ND farmers could see 43 percent of Anderson seed losses

BISMARCK, N.D. -- The North Dakota Public Service Commission voted to approve a proposed settlement in the Anderson Seed Co. insolvency case in a special session Nov. 22, almost two years after the fact.

Of the $2.233 million in approved cash claims, farmers under the agreement now will receive 43 percent, or $965,000.

Of $809,000 in valid credit sale claims, grain suppliers will receive about $647,000 -- 80 percent, from a state indemnity fund established in 2003 for the purpose.

Anderson Seed, based in Mentor, Minn., went insolvent in February 2012 and left farmers in North Dakota and South Dakota claiming $5 million in unpaid sunflower seed deliveries. Unlike neighboring states, North Dakota farmers theoretically have protection from a first priority lien when they've delivered grain to companies, but in this case Anderson Seed simply moved the grain out of state and sold it.

During the PSC special meeting, Commissioner Randy Christmann commended the PSC staff on getting the best deal it could, but criticized the process for taking too long.

He said about $1 million out of $4.1 million in claims in North Dakota had been declared invalid. A large amount of the disallowed claims were determined so because grain had been sold outside of North Dakota.

The PSC is mailing report documents to claimants, including claim evaluation methods and conclusions. A Jan. 6 hearing is scheduled in Fargo. Farmers can object to the settlement until 10 days before a Jan. 6, 9 a.m. hearing at the Cass County Courthouse.

3 cash sources

If approved by the judge, cash claims payments of $965,000, under the deal, would come from three sources. The first source is $280,000 from the company's forfeited warehouse bond, Auto-Owners Insurance Co. of Lansing, Mich., which has always been available.

The second amount -- $685,000 is all from Legumex Walker Inc., from two sources. The PSC didn't spell it out, but Legumex Walker on Nov. 22 issued its own news release, saying the $480,500 it owed to Anderson Seed from the $1.5 million total had been "held back ... at the request of the NDPSC."

In a third source, Legumex Walker "contributed $102,250 to help North Dakota growers," the company said, not explaining how it arrived at the figure, which is smaller than many of the individual farmer claims.

The PSC earlier said it was studying whether Legumex Walker would be responsible for disgorging the entire $1.5 million from a sunflower seed transaction with Anderson Seed that took place Jan. 13, 2012, a month before the insolvency. These are seeds that had left North Dakota to Minnesota and South Dakota, where farmer lien protections don't exist.

Litigation risks

The PSC had "investigated the possibility" of suing Anderson Seed, its owners and Legumex Walker. "The commission, after considering the potential claims, potential defenses and evaluating the risks of litigation, has agreed to resolve all of the potential claims for a payment of $685,000," the proposed order says.

The PSC said the settlement "is not an admission of liability by any of the potential parties," but said the settlement "can be set aside if it is determined that there has not been an adequate disclosure of net worth by Anderson Seed Co., Inc., and/or the owners of Anderson Seed Co., Inc."

Legumex Walker emphasized that when it bought the sunflowers, Anderson Seed had said "the seed came free of liens and encumbrances." It didn't say whether the company itself had checked to see if there were liens. "Through many months of thorough discussion, an agreement was reached that allowed the $480,500 that Legumex Walker owed to the PSC to be paid to growers instead," Legumex said.

Legumex Walker describes itself as a "proud member of the North Dakota agricultural community" with "strong relationships with many North Dakota growers," as well as Pacific Northwest and Canada. The company expects to purchase more than $100 million worth of special crops in North Dakota in the next four or five years, said Ben Friesen, commodity purchasing manager for the company. That's beyond canola seed purchased for the company's canola division.

CHS Inc., doing business as Midwest Cooperatives of Pierre, S.D., had filed a cash claim for $740,140.52 and was approved for $45,000. The amount disallowed largely was because much of the product was delivered to Minnesota or South Dakota Midwest Cooperative has a separate lawsuit under way in Polk County, Minn., and is set to go to court in April.

Among the farmers with reduction in an approved claim from the initial claim was Doug Goehring, North Dakota agriculture commissioner, who farms near Menoken, N.D. Goehring had filed an $11,000 claim and was approved for $4,851.60.

It's too soon to judge reaction in North Dakota and elsewhere. Mike Gust, a Fargo lawyer representing 17 of the farmers in the case, declined comment until he can study the proposed settlement, as did several farmers contacted by Agweek.

Hired legal gun

Christmann said that while he regretted the length of time it took to come to the settlement, he thought it was the best settlement available.

The PSC hired Grand Forks lawyer Jon Jensen as a special assistant attorney general to work through the issues involving three states: Minnesota, because the headquarters was in Mentor; North Dakota because of its receiving stations in Selz and Durbin; and South Dakota because of a processing plant in Redfield. On Nov. 7, North Dakota Gov. Jack Dalrymple appointed Jensen to the Northeast Central Judicial District Court bench, serving Grand Forks and Nelson Counties. Jensen takes that post on Dec. 9.

Christmann said further "litigation would delay payment to the farmers by possibly years and there is always a risk involved with litigation. Even if litigation were to result in a verdict that exceeds the amount of the settlement, collection of that amount is not guaranteed."

PSC Chairman Brian Kalk said the settlement was the "best scenario, all the way around." He urged grower groups to talk about the laws because "there is a (false) perception out there that they're protected to the 'nth' degree." But he said if the state bonding levels are driven too high, it drives elevators to federal bonds, and then smaller elevators are pushed out of business.

Commissioner Julie Fedorchak said the case "reveals some of the elements of our law that perhaps need to be relooked at again" to see if "current licensing and bonding mechanisms are relevant and adequate for modern day farming practices.

"This was a tough case for a lot of people and I hope that we can do better in the future," she said.

Better right than fast

"In a case where there is an insolvency, this took too long," Christmann said. On the other hand, he said it is more important to "do things really well than it is to do them fast.

"I think we continue to learn from these things and try and find ways to close these more quickly, hopefully, in the future," he said.

Beyond the individual case, Christmann said he has an ongoing mission to "educate our producers" about the risks in the market. "When someone is getting ready to sell their product, they really ought to be asking themselves, will I have my money before that grain or seed is out of the possession of the licensed grain buyer? And if the answer is probably not, you ought to be thinking hard about making that deal. If that grain is out-of-state, or out of the possession of a licensed grain buyer, the PSC doesn't have a lot of resources with which to make you whole."

The bond isn't sufficient, so the state PSC "relies on the ability to capture that grain or those seeds to make you whole when things go bad," he said. He didn't say how farmers might prevent seeds or grain they deliver from simply being moved out of the state -- apparently beyond the reach of the state lien law.

The 80 percent payout on the credit sale contracts came from the North Dakota Credit Sales Contract Indemnity Fund. This is a fund created by the 2003 Legislature after the failure of Wimbledon (N.D.) Grain Co. The self-funded account reached its $6 million cap on July 1, 2008. Assessments would resume only if the fund should drop below $3 million.