Vista Bid Falls Apart: AgStar Taking Both Veblen Dairies

It looks as if AgStar Financial Services will wrest both of Veblen, South Dakota's bankrupt mega-dairies away from serial polluter Richard Millner and his fellow investors. Vista Family Dairies, a front group formed by Richard Millner and other Veblen West dairy partners to keep the dairies in their hands, has declared it will not follow through on the $21.3 million bid it made in September to buy Veblen East.

Veblen East Dairy

According to a motion filed yesterday (U.S. Bankruptcy Court of South Dakota, Case 10-10146, Document 259) by Chapter 11 bankruptcy trustee Lee Ann Pierce, Whetstone Valley Dairy withdrew its backup bid on October 28. That means the the only bidder left at the table is AgStar's Veblen East Dairy Acquisition LLC, which submitted a credit bid for the minimum $16 million for the facility and $800 per cow.

Pierce's motion gives creditors until December 30 to file objections to the sale to AgStar.

Pierce's motion notes that Vista Family Dairy's attempted acquisition was not hampered by regulators. Marshall County granted Vista its conditional use permit on October 19, and the state Department of Environment and Natural Resources granted the manure permit on December 3. The latter is particularly interesting, given that DENR had said on November 10 that it would grant no permit to Vista as long as Richard Millner had anything to do with permit-compliance decisions.

Taking DENR at its word, I assume that Vista Family Dairy had to tell Millner he was out of the power structure. And as I let my speculation run riot, I can imagine that, without Millner the dealmaker able to keep his hands in the pot, whatever investors he'd cobbled together to float Vista's bid fell apart.

Veblen West Dairy

Millner and his gang already lost Veblen West to AgStar after failing to raise enough money for a viable bid on Veblen West last month. Now AgStar appears on its way to closing on both mega-dairies.

If the DENR, the South Dakota economic development honchos, and area farmers are paying attention, we can hope AgStar's acquisitions will mean Rick Millner is done dirtying the South Dakota dairy industry for good.

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Bonus Evidence: In upholding its denial of a permit for the Dairy Dozen's Excel Dairy in Thief River Falls, Minnesota, the Minnesota Pollution Control Agency reiterates Millner's lengthy record of environmental violations at every dairy he's run. For the record, here's what MPCA says about Millner's Veblen dairies:

102. Veblen East Dairy is an 8,176 head dairy facility that consists of six total confinement barns and eight manure storage basins. Veblen West Dairy, previously known as MCC Dairy, is a 5,500 head dairy facility that consists of five total confinement barns and five manure storage basins. Rick Millner is the managing partner for the entity that owns both facilities. On October 23, 2009, the South Dakota Department of Environment and Natural Resources (South Dakota DENR) issued a Notice of Violation, Order, and Settlement Agreement.

103. On July 10, 2008, the South Dakota DENR inspected both Veblen East and Veblen West Dairies. During the inspection, it was noted that the basins at Veblen West were at their maximum operating level, and the basins at Veblen East were below the maximum operating level. On July 18, 2008, the South Dakota DENR approved the transfer of ten million gallons of manure from Veblen West to Veblen East. This manure was to be land applied in the fall of 2008 prior to soil freeze, and the South Dakota DENR was to be notified when this was complete. A notification was not received.

104. In April 2009, the South Dakota DENR received notification from the facilities that the basins at both Veblen East and Veblen West Dairies were above the maximum operating level and into the freeboard of the basins. This was confirmed during a May 6, 2009, site inspection by the South Dakota DENR. On May 20, 2009, Rick Millner contacted the South Dakota DENR to inform them that high winds were causing manure spray to blow over the berms of the north basins and that a line of straw bales was erected to keep the spray from leaving the basins. Various correspondence and inspections in the months of June, July, and August indicated that the basins at both Veblen East and Veblen West were above the maximum operating levels and into the freeboard.

