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Farmers double down in class action suit against UMB Bank in Express Grain failure

Thursday, January 13, 2022, 5:41 pm News Flash Archive

A group of farmers represented by mass tort litigator Don Barrett of Lexington has filed an amended complaint against UMB Bank. The named plaintiffs are Island Farms, LLC, Porter Planting Company Partnership, and Wyatt Farms Partnership.

The complaint alleges that the bank knew of Express Grain's insolvency, and yet propped it up with huge loans, waiting until the harvest season, and then yanking the loans and forcing Express Grain into bankruptcy. The Farmers claim that UMB Bank timed its actions deliberately in order to effectively "seize" the farmers' grain even though Express Grain was unable to pay them for it.

Because Express Grain is in bankruptcy, the farmers cannot sue the company, so they are going after the "deep pockets" of UMB Bank.

UMB Bank has not answered the original complaint, but has filed a motion to dismiss based upon purely legal and procedural grounds.

The amended complaint against UMB Bank may be seen here: Farmers amended complaint against UMB Bank

The Farmers are seeking to have their lawsuit certified as a "class action" case representing all the farmers who have been damaged by the Express Grain collapse. According to bankruptcy records, EG owes the farmers $40 million. EG owes UMB Bank around $70 million.

According to the Farmers complaint:

The Bank, fully aware that there was substantial doubt that Express Grain was or could continue to be a going concern, and aware that Express Grain's terrible financial condition would jeopardize its license to do business if the true facts were known, chose to enable and sustain Express Grain in order to permit Express Grain to fill its silos with farmers' grain during the fall harvest. During that brief window of time, farmers, including Plaintiffs and Class members, would deliver their grain to the grain warehouse in anticipation of prompt payment.

Express Grain represented to farmers that it was prospering, when the truth, known to the Bank, was that Express Grain was insolvent. The Bank propped up Express Grain just enough to allow it to survive into harvest season, when farmers would be delivering enormous quantities of grain.

When the inevitable default occurred, the farmers went unpaid, and the Bank effectively seized the grain.

It must be stressed that so far, neither the Farmers nor their attorneys have provided any documentation for any of the claims they have made in this lawsuit.

For its part, UMB Bank has claimed it is a victim of EG, having been provided falsified documentation which an insider at EG finally disclosed to the bank. Please see The Taxpayers Channel's reporting on the UMB Bank's claims: UMB Bank: insider contacted us about suspicious Express Grain filings

The Farmers claim:

Despite being aware of Express Grain's financial dire straits, the Bank took advantage of Express Grain's misrepresentations and omissions concerning its financial stability, and in fact made fraudulent misrepresentations itself, in order to acquire more collateral. This lawsuit seeks to redress that injustice.

The Bank had actual knowledge of the insolvency of Express Grain for years prior to 2021. This knowledge came from audited financial reports, from the transactions Express Grain had with various accounts at the Bank as well as through the right of the Bank to enter and inspect all information at Express Grain pursuant to loan agreements. As a result of this superior knowledge, the Bank was well aware of the course of dealings of Express Grain with farmers.

The Farmers claim that UMB Bank knew about EG's financial problems, but decided to ignore them:

From at least 2018 (if not earlier) and continuing through 2021, Express Grain was in financial distress.

In fact, its financial condition had been deteriorating for some time. For example, cash on hand decreased from $1,200,000 in 2018, to $641,000 in 2019 down to almost zero at the end of 2020 at $3,865.

The Farmers claim that UMB Bank was aware of various deficiencies in EG's relationship with the bank, including late financial reports, but chose to ignore them.

The Farmers also allege that UMB Bank lied to the Mississippi Department of Agriculture and Commerce (MDAC) when it made inquiries in December 2020 about EG's financial stability:

The Bank's efforts to prop up Express Grain extended to falsely vouching to regulators that all was well. In December of 2020, the MDAC received a complaint from a farmer who had not been paid by Express Grain. An MDAC investigator contacted Express Grain, which gave the investigator assurances about Express Grain's financial condition. Express Grain told the investigator that everything was just fine and that Express Grain was simply refinancing its debts in the ordinary course of business. Express Grain then invited the investigator to contact the Bank, which would confirm that.

The investigator did that: he contacted the Bank for assurances about Express Grain's financial health. The Bank told the MDAC investigator that Express Grain's loans were simply being refinanced as a matter of ordinary business and that everything at Express Grain was just fine. The Bank's representations to MDAC were simply a lie. The MDAC relied on the Bank's misrepresentations and allowed Express Grain to remain open as a grain dealer and warehouse. The Bank's misrepresentations were made to prevent Express Grain from being shut down and to permit Express Grain to enter another season of harvest to increase collateral. The Bank, which specializes in the area of agri-business lending fully understood the need to made such assurances to the MDAC. Had the Bank told the MDAC the truth about Express Grain's dire financial condition in December of 2020, the MDAC would have suspended the license of Express Grain, forcing it out of business, and no Mississippi farmer would have lost a dime dealing with Express Grain in 2021.

