VeraSun drops demands made to corn farmers

By Holly Jessen | October 14, 2010
In late August, corn farmers who were paid in 2008 for corn deliveries to now-bankrupt VeraSun Energy Corp. received letters asking for some of that money back. The farmers' lawyers responded with a flurry of their own letters. "I suspect that the New York lawyers received literally hundreds of letters with similar defenses outlined in them and thousands of sheets of back-up information demonstrating the futility of proceeding further," Joe Peiffer, a Cedar Rapids, Iowa, lawyer told EPM.

Then, just as suddenly as the issue had come up, it disappeared. On Sept. 30, the deadline the VeraSun estate had given farmers to repay the money, the demands were withdrawn. "That was great news, almost the best news we could have gotten on that topic," Rick Tolman, CEO of the National Corn Growers Association, told EPM. He added that it was something that the organization could put in the win column, with a green check mark by it.

Darrin Ihnen, president of NCGA, was also pleased. "This is great news for farmers at a time when we need to focus on bringing in our crops," he said. "We're glad the lawyers saw the light and realized they had no legal justification to go after us."

The good news came in the form of an email from Randy Schaefer, a lawyer with SilvermanAcampora LLP, on Sept. 30. "Please be advised that we have received sufficient information to determine that the VeraSun estate will not pursue a claim for relief against corn producers and the demands are hereby withdrawn," she wrote. Schaefer added that a list of corn producers "against whom we are withdrawing our demands" would be forthcoming.

New York law firms SilvermanAcampora and Kelley Drye & Warren LLP issued the letters that asked corn producers to repay 80 percent of the payments they had received from VeraSun in the 90 days before the company filed for Chapter 11 bankruptcy in 2008.

Peiffer said he felt giddy when he heard the news. He was one of 50 or more attorneys who banded together to work on the problem, Peiffer said. Each attorney sent letters to the VeraSun estate attorneys, laying out two solid defenses against the argument that corn farmers received preferential treatment. A preference payment is when a creditor is paid before other creditors, allowing them to recover more money than if the bankruptcy estate had distributed the money after the bankruptcy.

Corn producers did not receive preferential treatment because producers were paid in the ordinary course of business, he said, typically delivering corn and getting paid the next week. In addition, a 2005 amendment to the bankruptcy code provides an exception to preferential treatment for those that used forward contracts. It's not clear at this point which argument worked. "It could be either of them," Peiffer said. "Frankly, I don't care. We got where we needed to get."

Also on the case was the NCGA, which Sept. 28 sent its own letter to the law firms, insisting the demands be withdrawn. "We believe that many of the foregoing demands were made without any legal and factual foundation and, as such, constitute an impermissible effort to collect alleged debts that are clearly not owing," wrote attorney David Lander of Thompson Coburn LLP. "They appear to have been made without the inquiry reasonable under the circumstances. Moreover, we believe that the claims asserted in the vast bulk of these letters are not warranted by existing law or a non-frivolous argument for the extension, modification or reversal of existing law or the establishment of new law."

The NCGA letter pointed to a host of defenses, including the fact the many of the payments were made in connection with forward contracts and/or in the ordinary course of business. "It appears that in sending out your demands in this case, absolutely no effort was made to distinguish such payments from the other payments upon which you made demand," Lander wrote. "As a result, you ended up demanding the return of thousands of payments that were paid within terms. This is in direct contrast to the established practice in most bankruptcy cases."

Although the organization had not heard of any farmers having repaid the amount demanded in the claim, the NCGA letter also asked the VeraSun estate to return any funds that might have been collected. "We just wanted to make sure that if anybody did pay that they did get their money back," Tolman said.

What was good news for corn farmers, however, was not applied to others, such as elevators and service providers that did business with VeraSun during that period. The VeraSun estate is still reserving the right to go after them.