105. The Order, issued October 23, 2009, and amended in March 2010, required both dairies to complete a number of requirements, summarized below, to bring the facilities back into compliance:

1. As soon as possible, remove a sufficient amount of manure to return them to compliance with the freeboard requirements. The Order went on to require the removal of manure from all basins to have no more than one foot of residual material remaining by November 1, 2009. The lowering of the liquid levels in the basins at Veblen West did not happen until December 7, 2009. This lowering of the levels was not sufficient to comply with the October 23, 2009, Order (no more than one foot of manure) but was sufficient to bring the basins back into compliance with the freeboard requirements. Similarly, the lowering of the liquid levels in the basins at Veblen East did not happen until November 23, 2009. This lowering of the levels was not sufficient to comply with the October 23, 2009, Order (no more than one foot of manure) but was sufficient to bring the basins back into compliance with the freeboard requirements.
2. Submit calculations and schedules that demonstrated that the remaining storage capacity within the basins at each facility, after the fall of 2009 pump-down, was sufficient to provide 270 days worth of storage. Sufficient calculations and schedules were never received by the South Dakota DENR. Consequently, the South Dakota DENR concluded that the volume remaining after the fall of 2009 pump-down was not sufficient to provide 270 days of storage.
3. By November 1, 2009, submit an emergency response plan for each of the facilities to identify procedures to be followed in the event of a spill or release. The South Dakota DENR did receive a plan, but it was not sufficient to comply with the specific requirements of the Order. The South Dakota DENR has not yet received sufficient plans.
4. Submit a design report that uses actual water usage and system operation for each facility to assess if the manure management system capacity meets the requirements of the South Dakota General NPDES Permit (270 days of storage). The South Dakota DENR has not received an adequate report to address this issue.

106. On November 17, 2009, the South Dakota DENR performed inspections of Veblen East and Veblen West and also conducted water sampling within the Little Minnesota River (headwaters of the Minnesota River) at areas were there was evidence that discharges had occurred from both dairies. The discharge from Veblen East appeared to reach an unnamed wetland; water sampling confirmed that manure did indeed reach this wetland. Neither of the dairies reported the discharges to the South Dakota DENR as required.

107. Inspections on November 17, 2009, and January 8, 2010, at both facilities revealed that depth markers (designed to clearly identify the maximum operating levels of the ponds) were missing or were broken off.

108. Inspections on July 10, 2008, and January 12, 2010, at Veblen West and December 7, 2009, and January 8, 2010, at Veblen East noted stockpiles of used sand and manure solids in areas not authorized by the permits for the facilities.

109. Inspections on January 8, 2010, and January 12, 2010, at Veblen West and January 8, 2010, at Veblen East indicated that manure application had taken place to fields not identified within the approved manure management plans for the dairies. Also, both dairies had insufficient records of land application dating back to 2008 and including all of 2009.

110. The MPCA has also received complaints about and photos of these facilities, specifically regarding the lack of freeboard, potential for overflow, and pollution resulting from improper land application of manure. The MPCA has received these complaints as the facilities sit at the head of the watershed of Big Stone Lake, located at the border of Minnesota (Big Stone County) and South Dakota.

[Minnesota Pollution Control Agency, In the Matter of the Request for Denial of Contested Case Hearing Requests and Denial of Reissuance of NPDES/SDS Permit No. MN0068594 for The Dairy Dozen – Thief River Falls, LLP (Doing Business As: Excel Dairy) Concentrated Animal Feedlot Facility, Excel Township,Marshall County, Minnesota, Findings of Fact, Conclusions of Law, and Order, 2010.12.14]

Dairy Dozen Converts to Chapter 7; MPCA Nixes Dairy Permit Appeal

The Bernie Madoff of dairy feedlots, serial polluter Rick Millner, is having a very bad week. Millner's Veblen, South Dakota-based dairy management company the Dairy Dozen has been going through Chapter 11 bankruptcy. On Wednesday, U.S. Bankruptcy Court Judge Charles L. Nail, Jr., granted a trustee's motion to convert that bankruptcy from Chapter 11 to Chapter 7.

Chapter 11 is where you get a shot at reorganizing. Chapter 7 is where you throw in the towel and liquidate to pay off your creditors. As I read it, that means the Dairy Dozen is toast.

Then on Thursday, across the border in Minnesota, our friends at the Minnesota Pollution Control Agency officially said no flippin' way (o.k., I'm paraphrasing) to Millner's attempt to reopen his Excel Dairy in Thief River Falls. MPCA shut down that Millner monstrosity in 2009 and denied it a permit in April of this year for hundreds—hundreds—of air quality violations. Millner and fellow Dairy Dozen owners of Excel appealed. MPCA documented Millner's trail of environmental destruction at every dairy he's been involved with, took public comment, and yesterday said no more.

