lake purchase falsely appear as a purchase and an arms-length transfer.

The new settlement, which still must be approved by U.S. Bankruptcy Judge Shon Hastings, resolves everything relating to the lake property trust.

Ahlgren said he separately continues to allege that Ron Sr. improperly received $1.5 million in assets diverted from the McM Inc. farm during a time when Ron Jr. had access to his father's accounts.

Sale details

After buying the property at 41106 County Road 126, Detroit Lakes, Minn., McM had "dramatically improved the Island Lake Property," including adding a large shop and a "bar known as the Sugar Hill Tavern," according to earlier court documents.

Here are some details of the pending sale, according to the agreement:

• The Island Lake property remains subject to an unspecified lien with First Security Bank of Detroit Lakes.

• Ahlgren and Velde can hire a Realtor and can negotiate terms of the listing and any terms of the sale.

• If an acceptable offer comes in, the bankruptcy trustees may redact the prospective purchaser's personal information. The daughters will then have a chance to offer "a competing bid at least $10,000 over the provisionally accepted offer" with the same terms.

In a hypothetical example listed in the case, if Ahlgren and Velde are offered $1 million, the daughters could offer $1,010,000, but "any competing purchaser may outbid by offering $1,020,000 and so on."

As part of the agreement, the daughters' trust will return to the bankruptcy trusts a set of vintage or restored vehicles—John Deere tractors, crawlers, and a Jeep, which are appraised at a total of $109,500.

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