CHS versus Anderson Seed
MENTOR, Minn. — Principal figures in the Anderson Seed Inc. insolvency case declined to talk to Agweek about the status of farmer and creditor claims totaling $5 million, but a lawsuit by CHS Inc. in Minnesota may eventually offer a window into precisely what made the company fail.
CHS, based in Inver Grove Heights, Minn., is suing the defunct Anderson Seed of Mentor, Minn., for $1.4 million on behalf of CHS Midwest Cooperatives of Pierre, S.D., which sold sunflower seed to Anderson Seed and its processing plant in Redfield, S.D.
Among other things, CHS is asking to “pierce the corporate veil” and hold company president Ron Anderson and his daughter, Stephanie, the company’s manager, personally responsible for the claims. The Andersons and their lawyer have worked to block some of CHS’s inquiries and deny that the Andersons should be personally responsible for the corporate debts.
The case was filed a few days after Anderson Seed had been declared insolvent and assets sold in February 2012. The case initially had been scheduled to go to a court trial before Minnesota District Judge Kurt Marben on April 15 in Crookston. But that date was cancelled and a four-day jury trial is scheduled for Nov. 18 to 21.
Separately, the North Dakota Public Service Commission and the South Dakota Public Utilities Commission still are working to distribute bonds to farmers and others who say they’re owed $5 million. In North Dakota, a Grand Forks lawyer has been hired to pursue repayments that go across three state jurisdictions.
‘Battered down’ family
Agweek approached Ron Anderson for an interview about what happened to his family company. At first, Anderson said he might be willing to talk about it to correct misinformation. But he also didn’t know if there would be any advantage other than “entertainment “at his expense.
After consulting with his lawyer, Anderson declined. In declining the interview, Anderson acknowledged he and his family had been “battered down” by the events. He said he is in the process of liquidating unspecified assets, but didn’t elaborate on what that might mean for CHS or for farmers and other creditors.
On Feb. 14, 2012, Legumex Walker Inc., an expanding Winnipeg, Manitoba-based grains company, bought St. Hilaire (Minn.) Seed and some assets of Anderson Seed.
Craig Anderson, Ron Anderson’s son, worked for Legumex Walker, but by early March 2013, had resigned for other opportunities.
Craig also declined an interview, on advice of lawyers. He had been named general manager of Anderson Seed in its later months of operation, but he was not named in the CHS lawsuit. Craig Anderson confirmed he is working to start over and build a new edible bean company in the northern Red River Valley.
CHS sued on four counts alleging fraud Feb. 23, 2012, in Polk County. CHS claims damages of $1.4 million — both for unpaid seed and for eroded market position losses on seeds that had been contracted, but couldn’t be delivered.
In documents filed March 19, 2012, naming Ron Anderson and Stephanie Anderson as defendants. Jon Brakke, a Fargo, N.D., attorney in the Vogel Law Firm, who often represents CHS in the region, is the attorney for the plaintiffs.
Here is how Brakke’s briefs describe events and allegations:
According to CHS, from January to May 2011, Anderson Seed negotiated to buy 160,000 hundredweights of sunflowers from CHS. CHS says Anderson Seed arranged transportation in October and November, 2011. Anderson Seed took delivery of nearly 22,966 hundredweights and failed to pay the $687,117 owed for the delivered seed. At the same time, Anderson negotiated other contracts for sunflowers “with a large number of other sellers and taking delivery from those sellers.
“Prior to the time Anderson Seed started negotiating purchase contracts” with CHS “and long before it took delivery under those contracts, Anderson Seed was hopelessly insolvent,” but concealed this from CHS. CHS notes that on Sept. 30, 2011, Anderson Seed had current assets of $3.9 million and current liabilities of nearly $21.9 million.
CHS says audited financial statements indicate Anderson Seed liabilities increased by $18.3 million from Sept. 30, 2010 to Sept. 30, 2011, and the company posted a net loss of $14.4 million in the year running Oct. 1, 2010 to Sept. 30, 2011. Working capital went from $243,000 to a negative $17.9 million.
Who knew what, when?
Market shifts and Anderson Seed’s “failure to properly cover” its 2010 contracts caused a loss, according to CHS, which adds that this would have been known to Anderson Seed prior to negotiating contracts with CHS in early 2011.
“Apparently realizing its difficulties, Anderson Seed negotiated a sale of all of its assets” to Legumex. “All proceeds went to Anderson Seed’s secured lender — U.S. Bank or to Anderson personally,” CHS alleges. “Documents obtained from U.S. Bank indicate Anderson Seed had committed to the sale of all of its assets by early October 2011,” which was before the time it arranged for pick-up of the majority of the sunflowers purchased from CHS.
CHS then said it appeared “proceeds received by Anderson Seed from its sale of commodities” obtained from CHS and others “went to pay down the debt to U.S. Bank” adding that without those commodity proceeds, the money Anderson Seed received from Legumex in the sale on Feb. 14, 2012, “would not have been sufficient to pay the debt to U.S. Bank.
“Wholly apart from its insolvency, Anderson Seed knew that, based on its debt to U.S. Bank” it “would never be able to pay for the crops it was contracting to purchase” from CHS and others. CHS says Ron Anderson was “directly involved in contract negotiations” with CHS and that Stephanie also was involved and arranged pick-up from sellers “and would have been familiar with the financial situation of the business.”
Avoiding the trust?
Meanwhile, CHS notes that the state of North Dakota believed the company was “fraudulently transporting sunflowers out of Anderson Seed’s warehouses in North Dakota in