Grand Forks Herald reporter Kevin Bonham says no one answered his calls to the Dairy Dozen's Veblen office Thursday. Maybe they've already sold the phones.

It's a shame that the Dairy Dozen has done so much economic and environmental harm to so many communities. But perhaps South Dakotans and Minnesotans can breathe a little easier with these two big steps toward putting the dirty Dairy Dozen out of business for good.

Minnesota Seeks Denial of CAFO Permit for Habitual Polluter

The Minnesota Pollution Control Agency has 111 confined animal feeding operation (CAFO) permits pending. Over the next month, after the standard 30-day public comment period, MPCA intends to approve 110 of them. MPCA has announced its intent to deny reissuance of just one of those CAFO permits.

Who gets skunk eye from MPCA? The New Horizon Dairy LLP of Hoffman, Minnesota. MPCA has dealt with this dairy previously, fining New Horizon $17,400 in 2007 for over-application of manure and use of an unpermitted storage basin.

MPCA now looks at the record of New Horizon and the other dairies connected with its ownership and says they won't get fooled again. You see, New Horizon is another dairy managed by serial lawbreaker and polluter Richard Millner of Veblen, South Dakota.

Speculation: One might look at Millner's horrible, no-good, very bad month and conclude that the regulators, courts, and bankers are piling on. Perhaps they are. Millner has shown a willingness to hire lawyers and mount dogged if sometimes absurd

Say, the press loves a good bloodbath. It remains boggling to me that the South Dakota media have said nothing about the spectacular collapse of Millner's extensive dairy fiefdom. defenses to fend off legal challenges to his dirty business practices. Perhaps MPCA, DENR, AgStar, and everyone else to whom Millner has regularly flipped the litigious bird have been waiting for a moment when Millner's legal resources would be stretched to the limit. This year's bankruptcy proceedings appear to be doing that, and the regulators and others with skin in the game are moving in for a long-overdue kill.

Serial lawbreaker and polluter—that's not just blog hyperbole. That's the conclusion that MPCA supports with this summary of the persistent deception and CAFO permit violations committed at every major dairy Rick Millner has been involved with in the tri-state area. Let MPCA explain (with my occasional emphasis):

...In concurrence with its previous action in the Excel Dairy matter and in accordance with Minn. Stat. § 115.076, the MPCA has preliminarily determined that the applicant has a history of non-compliance with Minnesota rules, statues, and permit conditions. The applicant has a history of routinely modifying feedlot facilities without authorization from the MPCA, allowing discharges to waters of the state, violating the state ambient air quality standards, and noncompliance with permit and administrative order requirements. The MPCA is aware of the applicant’s involvement in seven dairy facilities, past and present, all of which have had various non-compliance issues....

New Horizon Dairy, Grant County, Minnesota:

...A subsequent July 28, 2005, site inspection revealed a discharge to a coulee was occurring during the land application of manure. The manure application rate was 20,000 gallons per acre and the same field had received 18,000 gallons per acre three weeks prior, resulting in over-application of manure nutrients.... Also during the inspection, it was observed that manure had been placed in an unpermitted manure storage structure at the facility as a means of storing excess manure....

Excel Dairy, Marshall County, Minnesota

...In January 2010, the Marshall County District Court issued an injunction against Excel Dairy because Excel Dairy had failed to remove the manure from its basin as its permit required. The injunction required Excel Dairy to remove the manure from the basin as soon as field conditions allowed in the spring of 2010. Excel Dairy has failed to comply with that injunction and has been held in contempt of court for that failure to comply with the injunction.

...When Excel Dairy applied for its 2007 permit, Excel Dairy submitted a narrative Air Emission Plan that stated that Excel Dairy would apply straw to the manure basins to establish and maintain a crust on the basins to control air emissions from the basins. When the MPCA called upon Excel Dairy to comply with the Air Emission Plan Excel Dairy had submitted, Excel Dairy indicated that it had submitted the plan “accidentally” and that it had never truly intended to crust its basins despite what the written plan stated.

...Excel Dairy represented to the MPCA that it would either house 1,104 mature dairy cattle over 1,000 pounds or house a hybrid cow that weighed less than 1,000 pounds so that the facility could stock a total of 1,545 cattle.... [Excel Dairy] instead chose to stock 1,545 cattle over 1,000 pounds at the facility. This would equate to 2,163 animal units, significantly more than allowed in any of the previous permits.

