Two sides embroiled in the bankruptcy of Turner Grain Merchandising Inc. on Monday filed a proposed settlement of $2.1 million in a lawsuit involving nearly $6 million.
M. Randy Rice, the Little Rock trustee for Turner's bankruptcy estate in federal court, had sued AgHeritage Farm Credit Services for the return of $5.9 million it received from Turner in the months before the Brinkley grain seller closed its doors in August 2014.
Agribusiness Properties, the grain-storage arm of Turner Grain Merchandising, took out a loan with AgHeritage in 2009 as well as a revolving line of credit in 2014. Its founders, Jason Coleman and Dale Bartlett backed the line of credit personally, Rice said.
The bankruptcy trustee's lawsuit contended that the debts belonged to Bartlett and Coleman, personally, and Agribusiness Properties, not to Turner Grain Merchandising, which is under federal bankruptcy protection.
The case had been set for trial June 25, but lawyers for both sides began settlement talks on June 22, two days after U.S. Bankruptcy Judge Phyllis M. Jones denied AgHeritage's motion for a continuance.
The proposed settlement is contingent on Jones' approval following a 21-day period for any objections.
AgHeritage, a major lender to farmers chartered and regulated by the federal Farm Credit Administration, didn't dispute that it received 14 payments totaling $5.9 million from November 2013 through July 2014 for debts that weren't Turner's but contends that the payments were legal and in the ordinary course of business with Turner Merchandising and its three offshoot companies.
The lawsuit against AgHeritage was one of 47 "clawback" lawsuits Rice began filing in October 2016 against entities that received payments in the final, frenzied weeks of Turner Grain's operations. The company listed debts of nearly $40 million and assets of $13.8 million, but Rice has said in various court filings that Turner's assets are likely less than that.
Federal bankruptcy law holds that payments made to unsecured creditors within certain time frames of a bankruptcy filing are "preferential transfers" or "fraudulent transfers," detrimental to the interests of other creditors with unsecured claims, and are subject to clawback lawsuits.
The $5.9 million AgHeritage case was the second-largest of the clawback lawsuits, excluding three cases seeking $100 million from Turner Grain entities. There's no evidence that those companies have any assets. A clawback lawsuit seeking at least $14 million from Gavilon Inc., a major grain dealer, has been transferred to arbitration.
Turner Grain was closed by federal regulators in August 2014 when they found no grain in bins certified as being full.
Rice contended that AgHeritage's lack of oversight helped Turner and its owners "hinder, delay or defraud its own creditors" and engage in a "check-kiting" scheme.
Those founders, Dale Bartlett, 49, of Marvell, and Jason Coleman, 39, now of Greenbrier, had been scheduled to stand trial Monday in Monroe County Circuit Court in Clarendon on felony hot-check charges, but a circuit judge granted a continuance and set a new trial date for Nov. 5. The FBI investigated Turner's collapse, but no federal charges have been filed.
John Talbot and Joseph Strode, the Pine Bluff attorneys for AgHeritage, contended that Turner Grain's founders and their various businesses were closely intertwined and that any payments to Turner Grain Merchandising Inc. were a benefit to all, including Agribusiness Properties Inc.
Rice contended that Coleman and Bartlett, when faced with an insolvent company, used its few remaining assets to pay down the line of credit to reduce or eliminate their own personal financial liabilities.
Coleman invoked the Fifth Amendment right to not testify when he was asked during a pretrial deposition in the AgHeritage case if he would agree "that the priority given to make sure the AgHeritage line of credit was paid off in full was intentionally done" to reduce or eliminate his personal liability.
"I plead the Fifth," he said, according to an excerpt of the deposition, taken in May at AgHeritage's offices.
"Turner Grain was not known to keep good business and accounting records," Rice said in a court filing in late May.
As the company received payment from grain buyers, "those funds would at times be diverted to support the other operations without a consistent method of accounting for the intercompany transfer," according to that filing.
Turner's accounting irregularities were "red flags" of insolvency, fraud and check-kiting that should have been noticed by AgHeritage employees and possibly reported to federal regulators, Rice said.
As an example, Rice's filings show a shuffling of millions of dollars in deposits and withdrawals between May 27, 2014, and June 10, 2014, among two Turner checking accounts and the line of credit.
Turner officials wrote 11 checks, totaling $4.8 million, to AgHeritage, from its bank account in Helena-West Helena, and would be given credit on those payments immediately, Rice said. With an insufficient balance to cover those checks, Turner then deposited about $7 million in the Helena account from its bank in Marvell during that time frame, Rice said.
Rice said AgHeritage's practice of crediting payments immediately allowed Turner to then "draw" more than $5 million on five occasions from the line of credit to cover the checks written on the Marvell account.
AgHeritage said it acted in good faith and that it, like farmers throughout the region, continued dealing with Turner into July 2014 and was unaware of its financial difficulties.
"The payments to AgHeritage were not gratuitous, nor were they part of a deceitful scheme," AgHeritage's attorneys wrote, adding that Turner and its related companies received $11 million in advances on the line of credit from Jan. 1, 2014, through July 16, 2014, about a month before the company closed.
The AgHeritage lawyers also noted in court filings that Carrie Grizzle, who works in the company's branch in Brinkley, wasn't paid $561,117 for rice her farm delivered to Turner Grain in July 2014.
"As an owner of Grizzle Farms, Carrie Grizzle would not have sold grain to Turner Grain on credit between July 15 and July 23, 2014, if she knew or reasonably suspected that Turner Grain was insolvent or engaged in fraudulent conduct," Talbot and Strode wrote.
Grizzle, an unsecured creditor, has filed a $561,117 claim with Turner Grain Merchandising bankruptcy estate.
Rice said in Monday's filing that the proposed settlement was a "fair and equitable resolution" for a case that would have required at least two days at trial.
If approved by Jones, proceeds from the AgHeritage settlement will go into the Turner estate for eventual disbursement to secured creditors and to pay administrative fees incurred by the trustee. Any remaining funds will be disbursed to unsecured creditors, mainly farmers.
Excluding the AgHeritage case, 23 other clawback lawsuits have been settled, bringing $1.4 million into the estate. Four default judgments, totaling $225,470, have been entered against farmers who didn't contest the lawsuits. Several other cases are at various stages of litigation.
Business on 07/10/2018