Lonoke County farmers hope to recover the $5.5 million they lost dealing with Turner Grain Inc. from a company they claim worked closely with the Brinkley crop broker: K.B.X. Inc. of Benton.
More than 20 farmers alleged in a lawsuit filed in Lonoke County Circuit Court that K.B.X. knew Turner Grain was operating a Ponzi scheme but failed to warn them.
K.B.X. has denied all allegations of wrongdoing in its court filings, countering that “the sole reason K.B.X. is a party to this lawsuit — the Plaintiffs’ desperate search for a deep pocket.”
The farmers sued officials of Turner Grain and K.B.X. and other defendants back in August 2014. But that case was put on hold after Turner Grain Merchandising Inc. and its former co-owner, Dale Bartlett, each filed for bankruptcy protection. Turner’s co-owner, Jason Coleman, hasn’t filed for bankruptcy protection, nor has anyone been charged with a crime.
In December, U.S. Bankruptcy Judge Richard Taylor granted a request from the farmers’ attorney, Donald Campbell III of Little Rock, to be allowed to move forward with the Lonoke County civil case. (The farmers had named Turner Grain Merchandising in an earlier complaint, but it wasn’t included as a defendant in the most recent one because a settlement had been reached with the farmers.)
“We have alleged that there was a conspiracy between … Mr. Coleman and Mr. Bartlett and the officer or some of the employees of K.B.X., that they had knowledge of a Ponzi scheme being operated by Mr. Bartlett and Mr. Coleman,” Campbell, of the Little Rock law firm of Campbell & Grooms, said during Bartlett’s bankruptcy hearing in December.
If the farmers prove their allegations, Campbell said, the defendants could have joint-and-several liability, meaning that the plaintiffs could collect the total damages from any of the 20 named defendants.
“And clearly, the easiest place to collect it is the one that has the most money,” Campbell said. “And we believe that KBX has more than enough money to pay the entire judgment.”
In the 43-page complaint, the farmers are alleging breach of contract, conversion, fraud and other misdeeds. They are seeking an unspecified amount of damages.
Neither K.B.X. President Steven Keith nor the company’s attorney returned a call for comment last week.
After the bankruptcy judge said the Lonoke County case could move forward, K.B.X. asked to be dismissed from the case by Lonoke County Court Judge Sandy Huckabee.
K.B.X. said it has racked up “substantial legal fees and costs” related to the litigation of the farmers’ “groundless and fabricated allegations,” according to its pleadings.
K.B.X. also said that it paid Turner Grain more than $104 million between Oct. 14, 2013, and Aug. 11, 2014, which represents virtually all of the rice bought through Turner Grain as of Aug. 11, 2014, when news began spreading that Turner Grain was failing to pay farmers.
K.B.X. also offered to pay Turner Grain Merchandising’s trustee the $310,000 that it still owed the defunct company.
“Despite these facts, Plaintiffs seek to have K.B.X. pay twice for the same rice, a truly unjust result,” K.B.X. said in its filing.
In April, Judge Huckabee denied K.B.X.’s request to be dismissed from the case.
Last month, Huckabee ordered the farmers and the defendants to mediation before he will schedule any hearings or set a trial date.
Huckabee made the ruling after learning that the farmers’ jury trial could take four weeks. “It is the duty of the Court to encourage the settlement of cases and controversies through means of appropriate dispute resolutions process,” Huckabee said in the May 19 order.
The mediation is expected to take a day, but a date hasn’t been set.
Meanwhile, the lawsuit and accompanying exhibits and pleadings shed more light on the collapse of Turner Grain, which cost farmers millions of dollars owed on crops.
Farmer’s Story
As far back as 2011, Turner Grain offered farmers better prices for their crops than they could get elsewhere, according to the farmers’ lawsuit.
Money that was owed to farmers and other creditors allegedly was used by Bartlett and Coleman for “their own personal gain, including the purchase of farm land, equipment and vehicles,” according to a pleading by Campbell in Bartlett’s bankruptcy case.
John Mark Isbell, who is a partner in Zero Grade Farms in Lonoke County, said that Zero Grade harvested long grain rice in the fall of 2013 and stored it in grain bins. The rice was sold in the summer of 2014, and Turner Grain handled the transaction.
Although Turner Grain has sometimes been described as a “jobber” that actually bought and resold rice, the farmers said they didn’t sell the rice directly to Turner Grain, nor did the company take possession of the rice.
Instead, Turner had to wait on a payment from K.B.X. before the farmers were paid, the lawsuit said. The lawsuit said that Turner Grain’s primary source of revenue from rice transactions was K.B.X., so the buyer was actually K.B.X., the farmers’ allege. K.B.X. denied in its answer that the farmers sold it rice, however.
Dale Bartlett, the co-owner of Turner Grain, said in his answer in the case that Turner Grain Merchandising, which did business as Turner Grain, “was in the business of brokering the sales of rice between grain producers and grain purchasers.”
Isbell said trouble started shortly after Zero Grade interacted with Turner Grain around the first of July 2014. It didn’t get paid.
And Zero Grade wasn’t alone. Around that time, other farmers reported trouble receiving their money.
The farmers said in their lawsuit that K.B.X. knew about the financial trouble at Turner Grain but didn’t tell the plaintiffs.
K.B.X. “knew of intentional fraudulent activities and the resulting financial distress of Turner Grain, Jason Coleman and Dale Bartlett, yet K.B.X. continued to allow Turner Grain to broker contracts on behalf of K.B.X. as Purchaser,” the lawsuit said.
Isbell couldn’t reach Coleman, and Turner Grain’s office “was not forthcoming with information about how to proceed,” he said.
Sometime in August 2014, however, Isbell was given contact information for Bartlett.
Bartlett had testified in previous bankruptcy-related proceedings that Coleman fired him on July 11, 2014, after Bartlett questioned a Turner Grain bank statement. Still, Bartlett said, he agreed to return to the company in August, just as the company was fielding calls from angry farmers who hadn’t been paid.
Zero Grade said Turner Grain owes it $2.3 million.
Turner Grain was forced into receivership, and then it filed for bankruptcy protection. Its bankruptcy converted to a Chapter 7 liquidation in 2015. The 112 creditor claims filed total $39.7 million.
“What was taken from us over the course of a couple of months in the summer of 2014, when we became victims of this fraud, wasn’t only the potential profit from the grain that we had stored in those grain bins, but it was the operating capital that went into it as well,” Isbell said.
He said his business had to borrow money to survive.
Isbell said in the bankruptcy hearing that he would rather not try the case at all.
“We wanted to deliver our grain and be paid for it,” he said. “And we’re forced into having to … go to the legal system to do that instead of just having a contract fulfilled as it should have been.”
Isbell said the time and costs spent on legal fees could be better spent on rebuilding a business “that was almost destroyed by the bad actors in this case.”