...Excel Dairy has violated Minnesota’s hydrogen sulfide standards hundreds of times since May 2008.... Excel Dairy’s violations have been so severe that the families that live near Excel Dairy have been rendered physically ill by the emissions and have been forced to flee their homes on numerous occasions because of the sickening emissions.

Unnamed Dairy, Roseau County, Minnesota

...Rick Millner operated this facility before abandoning it in 1997. In September 1997, the MPCA staff inspected the abandoned facility and observed manure stockpiles still remaining on site as well as two earthen manure storage structures that still contained manure and were not properly closed.

Lone Tree Dairy, Yellow Medicine County, Minnesota

...In August 2006, the MPCA staff inspected the facility and documented the basin manure level above the basin freeboard limit level and determined that unless immediate basin manure removal and land application occurred, the basin manure level was in danger of breaching the basin’s constructed berm. The MPCA staff also observed that loose soil had been dumped and spread on top of the southeast corner of the basin’s constructed berm in an apparent attempt to prevent basin manure from spilling out the basin’s southeast corner. The MPCA did not approve or issue a permit for this modification of the basin....

Five Star Dairy, Sargent County, North Dakota

In November 2006, the North Dakota Department of Health issued a notice of violation (NOV) to the facility and its managing partner Rick Millner. The NOV stated that Five Star Dairy failed to receive approval from the North Dakota Department of Health prior to constructing a new manure storage pond. Also, Five Star Dairy submitted records that indicated that the facility was stocked with more animals than its permitted capacity of 1,400 head prior to gaining the appropriate approvals....

...Five Star Dairy was once more inspected by the North Dakota Department of Health on October 27, 2009, and, during that inspection, it was observed that the manure storage basins did not have adequate freeboard remaining. Follow-up inspections on November 2 and November 10, 2009, found that the manure storage basins were still above the allowable operating level, and no manure had been removed. A November 19, 2009, site inspection did reveal that some manure had been removed, but the level of manure in the basins remained above the allowable operating level... [Minnesota Pollution Control Agency, Fact Sheet and Public Notice of Intent to Deny the Application for Reissuance of NPDES and SDS Permit for a CAFO Permit to New Horizon Dairy LLP, Hoffman, 2010.11.19]

MPCA also documents Millner's persistent violations of South Dakota environmental regulations and endangerment of the Whetstone Valley/Big Stone Lake watershed with his awful Veblen East and Veblen West dairies, as reported frequently here on the Madville Times.

Seven dairies. Seven dairies. Environmental violations at every one of them.

MPCA counts up the strikes and tells Rick Millner, "You're out!" It's about time. If a state issued a driver's license to a seven-time drunk driver, heads would roll. If a state issued a teaching certificate to a person convicted seven times of child neglect, heads would roll. That a serial offender like Millner has been able to stave off the law this long and pollute his communities for his own profit signals we need tougher enforcement of CAFO rules.

AgStar Wins Veblen West Dairy at Bankruptcy Auction

After extensive legal machinations, Richard Millner appears to be losing his battle to hang onto his dairy fiefdom. Yesterday U.S. Bankruptcy Court Judge Charles Nail granted Trustee Forrest C. Allred's motion to sell the Veblen West Dairy in northeast South Dakota. According to court documents, Financier AgStar, which took the dairy into receivership in March, bought the giant confined animal feeding operation for $8.7 million. AgStar also bought the CAFO's cattle, numbered in the trustee's motion to sell at around 3700, for $2.96 million, $800 a head.

Millner and his business partners had successfully delayed the bankruptcy sale for a couple weeks with a transparently bogus lease plan. In a filed objection, AgStar lambasted the debtors' proposed reorganization plan, saying the document "miserably fails to provide adequate information," "ignored... reality," and falsely claimed compliance with DENR orders after "serial violations by the Debtor of its environmental obligations." Trustee Allred also submitted responses saying the Veblen West owners had been unable to meet a whole slew of payments over the past months and would not be able to carry out their plan. After feebly claiming they would amend their disclosure statement to address these objections, the equity owners yesterday withdrew their plan and watched Veblen West slip from their hands.

