Bankruptcy Trustee Asks to Liquidate Veblen East Dairy

The environmental atrocity known as Veblen East Dairy may be headed for the auction block. In motions filed in South Dakota's federal bankruptcy court last Friday, Chapter 11 Lee Ann Pierce requests authority to put the whole kit and kaboodle up for sale. Pierce's motion describes the property to be liquidated as follows:

Veblen East Dairy is located at 10530 448th Avenue in Veblen, South Dakota. The dairy was constructed during 2007 and 2008 with a capacity for approximately 8,100 cows consisting of both milking cows and transition facilities (calving/freshening) for its own operations and transition capacity for affiliate dairies, which could continue to be used in that manner or be converted into free stall space. It began operation in early 2008. There are two main barns, each with 2528 stalls and 3181 lockups/spaces. The barns are 16 row barns with cross ventilation, cool cells, and sand bedding. There is a milk center that houses two parlors, each parlor a double 30 parallel parlor. This building houses a water system room with filtration and softeners, chemical room, equipment room, milk room, and a milk load out room. The load out room can accommodate six semi tanker trucks in six bays, (three on each side of the building), with three 12X14 overhead doors on each end of the building for drive through capabilities. Attached to the milk center is a 740 stall barn. The fourth barn is a 6 row barn with 657 stalls. In between Barn 2 and Barn 4 is the hospital barn with a double 10 milking parlor (exception parlor) with calf pens, sick pens and birthing pens, and loadout facilities. The manure system includes two sand separating and pumping buildings, manure flumes and reception pits. It utilizes eight earthen manure lagoons, each with a capacity between 14 million gallons to 16 million gallons. Debtor is situated on 200 acres of real property, and there are approximately one million square feet under roof. The herd consists of the following breeds/crossbreeds with approximate percentages as follows: Holstein (2%), Jersey (8%), Montbéliarde (10%), Scandinavian Red (20%) and Holstein-Jersey (“Hojo’s”)(60%). Debtor’s current herd consists of approximately 3,100 lactating cows, 1,300 dry cows, and 600 fresh cows. The dairy employs approximately 74 people [In Re: Veblen East Dairy Limited Partnership, Motion for Order Authorizing Sale..., Case 10-10146, Document 186, United States Bankruptcy Court, District of South Dakota, filed 2010.09.03].

Pierce now pegs Veblen East's debt to AgStar Financial at $42,236,160 and says liquidation of all collateral will bring "substantially less" than that amount.

What exactly would Pierce sell? Everything:

1. all real estate owned by the Debtor and as legally described in this motion. The sale of the real estate includes all land, buildings, land improvements (including, without limitation, any parking lot pavement, parking stops, traffic signs, sidewalks, driveways, fences, gates, exterior lights, tanks, alarm systems and signage structures owned by Debtor), and any and all beneficial easements, rights and licenses which are appurtenant to such real estate.
2. all furniture, fixtures, equipment, machinery, computers, hardware and software, telephones, vehicles, trailers and other tangible personal property owned by the Debtor including but not limited to those items of personal property set forth on Exhibit A. Any assets in which a creditor holds a purchase money security interest will not be sold as part of this transaction. A list of the assets of which the Trustee is aware that there is an issue with a purchase money security interest is included in paragraph 14 of this motion.
3. all milk cows, dry cows, calves and heifers. The Trustee estimates that approximately 5,000 cows will be available to be sold as part of this transaction.
4. all inventory, raw materials and supplies of the dairy, including feed, drugs and hay including any rights the Debtor has to silage located at New Horizon Dairy or Five Star Dairy. Any milk inventory located at the dairy on the date of closing will be included in the sale to the Buyer.
5. all rights of the Debtor under any warranty or guarantee by any manufacturer, supplier or other transferor of the purchased assets of the Debtor.
6. Debtor’s intellectual property rights to technology, licenses, construction or plans, drawings, memos, blueprints, and other work product of consultants or architects, telephone numbers, telecopy numbers and e-mail addresses and listings relating to the dairy.
7. to the extent legally transferable, all permits, licenses and approvals received from any governmental entity for the Debtor;
8. all leasehold improvements, signage and prepaid deposits;
9. all rights, claims and causes of action of Debtor against third parties relative to the purchased assets and the proceeds thereof, excluding avoidance claims, tort claims against Veblen East Dairy Limited Partnership’s current and former officers and directors, partners, and claims giving rise to Debtor’s rights of set off with respect to its creditors. Avoidance claims means any and all claims or causes of action under Chapter 5 of the Bankruptcy Code. The right to prosecute avoidance claims will be retained by the Trustee [Document 186, 2010.09.03].

The motion sets initial bid for the property at $16 million and initial bids for cattle at $800 per cow.

Now if you're just itching to bid on some big manure lagoons, keep in mind that this CAFO has a history of environmental violations. If you buy the dairy, you also buy liability for complying with all environmental clean-up. According to a previous filing in this case, it will be nearly impossible to clean up that mess and satisfy the May 3 Complaince Agreement with the Department of Environment and Natural Resources without shutting down the dairy and removing the cattle from the premises.

As an added bonus, the buyer will have to satisfy the terms of a lawsuit settled by Rick Millner and company with Sunflour Railroad. Apparently when Veblen East took dirt and fill from Sunflour's railbed to build its sewage lagoons and encroached on the railroad's right-of-way. The debtor will still pay the $175,000 settlement to Sunflour, but if you buy the dairy, you will have the pleasure of reworking the lagoons to restore Sunflour's right-of-way, removing contamination from Sunflour's right-of-way, and build and maintain three new manure pipe crossings under the railbed.

Wow—the Sunflour settlement is just more evidence that Rick Millner can't do business without crapping on his neighbors.

Note also that the Veblen East property is subject to more liens than there letters in the alphabet. These liens include unpaid 2009 (due 2010) property taxes of $115,517.34. That doesn't sound like the kind of business venture I'd touch with a ten-foot lawyer. Millner essentially has driven this big dairy dream into the dirt.

Again, the debtor has until noon Monday to file objections. After that, we may see one fast, massive ag auction in bankruptcy court.