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Confusion and danger in the run-up to Monday's hearing on the Express Grain settlement

Friday, April 22, 2022, 9:39 pm News Flash Archive

More legal filings are being entered as the parties in the Express Grain bankruptcy case prepare for Monday's pivotal hearing on whether the court will approve the proposed Settlement Agreement. If the court does so, the final disposition of the settlement will depend upon what percentage of farmers and their claims are signed up by the ten day deadline ending May 5.

See our previous reporting on the proposed settlement agreement here: Express Grain settlement terms finally disclosed: farmers would receive only $9.25 million

In these new filings, several new dangers have been discussed, along with some confusion about the terms of the releases that will be given by those farmers who "disclaim" the settlement.

All the parties seem to agree that those farmers who agree to settle the grain dispute will receive a pro rata share of the $9.25 million set aside to settle farmers' grain claims. In addition, all the parties will release each other from any and all other claims, which means that these settling farmers cannot pursue any claims against UMB Bank or other co-creditors in Mr. Don Barrett's lawsuit against UMB Bank.

Travelers has already put everyone on notice that those parties who provide Express Grain with a release, will be unable to file claims against EG's surety bonds. See our previous reporting on the Travelers' warnings about the surety bond claims here: Travelers warns farmers they might not be able to claim against Express Grain's surety bonds

Concerns have been raised by all four of the large Farmer Groups about what happens to farmers' claims against UMB Bank if they "disclaim" the settlement agreement. Their attorneys are concerned that the language in the settlement agreement and settlement order might extinguish their claims against UMB Bank, which they have no intention of doing. "Disclaiming" farmers are those who opt out of the settlement, and also withdraw their claims to participate in the 557 trial. They will receive past legal fees, but many hope to continue to pursue claims against UMB Bank.

To see a list of the 97 farmers who have disclaimed the settlement so far, see here: List of Disclaiming Farmers

These farmers' attorneys are requesting that the Settlement Order incorporate language that will clearly state that the disclaiming farmers' claims against UMB Bank will not be impaired. See our previous reporting on how the dispute between some of the farmers and UMB Bank is causing problems with the settlement agreement here: Express Grain settlement hits snag

For example, attorneys Michael P. O'neil and Michael T. Lewis, Sr., who represent 101 farmers and/or farms, argue that:

In fact, as drafted, the Proposed Settlement Agreement in combination with the Proposed Order will likely compromise claims, causes of action, cross claims, or counterclaims sounding in tort, contract, or statute that are not directly related to the determination of interests in the grain and grain proceeds, claims that the Court has expressly ordered to be reserved for non-bankruptcy adjudication. Given its excessive scope, the Settlement Agreement is not fair, equitable, or in the best interest of the estate. Unless appropriate limiting language is included in any final order approving the Proposed Settlement Agreement, the Court should deny the Settlement Motion.

Their goal, they say is:

... to obtain continuing affirmation from this Court, by way of appropriate language in any order granting the Settlement Motion, that their rights in respect of the District Court Action remain reserved and that their selection of Option 2 ["disclaiming"] on their Farmer Elections will not create new defenses to, or otherwise adversely impact, their claims against UMB in that action [Don Barrett's lawsuit] or in any case they may file in the future.

These farmers ask the court to include language making it clear that their rights to pursue UMB Bank in Mr. Barrett's lawsuit are fully protected. Otherwise, they argue, the court must reject the settlement agreement because it unfairly strips from the disclaiming farmers their right to proceed against UMB Bank.

To read the farmers motion objecting to the settlement agreement unless protecting language is added, see here: Farmers Motion Objecting to Potential Settlement Order

Attorneys representing almost all of the farmers have also weighed in on this matter, asking the court to add language to preserve their right to take UMB Bank to court with Mr. Barrett.

Attorneys J. Walter Newman, IV, Eileen N. Shaffer, and Derek A. Henderson, representing Farm Group 1, advocate in favor of the settlement agreement, and explain further:

The Settlement Motion has been filed requesting the Court to approve a settlement agreement which establishes three (3) groups of farmers involved in the Section 557 priority proceeding. The farmer groups include:

Group 1 - Consenting Farmers. This is the settling group.

Group 2 - Disclaiming Farmers. This is the Section 557 walkaway group.

Group 3 - Non-Consenting Farmers. This is the non-settling group.

The majority of all farmers have fallen into Group 2 as a Disclaiming Farmer. While withdrawing the Section 557 claims is being done, an essential element of the Disclaiming Farmer's selection is receiving a release of all Chapter 5 claims and at the same time reserving their rights, claims, and defenses in the pending District Court Action [Don Barrett's suit against UMB Bank]

These attorneys therefore request language be added to the proposed settlement order making it clear that the Group 2 (disclaiming) farmers will retain all their rights to pursue other creditors, including UMB Bank, for their claims as raised in Mr. Barrett's lawsuit. Their motion for clarification may be seen here: Farmers Motion to add Clarifying Language to Proposed Settlement Order

In addition to the farmers' concerns about maintaining their ability to sue UMB Bank in federal court, the Warehouse Receipt Holders ("WRHs") have called attention to what they view as the dangers to the farmers of not approving the settlement agreement.

Attorneys representing UMB Bank, StoneX, and Macquarie filed their brief in support of the settlement order and agreement, which may be seen here: WRH Brief in Support of Settlement Agreement Order

The WRH parties take the view that there is a danger for all the farmers if the settlement agreement is not put into place, because then everyone will be subject to possible counter-claims against them by Express Grain.

Incredible as it may sound, it turns out that EG can file claims against farmers who failed to deliver their grain to EG once the bankruptcy was filed. Those who took their grain elsewhere, while they were under contract to deliver it to EG, could be sued for breach of contract by EG.

Furthermore, under the bankruptcy code, it is possible for EG to "claw back" moneys that it paid to creditors, under the theory that all the creditors should suffer equally, but some were paid off completely, while others received nothing. Under this theory, farmers who were paid for their grain in the 90 days prior to the filing of EG's bankruptcy might be forced to pay some or all of that money back, so that all the creditors can receive at least some payments for their claims.

The WRHs argue that, if the settlement collapses, all the farmers may be subject to these claims against them by EG.

But if the settlement is approved, both the Consenting farmers and the Disclaiming farmers will be released from all such claims.

The WRHs provided a chart that seeks to explain what are the consequences of the settlement being approved versus the settlement collapsing, as it relates to releases and possible claims against farmers by EG. See here: Chart explaining Farmers' Options to Opt-in/out of Settlement Agreement

At the same time, the WRHs seem to disagree with the farmers as to the effect of the settlement agreement and order on the disclaiming (Group 2) farmers' claims against UMB Bank in Don Barrett's lawsuit.

If this dispute cannot be settled by the court on Monday, it is very likely that the entire settlement will collapse, and everyone will be back at square one with a lengthy and extremely complex 557 trial.

 


To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles

 

John Pittman Hey
The Taxpayers Channel

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