Making a bad month for Millner worse, he stands to lose another 4476 heifers in Montana. The following public notice appears in the Sidney (MT) Herald:

NOTICE
SHERIFF’S NOTICE TO OWNER OF SALE OF OWNER’S PROPERTY AT
PUBLIC AUCTION

To: Vantage Cattle Company LLP, 104 S. Greenman Street, Veblen, SD 57270
YOU ARE HEREBY GIVEN NOTICE IN ACCORDANCE WITH 71-3-1203 (4) THAT:

1. On Wednesday, November 24, 2010 at 10:00 AM, or as soon thereafter as the cattle are assembled, sorted and prepared for sale, at the Yellowstone Livestock Sale Barn located in Sidney, Montana, replacement dairy heifers owned by Vantage Cattle Company LLP will be sold at public auction to enforce an Agisters Lien held by Steven Lunderby and Shanna Lunderby d/b/a Lunderby Livestock.
2. The amount of the claim against the livestock to be sold at the public auction is Five Hundred Ninety Five Thousand Eight Hundred Seventy Five and 31/100 Dollars ($595,875.31).
3. The property to be sold is approximately 4,476 dairy replacement heifers, or so many thereof as will satisfy said lien.
4. The name of the owner, and who contracted for the services to be performed, is Vantage Cattle Company LLP.
5. The name of the lien claimant is Steven Lunderby and Shanna Lunderby individually and d/b/a Lunderby Livestock.
   

DATED this 10th day of November, 2010.
Brad Baisch
Richland County Sheriff

Vantage Cattle Company: Notice that Veblen, SD address? Vantage is another of Millner's shell companies. According to documents from the South Dakota Secretary of State's office, Millner is the official agent of the company. The partners listed in 2009 were Aaron Anderson, Duayne Baldwin, Jay Hill, Jorden Hill, Dennis Pherson, Lenny Pherson*, Wayne Viessman, and Michael Wyum... mostly the same guys who make up the (former!) Veblen West Dairy major equity holders and the Vista Family Dairy company Millner formed to try leasing Veblen West back to himself.

Distantly related: Sidney stockyard owner Steve Sunderby was also tangled up in a $7.8 million cattle fraud scheme that sent Todd Kenneth Horob to prison for eleven years.

Now I don't know much about cattle, but I have to wonder why Millner and his pals were trucking cattle all the way out to Sidney, on the Montana–North Dakota border. Veblen to Sidney is an eight-hour drive, says Google Maps. It would seem that even if I was getting a really good deal on feedlot or pasture rent, I'd still save money and stress by keeping my heifers a little closer to my main operations. But I welcome the comments and corrections of my cattleman-readers on that point.

So Millner is out one big dairy and about 8000 cattle. He still faces $453,000 in liens for back taxes owed to us South Dakota taxpayers, as well as DENR's apparent willingness to deny Millner an environmental permit to run any South Dakota feedlot. 2010 is not ending well for Richard Millner.
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*Update 09:51 CST: Lenny Pherson died last summer at his home in Rutland, ND. He was still listed as a partner in Vantage on the last annual report filed March, 2010.

DENR to Vista: No Veblen Dairy Permits with Millner in Charge

The South Dakota Department of Environment and Natural Resources may be about to put one man out of business... permanently.

Richard Millner has managed the giant Veblen West and Veblen East feedlots in northeastern South Dakota for the last couple years. He has also managed dairy operations in North Dakota and Minnesota. His operations have spent most of this year in bankruptcy. His permit to operate Excel Dairy, his confined animal feeding operation near Thief River Falls, Minnesota, was revoked by the Minnesota Pollution Control Agency due to air quality violations so serious that the state advised neighbors of the dairy to evacuate their homes. Last April, the MPCA denied Millner a permit to resume operations at Excel Dairy.

Millner has been battling mightily to cobble together some creative financial plan to reorganize his two Veblen dairies. But operating a dairy with thousands of cows discharging tons of waste each day requires more than capital. It requires a permit from the Department of Environment and Natural Resources. Millner violated the conditions of his permits for both Veblen West and Veblen East in 2009. I checked with DENR and learned that Veblen East met the October 15 deadline for complying with DENR's cleanup order, but that Veblen West did not.

