Get it in writing: Cattle industry urged to move away from handshake deals

MINOT, N.D. - If something can go wrong in the cattle business, Todd Wilkinson has seen it.

Wilkinson, of De Smet, S.D., partners in a feedyard with his brothers and a cow-calf operation with his son, but his day job as a lawyer specializing in agriculture means he gets caught up in some ugly cases. Wilkinson told some of his horror stories during Cattlemen's Education series presentations on "Protecting Your Investment" on Sept. 19 at the North Dakota Stockmen's Association convention in Minot.

One such case is playing out in South Dakota, where Robert "Bob" Blom operated a feedlot. In February 2019, First Dakota National Bank determined Blom owed principal of $6.74 million to the bank, with additional interest of more than $1,000 per day. After the bank foreclosed, officials discovered Blom may have been operating a Ponzi-like scheme in which he would resell the same cattle over and over again and collect feeding bills from customers on what were often non-existent cattle. Now cattle producers from across the region who had worked with Blom are waiting to see whether they will recoup any of their losses.

Wilkinson said 19 law firms are representing 56 interested parties in the Blom case. The parties include investors who would "buy" pens of cattle from Blom in exchange for a return after the cattle were sold, cow-calf operators who were having their calves fed by Blom, cattle buyers and others who had done business with the Corsica, S.D., man. In total, the number of cattle that Blom had led people to believe he had in his feedlots added up to 32,758. When the banks seized control of Blom's four feedlots, which had a capacity of 7,000 head, they found only 4,953 head of cattle.

With that case and others in mind, Wilkinson gave a stark warning, again and again:

"The No. 1 thing I'm stressing to any producer, in this economy, this is when bad deals come up. And you need to get things in writing."

Go beyond handshake deals

The presentations in the "Protecting Your Investment" series on Sept. 19 included a talk from Wilkinson and a panel discussion, emceed by Wilkinson, featuring Shaun Quissell of the North Dakota Department of Agriculture, Kraig Rousch with U.S. Department of Agriculture Packers & Stockyards, Chelsea Good with the Livestock Marketing Association , Lynn Paulson with Bell Bank and Blaine Northrop, the chief brand inspector with the North Dakota Stockmen's Association.

Dan Rorvig, president of the Stockmen's Association, said the purpose of the presentation wasn't to scare anyone but to "arm you with information." North Dakota farmer and rancher Clark Price introduced Wilkinson with an opinion that runs contrary to how many people have done cattle business: Handshake deals are not necessarily working for the industry.

Though it may make people from the outside looking in scratch their heads, it's not unusual for thousands of dollars in cattle business to get done with nothing but a conversation. But Wilkinson and others on the expert panel urged changes, and not just for cases like the Blom one. In fact, most of Wilkinson's stories had nothing to do with criminal behavior but instead focused on misunderstandings and bad luck.

For instance, Wilkinson explained how one common misunderstanding can prove ruinous. Someone taking cows "on share" is not an unusual way for a young producer to start up a herd. If someone puts 100 cows "on share" with a rancher, the rancher gets a set percentage of the calves and the cow owner gets a set percentage of the calves. The problems arise, Wilkinson said, when the agreement doesn't address which party will be supplying replacement heifers for cull cows. A written contract that considers things like replacement costs, death loss, feed costs and other variables can protect all parties in a variety of arrangements, he said.

The other speakers backed up Wilkinson's insistence on getting things in writing. Paulson, senior vice president of agribusiness at Bell Bank, said taking steps to protect oneself can make them a lower risk for lending.

"When you get into one of those things, nobody wins," he said. "Once things go south, so to speak, you can't unring the bell, and there's nothing like doing it right on the front end the first time."

Wilkinson advised producers to get their banks involved in protecting their interests. He also advised producers to do more checking into the people they're doing business with, including calling the other party's lenders. People placing cattle for feeding should register their interest in the cattle through the manner allowed in their state, which a bank can help them determine. Feedlot operators should not let bills go unpaid, and if a bill is unpaid, they should make sure the cattle being fed don't leave the yard. That might not be the way things have been done in the past, he conceded: "Do it anyway."

'A horrible situation'

While misunderstandings and bad luck make up a lot of the cases Wilkinson and the other panelists discussed, more nefarious cases can be particularly devastating, with the Blom case being just one recent example. Paulson said such cases are outliers, but they are more common in tough economic times.

"Sometimes when things get real tough, it causes people to lose their moral compass and they do things they may not otherwise do when things are better," he said.

Those cases, Wilkinson said, illustrate how badly things can go when deals aren't in writing.

Lewis Dirks, the emergency receiver in a civil case against Blom, has declined to comment, but Wilkinson, who has two clients caught up in the case, and Sioux Falls, S.D., attorney Clint Sargent, who also represents one of the "interested parties," said the judge set a deadline of the end of August for anyone to file claims against Blom.

"It's my understanding that all the cattle have been liquidated," Sargent said.

Now, it's a waiting game to find out how much money remains from the liquidated assets and how much claimants are trying to recover, he said. Wilkinson said it's highly unlikely anyone will be made whole in the case.

"There's going to be some producers that are going to get a bigger share," he said. "Frankly, there's going to be two-thirds of the operations in there, people who had investments, that aren't going to get anything."

Blom earlier this month was sentenced to five years in prison with all but 180 suspended and ordered to pay restitution of $134,837.14 for writing a bad check to Gader Livestock of Lehr, N.D. He faces another felony bad check charge in Douglas County, S.D., and Douglas County State's Attorney Craig Parkhurst said he expects more charges will follow. Criminal charges, however, aren't going to help anyone get their money back, Wilkinson said.

"It's a horrible situation, and it's probably going to put some producers out of business that relied upon and trusted somebody that they've been doing business with for a long time," he said.

Wilkinson said due-diligence before getting involved in a deal - including checking with another party's lender - can help. Contracts can't solve all of the problems; being able to trust someone is vital in the business, Sargent said.

"My advice is, make sure you really trust whoever you're doing business with. So much of the livestock business is done on a handshake and on people's word," he said. "In the end, if you can't trust the person you're doing business with, it's hard for even the lawyers to protect you when it's all said and done."