The Farmers go so far as to accuse EG of being "a criminal enterprise," and that UMB Bank knew it:

In fact, the Bank knew that Express Grain had provided forged and fraudulent audits to the MDAC for four years, which audits had deceived the MDAC into allowing Express Grain to continue to operate. The Bank knew that its borrower Express Grain was a criminal enterprise, lying to the MDAC about its financial status to stay in business, and lying to Plaintiffs and the Class to induce them to bring their grain harvests to Express Grain. The Bank knew of all of this fraudulent and criminal activity by Express Grain but continued to give substantial assistance and encouragement to Express Grain in its aforesaid misconduct.

The Farmers claim that EG's auditing firm of Horne LLP had reported concerns about the viability of the company, and that EG had lost massive amounts of money since 2017:

The Bank received notice of Express Grain's insolvency as early as 2018. Express Grain's corporate accountant provided "going concern" letters to the Bank every year from at least June 30, 2018, through December 30, 2021. These audits emphasized that Express Grain's net losses were so high so as to raise doubt about Express Grain's ability to continue.

Express Grain's corporate auditor Horne, LLP reported massive losses year over year. Horne's Auditor's Report showed net losses of $9,333,150 and $2,400,028 for years ended June 30, 2018 and 2017, respectively. For years ended June 30, 2019 and 2018, Express Grain accumulated losses of approximately $14,000,000. For years ended June 30, 2020 and 2019, Express Grain accumulated losses increased by approximately $7.6 million, for net losses of $21,600,000. For the six months December 31, 2020, and June 30, 2020, and for the six months ended December 31, 2020, Express Grain had accumulated losses of approximately $19,400,00 since its inception. According to the reports, these accumulated losses raised substantial doubt about Express Grain's ability to continue as a going concern.

While the Bank was aware of the Horne's warnings that Express Grain was a going concern, the Bank concealed that information from the MDAC in December 2020. The MDAC was unaware of the accountant's warnings as Express Grain had submitted phony financial statements to the MDAC in 2018, 2019, and 2020. Those falsified audits purported to show Express Grain in a solid financial condition, and nowhere did they inform the MDAC that its liabilities grossly exceeded its assets.

And so, the Farmers allege, UMB Bank set up its trap to capture the Farmers' grain to pay off EG's huge debts to the bank:

By the spring of 2021, Express Grain was effectively insolvent, kept alive only by the support of the Bank. The Bank was aware that if it called the loan then, or warned the MDAC, there would be little grain it could claim as security for Express Grain's debt. The Bank understood that if [it] waited and called the loan in late September at the height of the harvest season for corn and soybeans, it could maximize its secured collateral position.

And that is what The Bank did. The Bank simply waited until the elevator had collected as much grain as practicable during the 2021 corn and soybean harvest from unsuspecting farmers, including Plaintiffs, and then moved to call the loan and place Express Grain into bankruptcy. In short, the Bank laid a trap for Plaintiffs and the other members of the Class, a trap to steal their crops and use those crops to satisfy the massive loan it had improvidently made to Express Grain.

All the while during 2021, EG and John Coleman, its president, were sending out "sunny forecasts" to the farmers, urging them to harvest and bring their grain to EG's silos. UMB Bank, the Farmers claim, knew all those forecasts were a lie.

The Farmers claim that the lawsuit will answer these questions:

(a) Whether the Bank aided and abetted Express Grain's fraud;
(b) Whether the Bank committed fraud;
(c) Whether the Bank is liable for conversion;
(d) Whether the Bank acted grossly negligently;
(e) Whether the Bank was unjustly enriched by its conduct; and
(f) Whether a constructive trust should be imposed.

The Farmers are alleging counts of fraud, civil conspiracy to commit fraud, aiding and abetting fraud, negligence, gross negligence, and recklessness, negligent misrepresentation, unjust enrichment, and breach of constructive trust.

The Farmers are requesting:

As a result of Defendants' aforesaid misconduct, Plaintiffs seek recovery, for themselves and the Class, of all available damages, including - but not limited to - compensatory, punitive and exemplary.

Plaintiffs seek forfeiture, for themselves and the Class, of all money received by Defendants, directly or indirectly, through the conduct alleged herein.

Plaintiffs seek restitution, for themselves and the Class, of all illegally obtained or ill-gotten funds and gains received by the Defendants

Plaintiffs seek pre-judgment interest, post-judgment interest, attorneys' fees, court costs, investigative costs, expert-witness fees, deposition fees and any other expenses or damages which this Court deems proper.

In addition to the Barrett Law Group, the Farmers are represented by Cuneo, Gilbert & Laduca from Washington DC; Merkel and Cocke from Clarksdale; Lewis and Lewis Attorneys from Oxford; Abdalla Law from Ridgeland; and Tanner and Associates from Jackson.

Hopefully, UMB Bank will quickly file its response, so that we can all read what their side of the story is.

John Pittman Hey
The Taxpayers Channel

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