DENR appears to have had enough. In a November 10, 2010, letter, DENR tells Jorden Hill, agent for the "new" company formed by Millner and his partners, that if Millner is involved in any way with management of the reorganized Veblen dairies, they will get no manure permit:

According to legal documentation received from the Minnesota Pollution Control Agency, an NPDES permit issued to Rick Millner for Excel Dairy was revoked by the State of Minnesota because of environmental violations. South Dakota Codified Law 1-40-27 states that an applicant or any officer, director, partner, or resident general manager of a facility for which application has been made is unsuited or unqualified to perform the obligations of a permit holder if the applicant has had any permit revoked under the environmental law of any state or the United States. Therefore, Rick Millner at no point in form or substance can be an applicant, an officer, a director, or resident general manager of Vista Family Dairies and Veblen East Dairy. Rick Millner cannot be the decision maker responsible for compliance with the general permit. The organization chart and the duties and responsibilities of all officers, directors, and managers must reflect this [Jeanne Goodman, Administrator, Surface Water Quality Program, South Dakota Department of Environment and Natural Resources, letter to Jorden Hill, agent, Vista Family Dairies, 2010.11.10; as reproduced in Case 10-10071, Document 474, In re: Veblen West Dairy LLP, U.S. Bankruptcy Court, District of South Dakota, filed 2010.11.12].

The emphasis is in the original. When bureaucrats put things in bold, they mean it.

Millner had a permit revoked in Minnesota. SDCL 1-40-27, a nice little "bad actor" statute, makes the revocation grounds for DENR to deny Millner any environmental permit. As long as DENR believes Millner is the driving force behind the investors trying to retake control of the bankrupt Veblen dairies (and since he signed the disclosure/reorganization plan, that seems logical), DENR can withhold that permit.

Wow. Between DENR and the Department of Revenue, Millner may finally have met his match in South Dakota.
----------------------------------
Read an amended version of the court motion containing the DENR letter cited above.

Veblen West Dairy Auction Delayed Two More Weeks

In another sign that the bad guys are winning in South Dakota, the bankruptcy auction of the Veblen West Dairy in northeastern South Dakota has been delayed again. Last week Friday, bankruptcy trustee Forrest C. Allred moved and Judge Charles C. Nail agreed to postpone the auction until November 18. Allred moved on behalf of the contending parties, the Veblen West equity owners and financier AgStar, which apparently "have requested and agreed to further time to discuss possible settlement of the matters in question, and consent to this motion" (says Document 461 in the Veblen West bankruptcy case, Allred's motion filed 2010.10.29).

So the main force behind Veblen West, Richard Millner, may be pulling out a victory after all, cobbling together just enough investors and financial tricks to keep the dairy and thousands of head of cattle in his hands. But that also means there's time for anyother investors interested in acquiring a giant feedlot and a few thousand head of cattle at rock-bottom prices still have a chance to make AgStar and the court an offer.

Veblen Dairy Operators Dodge $453K in Taxes, Says State

$452,888.40. That's how much the operators of the now-bankrupt Veblen mega-dairies have cheated the State of South Dakota.

This month, the State of South Dakota filed the following tax liens against Prairie Ridge Management, its manager Richard Millner, and Multi-Community Cooperative Dairy, the previous name under which Veblen West Dairy was organized:

Clippings from the Marshall County bank
scandal sheet, listing liens against Prairie
Ridge Management LLC, Richard Millner,
and Multi-community Cooperative Dairy,
October 2010. Click image to enlarge.

• 58608—Notice of Tax Lien—Against Prairie Ridge Management Company LLC, in favor of State of South Dakota, in the amount of $63,004.74, for unpaid Sales Tax for tax period September 2009–August 2010. Dated October 13, 2010.
• 58609—Notice of Tax Lien—Against Richard Millner, in favor of State of South Dakota, in the amount of $63,004.74, for unpaid Sales Tax for tax period September 2009–August 2010. Dated October 13, 2010.
• 58610—Notice of Tax Lien—Against Prairie Ridge Management Company LLC, in favor of State of South Dakota, in the amount of $273,087.48, for unpaid Use Tax for tax period January 2007–October 2009. Dated October 13, 2010.
• 58611—Notice of Tax Lien—Against Richard Millner, in favor of State of South Dakota, in the amount of $273,087.48, for unpaid Use Tax for tax period January 2007–October 2009. Dated October 13, 2010.
• 58612—Notice of Tax Lien—Against Prairie Ridge Management Company LLC, in favor of State of South Dakota, in the amount of $1,932.99, for unpaid Contractors' Excise Tax for tax period January 2007–October 2009. Dated October 13, 2010.
• 58613—Notice of Tax Lien—Against Richard Millner, in favor of State of South Dakota, in the amount of $1,932.99, for unpaid Contractors' Excise Tax for tax period January 2007–October 2009. Dated October 13, 2010.
• 58621—Notice of Tax Lien—Against Multi-community Cooperative Dairy, in favor of State of South Dakota, in the amount of $114,863.19, for unpaid Use Tax for tax period January 2004–December 2009. Dated October 14, 2010.

