A multimillion-dollar dispute between bankrupt Turner Grain Merchandising and one of the nation's largest grain dealers will remain in bankruptcy court in Arkansas, a judge ruled Friday.
Attorneys for Gavilon Inc. of Omaha, Neb., argued that the case should be moved to private arbitration under the terms of the contracts between Gavilon and Turner Grain, but U.S. Bankruptcy Judge Phyllis Jones disagreed. Jones sided with all six points made by the attorneys representing the Turner estate in U.S. Bankruptcy Court.
The Brinkley grain company filed for bankruptcy protection in October 2014, listing assets of $13.8 million and liabilities of $24.8 million. Creditors -- primarily farmers who said they were never paid by Turner for grain they sold -- have filed claims seeking nearly $40 million. Any money the company recovers would be placed into a bankruptcy estate to benefit all creditors of Turner Grain Merchandising.
Lawyers for Turner's estate sued Gavilon in October, saying the company was responsible for at least $14 million worth of Turner Grain's financial problems.
Jones on Friday didn't rule on the claims of the lawsuit, but on whether Turner or Gavilon would prevail in a complex web of court opinions, laws and federal bankruptcy code. Gavilon can appeal Jones' ruling to either the U.S. Bankruptcy Appellate Panel or to the 8th U.S. Circuit Court of Appeals.
Gregory Bevel of Dallas, the lawyer representing Turner's bankruptcy trustee, said Gavilon breached its contract with Turner by never paying for $2.5 million in corn that Gavilon received from Turner and delivered to its own customers.
Turner's lawsuit also said Gavilon adjusted freight charges in a way that cost Turner $6 million and also "unjustly enriched itself" by $3.5 million by not paying on grain contracts that were more favorable to Turner but paying on contracts favorable to Gavilon. The lawsuit claimed Gavilon also cost Turner $2 million in revenue by canceling contracts with Turner as better market conditions arose.
Bevel argued Friday that Gavilon took advantage of Turner's financial situation for its own gain and made all those moves "shortly before or after" Turner filed for receivership.
Many of the lawsuit's claims against Gavilon appear to be based on information lawyers for the Turner estate gained from occasional meetings over several months with Jason Coleman, a Turner executive and co-founder, as well as Coleman's attorneys and FBI agents. The FBI has declined comment on any investigation, and no criminal charges have been filed against Coleman or another founder, Dale Bartlett of Marvell.
Stan Smith of the Mitchell Williams Selig Gates and Woodyard law firm in Little Rock, was one of three attorneys in court for Gavilon. Smith said Gavilon's grain contracts with Turner were clear in that any dispute between the two would go before the National Grain and Feed Association for arbitration.
"This is clearly a contract claim," Smith said.
He also said any claims of "unjust enrichment should be thrown out" and denied that Gavilon was ever a "bad actor" in its relations with Turner Grain. Smith said Gavilon doesn't owe the Turner estate any money and never canceled any contracts.
"I can appreciate Mr. Bevel's position that the trustee clearly doesn't want to honor the agreement and wants to get out of the contracts," Smith said.
Jones agreed that the contracts between Gavilon and Turner were valid and that arbitration would be the correct route -- in most cases. The Turner case, she said, wasn't like most cases.
Jones also said the Turner lawyer and trustee have a "good argument" when they claimed in court and in legal filings that Turner's creditors would be better off if the case remained in bankruptcy court. Bevel had argued that the Turner estate, already all but insolvent, would have to pay $20,000 in filing fees, plus expenses for hotels and travel and for witnesses, if the case went to arbitration. The association is in Arlington, Va.
"I can't predict the future," Jones said in ultimately siding with another point made by Bevel that bankruptcy court could decide the dispute "more expeditiously" than the arbitration board could. Bevel had said the court is a "perfect venue" because it has already dealt with Turner-related issues for more than two years.
Business on 01/28/2017