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Farmers ask Court to throw out "illegal" warehouse receipts in Express Grain bankruptcy

Monday, January 31, 2022, 7:23 pm News Flash Archive

Today, the Farmers group, which represents almost all the farmers in the Express Grain bankruptcy case that are represented by attorneys, filed a "Motion for Summary Judgment," asking the court to throw out the warehouse receipts held by UMB Bank, StoneX Commodity Solutions, and Macquarie Commodities (USA) Inc. as invalid.

The aim of the Farmers motion appears to be to undercut and perhaps overthrow the claims by these three financing creditors that they actually own millions of bushels of beans held by Express Grain. If those beans are not actually owned by these three creditors, then the beans can be liquidated to help pay claims by all the creditors in the case.

The Farmers motion can be seen here: Farmers Motion for Summary Judgment

The legal memorandum supporting the Farmers motion can be seen here: Farmers Memorandum in support of MSJ

According to the 557 Report, UMB Bank holds warehouse receipts for 1,285,000 bushels of beans. StoneX holds 2,780,000 bushels. Macquarie holds 750,000 bushels.

But the Farmers contend that the warehouse receipts are illegal under Mississippi State law, and therefore cannot be used to represent the ownership or interest that these three creditors are claiming.

It is not clear that EG even had enough beans to cover the sum total of the warehouse receipts that UMB, StoneX, and Macquarie are now holding. Meanwhile, most of the beans have been sold or crushed already, with the money received for them parked in a court-controlled bank account until further action by the court.

According to the Farmers:

StoneX, Macquarie, and UMB are not holders of valid warehouse receipts and, therefore, do not own the soybeans covered by the warehouse receipts.

Under Mississippi law, the Business Debtors [Express Grain] are prohibited from issuing any warehouse receipts in cases where there is not actual delivery of soybeans into the warehouse for which the warehouse receipts are issued. See Miss. Code Ann. Section 75-44-61 (Rev. 2016). Regulations issued by the Mississippi Department of Agriculture and Commerce are in accord. See Subpart 2 - Administrative Rules: Chapter 10 Grain Warehouses.

StoneX, Macquarie and UMB, by their own admissions, did not deliver any soybeans to the Business Debtors. Thus, the Business Debtors had no authority to issue any warehouse receipts to these entities and their warehouse receipts are invalid as a matter of law.

There is no genuine issue of material fact as to the validity of these warehouse receipts and UMB, StoneX and Macquarie do not have a security interest in the Business Debtors' grain as a result of these invalid warehouse receipts.

Therefore, all Moving Farmers are entitled to judgment as a matter of law.

In the accompanying Memorandum of Law, the Farmers argue:

This is a simple and straightforward issue that will greatly narrow the issues for trial in the Section 557 Proceeding and reduce the expense of costly and unnecessary discovery. UMB, StoneX and Macquarie all claim to own the grain held by the Business Debtors as a result of warehouse receipts issued by the Business Debtors to them. But these warehouse receipts are invalid under Mississippi law and, therefore, cannot support claims for an interest in grain. Contrary to state law requirements, UMB, StoneX and Macquarie never delivered any soybeans to the Business Debtors. Therefore, the Business Debtors had no authority to issue warehouse receipts to them and the warehouse receipts upon which StoneX, Macquarie and UMB's claims are based fail as valid as a matter of law.

The Farmers further cite regulations promulgated by the Mississippi Department of Agriculture and Commerce, which read in part:

A warehouse shall issue a warehouse receipt only upon actual delivery of grain into storage. The receipt must be issued from the warehouse of storage, except as otherwise provided. The warehouseman shall not issue more than one receipt for the same lot of grain, except where partial receipts are desired. The total of the aggregate receipts of a particular lot shall be no greater than the total of the original lot unless additional grain is deposited. Should the depositor desire to consolidate several receipts into one, the warehouseman may issue a new consolidated receipt, but only after the original receipts have been cancelled.

A warehouseman or his employees shall not issue, cause to be issued, or assist in issuing warehouse receipts for grain that has not been delivered to a warehouse or not under their control as otherwise provided in the statute or rules and regulations. The issuer of such a receipt and the receiver of such a receipt shall be subject to the penalty provision of the Act.

The Farmers conclude:

StoneX, Macquarie and UMB knew the warehouse receipts they received from the Business Debtors were not issued in accordance with Mississippi law. They "may not be heard to say" that they had no notice of the Business Debtors' failure to follow the law. The warehouse receipts are unenforceable as a matter of law and this Court should find, as a matter of law, that StoneX, Macquarie and UMB have no ownership interest in grain held by the Business Debtors.

However, it must be noted that, even were the court to invalidate the warehouse receipts, the three financing creditors might well be able to establish their ownership of all or part of the grain through contracts showing that they indeed purchased the grain.

No hearing date has been set for the Farmers motion to be heard.

John Pittman Hey
The Taxpayers Channel

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