McMartin farm bankruptcies could wrap up this year – AG Week

McMartin's McM Inc., filed Chapter 7 liquidation bankruptcy in Fargo on Feb. 10, 2017. McMartin Jr. later filed personal Chapter 7 liquidation bankruptcy on Sept. 11, 2017.

McM was a farm that had operated up to 50,000 acres from three farming centers St. Thomas, Grand Forks and Fargo. The case is unusually large for the region, with $64 million in claims, including $43 million from BMO Harris Bank alone. McMartin is notable for the sheer size of his farm, its high-value crops that included sugar beets, potatoes, and dry edible beans, but also for his influence in farmland rent competition, an influence that farming competitors say remains today.

Intertwined

Burton, a lawyer with the Morrison Sund PLLC firm, is working for two trustees in the separate, but intertwined cases. Erik Ahlgren of Fergus Falls, Minn., is trustee in the McM bankruptcy. David G. Velde, Alexandra, Minn., is the trustee in the McMartin Jr. personal bankruptcy.

Burton is handling some of the details in both cases. He says there have been significant recoveries of assets to the trust. Some of those funds have been paid out, but the trustees continue to pursue some assets in related lawsuits called adversary proceedings.

According to documents, several of these proceedings were launched in 2018 and 2019 and remain in play today:

Ahlgren vs. CHS Inc. Ahlgren says CHS owes the McM estate about $793,000 in accumulated patronage dividends for selling grain through the cooperative elevator. The trial is scheduled July 15 in Minneapolis (Fargo Bankruptcy Judge Shon Hastings recused herself and referred the case to Judge Michael Ridgway in Minneapolis.) CHS lawyers have argued the bankruptcy trust has no right to force the co-op to liquidate McM's patronage dividends, and that the grain marketing co-op had the right to "set off" money that McMartin owed them.

Ahlgren vs. McMartin Sr. Ahlgren had alleged that McM in 2016 had improperly provided about $2 million to the parents and their farming operations chemicals, planting, harvesting and the parents did not pay McM for fair value. McMartin Sr. has agreed to pay $775,000 but the settlement hasn't yet been approved by the court.

Ahlgren vs. Kenny Johnson. On behalf of McM creditors, Ahlgren is seeking $740,882 from Johnson, who has residences in Walhalla, N.D., and Florida. Johnson had provided McM about 20,000 of its rented acres.

Ahlgren says McM improperly paid more than $1 million to Johhson from April to June of 2016 on a lease on Johnson land when others did not get paid. Johnson's attorneys have submitted an answer to the court, denying responsibility.

Ahlgren is arguing that there is an "insider" arrangement.

First, Johnson's nephew, Kyle Zak, managed the farms. After the bankruptcy, Johnson briefly employed McMartin and his daughter at the new Elkhorn Farms operation and Johnson also immediately hired Zak as a farm manager.

Second, Ahlgren is arguing Johnson was an insider because Johnson had urged that Zak be on the McM management team. Ahlgren also argues that Johnson effectively was a "general partner" in McM because Johnson and McM did crop sharing in 2015 and 2016 land deals in North Dakota's Towner County.

Ahlgren vs. Morrison Family Trust. Ahlgren alleges that McM had fully paid one of its landlords the Morrison Family Trust a lease payment on about 110 acres in Pembina County, N.D., for the 2017 crop. After McM's bankruptcy filing, however, the Morrison trust had made a second deal with Elkhorn Farms, an entity based in Walhalla, led by Kenny Johnson. The McM trustee is seeking $22,500. That trial began Jan. 14 in Fargo.

Kenny Johnson vs Ahlgren. In December 2018, Kenny Johnson's lawyers filed a countersuit against the bankruptcy estate, arguing that the estate owes Johnson some $325,000 because it used some of his land after the case was filed. That will go to court in February.

Velde vs. McMartin Sr. Velde alleged that approximately $200,000 in assets had transferred from McMartin Jr. individually to his father, McMartin Sr. The case was settled for $126,787.50 in late 2019, and has yet to be approved by the court.

Velde vs. McMartin Sr. and the Ronald McMartin Sr. Irrevocable Trust. The McMartin Sr. trust was created in 2012 with Bonita McMartin, the father's wife, as trustee and McMartin Jr.'s grown daughters as beneficiaries. The case was recently settled, allowing the trustee to sell off what is known as the "Heder Farm" at St. Thomas. There are several acres, plus some buildings. Additionally, the estate can liquidate buildings on Ronald McMartin Sr.'s farmstead, which complicates the matter.

In the documents, Velde alleges that funds were transferred into the trust because of McMartin Jr.'s "abuse of the corporate formalities of McM Inc., which he solely owned and controlled" and that he used McM Inc. as his "alter ego and used its assets as his own." They noted a personal cabin in the corporation's name.

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McMartin farm bankruptcies could wrap up this year - AG Week