Gallatin Grain Co.: Administrative Hearing held May 28, 2009

Total Claims for Payout — $3,530,969.40

   Storage Claims — $1,530.488.07
   Grain Dealer Claims — $1,799,253.54
   Ineligible Claims — $201,227.79

Withdrawn Claims (no payout) — $1,164,418.91

Over 100 persons observed an administrative hearing conducted by the Missouri Department of Agriculture to formalize evidence relative to a proposed payout of assets left by the now defunct Gallatin Grain Company to grain farmers with verified claims. 

The hearing was held last Thursday evening at Gallatin R-5 High School gymnasium. All attending were required to sign in. A stenographer tracked evidence and questions presented at the hearing. Chris Klenklen, grain regulatory service program administrator, provided sworn testimony.

Ten separate exhibits of evidence were registered during the administrative hearing, which chronicled the circumstances all too familiar to those financially hurt by the financial collapse of the elevator formerly owned by Danny Froman.

The proceeding was not a public meeting for public discussion. The hearing focused on establishing a payout schedule to grain investors victimized by the business failure. No comments about other problems facing Mr. Froman – criminal counts related to the elevator failure nor alleged violations of the state’s clean water law at Gallatin Livestock Auction also operated by Mr. Froman – were allowed.

Comments and questions from claimants in attendance were allowed after all evidence was officially entered into legal record, if such questions were deemed relevant to the proposed schedule of asset payout. Only claimants were allowed to speak.

Two questions posed by grain farmers in attendance stood out. The first query asked why such mistakes were not discovered by state authorities during the most recent audit of the elevator last September. Mr. Klenklen responded that the Department of Agriculture auditors were deliberately misled.

The second question also pointed to the conduct of state officials. Evidence entered during the hearing verified that state officials were notified at 6 p.m. on Friday, Feb. 6, by the attorney representing Mr. Froman (Harold Caskey of Butler, Mo.), that the elevator was closing under financial duress and that Mr. Froman was requesting a meeting with state authorities. When state officials arrived to take control of the elevator, they found Froman’s facilities void of any grain.

The question: Why did the Department of Agriculture wait until the following Monday to arrive?

"We were told the elevator was closed with no operations to occur over the weekend," Mr. Klenklen said. "We generally don’t work on Saturdays and Sundays, so we went (to Gallatin) first thing Monday morning."

Officials are still attempting to secure related grain transaction records from Kansas City and St. Joseph to assist them in the matter.

One person in attendance challenged the accuracy of soybeans and corn listed as hers on the storage claims list, which would impact the amount of payment to be made. After some discussion, everyone attending was invited to approach state officials to request corrections.

The presiding officer of the hearing instructed state agriculture officials to report back within 10 days on any alterations to the proposed payout schedule, and to submit a corrected spreadsheet; if disputes continue, then notice must be given in order to determine if further evidence should be entered into the record.

The payment plan proposed by agriculture officials must be approved by the Daviess County Circuit Court before funds are actually awarded. There is no specific time table as to when this will occur.

Members of the Missouri State Highway Patrol, the Gallatin Police Department and Daviess County Sheriff’s Office provided security at the event.

The following briefly summarizes the exhibits of evidence entered into record during the administrative hearing held May 28, 2009 at Gallatin R-5 School. The administrative hearing judge will make a presentation to the Director of the Department of Agriculture eventually recommending the schedule of payout to all claimants against Gallatin Grain Company.

Exhibit 1 — The grain dealers bond, for buying and selling of grain, for $82,000 originally but changed to $223,000 in June, 2007

Exhibit 2 — The warehouse bond, originally for $139,000 increased to $184,000 in Oct. 2004

Exhibit 3 — Order filed in Daviess County Circuit Court giving Director of Agriculture control of Gallatin Grain Company

Exhibit 4 — Summary of grain claims as filed, both storage and dealer claims

Exhibit 5 — Net claims after all adjustments

Exhibit 6 — Average market prices of grain on the day the Department of Agriculture took possession of Gallatin Grain Company

Exhibit 7 – Collection of assets available for disbursement outside the bond

Exhibit 8 — Proposed payout schedule (a detailed spreadsheet)

Exhibit 9 — Application to conduct this hearing at Gallatin on Thursday, May 28, 2009

Exhibit 10 — Order of the Director of Ag, granting the hearing

$3.5 million in claims verified;
payout offers 12 cents on every dollar

Total Claims for Payout — $3,530,969.40

   Storage Claims — $1,530.488.07
   Grain Dealer Claims — $1,799,253.54
   Ineligible Claims — $201,227.79

Withdrawn Claims (no payout) — $1,164,418.91

On Feb. 9 when the state took possession of Gallatin Grain Company, its assets totaled in excess of $3 million, at least on paper. But Thursday evening the Department of Agriculture unveiled a payout plan for $3.5 million in claims that essentially gives grain farmers about 12 cents on every dollar owed. Where did all the money go?

"We are continuing to investigate," says Chris Klenklen. "We have subpoenaed almost all the transactions Froman did with all the elevators in Kansas City and the area. That is an ongoing investigation. If we do find more assets, they will be distributed according to the same payout schedule proposed by the Department of Agriculture and approved by the circuit court."

When state officials arrived at Gallatin Grain Company, they found no grain in the elevator and no plan, for the most part, to repay those who had taken grain for storage there. That’s why the Department of Agriculture was granted possession of Froman’s assets by the court. Appraisals confirmed the business was overleveraged; liens held by various banks meant there would be no money for grain farmers derived from the sale of the facilities.

Mr. Klenklen stated that an appraisal set the value of the elevator facility at $350,000 to $450,000 while liens against the business exceeded $645,000. A 20-acre piece of land with a building was discovered apart from the elevator property (although this property was not legally abandoned by Froman).

Claimants stepped forward, saying they would not file their claims if the Department of Agriculture abandoned its possession of these assets. This decision greatly improved the claim position of others.

Claims were withdrawn by Brandon Eads, Randy Eads, Vernon Hanes and Matt Nalle Farms, Inc. These withdrawn claims totaled $1,164,418.91. The largest withdrawn claim was from Matt Nalle Farms for $614,562.78 which was exchanged for possession of the elevator assets. Those withdrawing claims in exchange for assets do not receive any other claim payment.

"If these withdrawn claims had stayed in, the prorated claims would have decreased from 12 cents (on the dollar) to 8 cents," said Klenklen, "and warehouse claims would have lost about a penny. Everybody’s money would have decreased."

State officials were in Gallatin for three days in early March, meeting with 109 claimants. Grain claims were matched against elevator records to assure accuracy (Exhibit 4). The value of the claims included grain market prices on the day the Department took possession of the elevator, normal storage charges, and discounts for grain moisture or damage.

Five claims were declared invalid. Any deferred payment one year old or older or any delayed pricing contract where the farmer released title to the grain were declared invalid. The value on these ineligible claims totaled $201,227.79.

If more grain or elevator assets are discovered, the money will be distributed to claimants by using the same distribution schedule to prorate whatever becomes available to claimants. Funds for disbursement are held in an interest-bearing escrow account in Jefferson City.