Turner Grain Merchandising Inc. owed farmers millions of dollars when it closed its doors nearly four years ago and the huge knot created by the grain broker's bankruptcy is slowly being untangled by the courts.
The court-appointed trustee for Turner's bankruptcy estate filed 47 lawsuits seeking the return of money Turner Grain paid to farmers and other entities in the final weeks and months of its operations. Twenty-two cases have been settled, bringing just shy of $1.4 million into an estate that lists nearly $40 million in debts and claims.
Federal bankruptcy law holds that payments made to unsecured creditors within a certain time before a bankruptcy filing are detrimental to the interests of other creditors with unsecured claims and are subject to "clawback" lawsuits.
Turner Grain Merchandising Inc. filed for Chapter 11 bankruptcy in October 2014, initially listing debts of $24.8 million and assets of $13.8 million. The filing later was converted to Chapter 7. Chapter 11 is used by companies seeking to remain open while under bankruptcy protection; Chapter 7 is for companies that close.
Turner's bankruptcy trustee, M. Randy Rice of Little Rock, has since said in various court filings that Turner's debts and claims against the estate are at $39 million, not including administrative fees, and assets are likely less than what was listed.
Some of the lawsuits were against farmers who also have filed claims in the bankruptcy case seeking money for grain delivered to Turner for which they were never paid. Some of those creditors also have lawsuits pending in state courts against Turner and other third parties.
While it might appear that farmers got singled out in clawback lawsuits, the law is aimed at treating all unsecured creditors equally, said Josh Silverstein, a bankruptcy expert and law professor at the University of Arkansas at Little Rock William H. Bowen School of Law.
The lawsuits involve what are called "preferential" and "fraudulent" transfers.
A preferential transfer generally is a payment to an unsecured creditor within 90 days of a bankruptcy filing, when the debtor is presumed by law to be insolvent, and for an amount greater than what the creditor would have received under a bankruptcy settlement.
"It's nearly impossible for the creditor to know" when a payment received from a debtor falls into being a preferential transfer, Silverstein said.
"They've done nothing wrong," Silverstein said. "They were simply part of a circumstance where they got paid too close to a bankruptcy filing."
Most of the 47 lawsuits involve payments made within 90 days of Turner's bankruptcy filing.
WHAT'S FRAUDULENT?
There are two kinds of fraudulent transfers -- actual fraud, such as payments to the debtor's family, friends or related businesses in an effort to "hinder, delay or defraud" other creditors, and constructive fraud, when a debtor in financial trouble transfers property without receiving "reasonably equivalent value."
In alleged fraudulent transfers, "most times the creditor did nothing wrong there either but, in some cases, a creditor aware of insolvency or near-insolvency might seek a lesser payment just to get some money at all," Silverstein said.
Bankruptcy law forbids a debtor from, for example, selling an asset, such as a vehicle to a friend or relative, that otherwise could be sold off, with proceeds going toward the settlement of all other unsecured creditors.
Claims from secured creditors amount to $1.8 million. Administrative fees also would be on a priority list, to be paid before claims filed by unsecured creditors are paid.
"It's clear that the debts greatly exceed the assets of the case," Rice said in one of the cases. Unsecured creditors, he said, are unlikely to be repaid in full. "I'm just struggling to make a distribution at all," he testified.
The 47 lawsuits sought the recovery of $125 million in alleged preferential and fraudulent transfers.
However, three of those were against Turner Grain entities that apparently have no assets and make up $98.2 million of that total. Bankruptcy law allows clawback lawsuits against such "insiders" for payments received within a year of the debtor's bankruptcy filing, as opposed to the 90-day payment period for others.
TRIAL SET MONDAY
The second-largest lawsuit -- seeking about $6 million -- was set for trial starting Monday in U.S. Bankruptcy Court in Little Rock, but was on the verge of being settled Friday afternoon.
AgHeritage Farm Services, a government-chartered lending agency for farmers, had challenged Rice's pursuit of $5.9 million in payments made on a $600,000 revolving line of credit.
Turner Grain was closed by federal regulators in August 2014 when they found no grain in bins certified as being full. Its collapse left farmers, grain dealers and other entities being owed millions of dollars for grain that Turner picked up from farmers, sold to other entities but never paid for.
The FBI investigated Turner's collapse, but federal prosecutors have filed no charges against its founders, Dale Bartlett of Marvell and Jason Coleman of Greenbrier.
Bartlett, 49, and Coleman, 39, face felony charges in Monroe County Circuit Court over checks to farmers that bounced. Trial has been set for July 9 in Clarendon. Bartlett also has filed for Chapter 12 bankruptcy protection and has seen much of his personal assets, including land, guns and coins, sold at auction.
Rice has been trustee in the Turner Grain bankruptcy case since May 12, 2016, and hasn't yet released an accounting of the estate's registry. He didn't return several telephone calls seeking comment.
There is no rule in federal bankruptcy code stating when or how often a trustee must provide such an accounting, Silverstein said.
"In Chapter 7, both sides and the judge hold status conferences," Silverstein said. "There's a lot of flexibility. It's up to the judge and the attorneys to keep things moving along."
The lack of an update on Turner Grain's claims registry "isn't anything that would cause me to jump out of my chair," Silverstein said. "Some complex bankruptcy cases last for years and years, so it's not surprising that certain aspects of a case take a long while too."
Turner Grain Merchandising Inc. reported sales of $223.8 million in 2012, $277.9 million in 2013, and $235.3 million in 2014 until the time of its closing and the closing of its related companies: Turner Grain Inc., Agribusiness Properties, which also did business as Ivory Rice LLC, and Brinkley Truck Brokerage.
CASES' STATUS
Excluding the AgHeritage case and the lawsuits against the three Turner-related companies, 43 other lawsuits sought, or continue to seek, the recovery of $21 million.
The Democrat-Gazette examined each of those cases.
Through Thursday:
• 22 clawback lawsuits have been settled, with $1,383,737 going into the Turner estate.
• One case, seeking at least $14 million from Gavilon Inc., a major grain dealer, has been sent to arbitration because of stipulations in the contract between Turner Grain and the Nebraska dealer.
• Settlement agreements, for a total of $75,000, are pending in two cases.
• Two cases -- against the U.S. government, for $175,418, and against a farmer now deceased, for $11,645 -- have been dismissed.
• Only one case has gone to trial: a Lee County farm lost its lawsuit against the clawback of $18,545 received during the 90-day window. That case is on appeal.
Default judgments are being sought in two cases, totaling $136,632. Judgments have been entered in two other cases, totaling $88,838. One creditor is seeking a summary judgment.
Five other cases appear headed for trial, while four others are in a kind of bankruptcy-court inertia with few filings made.
The creditor in one case, for $71,957, won a summary judgment after successfully having the case transferred from federal bankruptcy court to U.S. District Court as a civil matter and arguing that its payment from Turner was legal under bankruptcy law.
The nearly $1.4 million in the 22 approved settlement agreements equals 33 percent of the $4.2 million total sought. Individual settlements ranged from 5 percent to 70 percent of the amounts initially sought in the clawback lawsuits.
The overall settlement rate of 33 percent isn't surprising but the range of individual settlements was, Silverstein, the law school's bankruptcy expert, said. "That's broader than what I've seen," he said.
"It's rare that the person suing gets 100 percent," Silverstein said. "A lot of factors go into settling, like how strong the claim is, how much money a creditor has, or even how good a creditor's lawyers are. And sometimes, even if there's not much money involved, the creditor will insist on going to trial because he's fighting on principle."
Any money recovered under the lawsuits goes into the Turner bankruptcy estate, with payouts going first to secured creditors. Administrative expenses also receive priority over unsecured creditors. Assets in Turner's bankruptcy estate includes $309,658 from the company's Helena National Bank account.
The bankruptcy judge in Turner's case has approved several administrative claims filed by trustees and their lawyers, some for tens of thousands of dollars, but has declined to allow payment until the case is completed.
In May 2017, Rice wrote in a filing that the case would continue for another two or three years because of "the complexities involved" and the number of clawback lawsuits. Rice was the second trustee for the Turner estate, replacing Richard Cox of Hot Springs, who resigned after about a year.
Lawyers who seek to serve as trustees generally have more than one case going on at a time, Silverstein said.
"It's important that administrative expenses get a high priority, otherwise no one would agree to ever serve as a trustee," he said. "Generally, they have other cases going on and they make enough money in those cases to offset cases where they don't."
SundayMonday Business on 06/24/2018