I'm assuming the identical amounts against Prairie Ridge Management LLC and Richard Millner are simply the state holding both the corporation and its manager accountable for cheating us tax payers of what we are due.

After all the environmental infractions and legal trickery, Richard Millner's machinations and bad business practices may finally be brought to a halt by a state Department of Revenue going Al Capone on the Veblen dairies and citing them for tax evasion. Seems appropriate.

Prairie Ridge Management Appropriates $453K Subsidy by Not Paying Taxes?

Multiple sources have indicated that the state has filed $452,888.40 of tax liens against Prairie Ridge Management of Veblen, South Dakota. These liens reportedly stem from the Veblen company's failure to pay sales, use, and excise taxes. The story going around Veblen is that Prairie Ridge Management didn't pay sales tax on some portion of the convoluted sales and services between the bankrupt Veblen East and Veblen West dairies and their several subsidiary and partner companies.

If these allegations are true, we taxpayers of South Dakota have been helping PRM exec Richard Millner and his cronies keep their failing dairies afloat with an involuntary, unlegislated tax subsidy. Consider that, according to the court brief filed by lawyers for AgStar* in the Veblen West bankruptcy case (Case 10-10071, Document 441, 2010.10.08), the Veblen West Dairy that PRM has managed reported positive (and, according to the brief, artificially inflated) revenues over the past five months of $240,000. Unpaid taxes of $452,888 from Prairie Ridge Management would slap a large negative sign on the front of that cash flow report.

But maybe such tax-dodging is just the revolution the teabaggers keep modeling. Has anyone seen Prairie Ridge Management staff at any tea party rallies? ;-)

-------------------
correction: I originally incorrectly attributed the brief to bankruptcy trustee Forrest C. Allred. The brief actually came from attorney Roger Damgaard and Sander Moorhead, representing AgStar. I also indicated the missing sales tax came from sales of specific goods, but I have not yet obtained the documentation to verify to which sales or services the taxes were applicable. I regret the errors.

Marshall County Considers Permit for Veblen East Dairy

The Veblen East Dairy in northeastern South Dakota faces another challenge today to its continued operation and pollution of the Whetstone Valley watershed. Included on the Marshall County Commission's agenda this morning is an 11 a.m. hearing to consider a conditional use permit for the "new" owners of the bankrupt Veblen East Dairy.

"New" deserves those "not really" quote marks: Vista "Family" Dairies, which bought Veblen East at less than half its value at bankruptcy auction last month, is made up mostly of the same equity owners who banked on the messy operations of Veblen East and sister dairy Veblen West over the last couple years. Meet the new boss, same as the old boss.

So really, the Marshall County Commission is considering issuing a conditional use permit—i.e., a special favor, an excuse to conduct operations that fall outside the normal zoning rules—to the same bunch who couldn't keep the Veblen East Dairy running properly in the first place.

A county commission acting in the interest of its constituents would use today's hearing to ask some hard questions and allow neighbors from all along the watershed to put their concerns on the public record. Let's see if that's what happens....

Update 2010.10.20 12:51 CDT: From today's Marshall County Journal:

In other business, about 20 people were present when the board approved a conditional use permit to either Vista Family Dairies, LLC or Whetstone Valley Dairy, LLC for the Veblen East Dairy Limited Partnership. The permit was requested by Lee Ann Pierce, Chapter 11 bankruptcy trustee ["Board Hires Deputy Auditor," Marshall County Journal, 2010.10.20].

Veblen West Trustee Skewers Bogus Lease Plan, Calls for Nov. 1 Sale

Trustee Forrest C. Allred lost his bid to liquidate the Veblen West Dairy last week, but he's not done fighting the tricky owners of that polluting dairy. Attorneys for financier AgStar*, which has a big stake in the dairies, filed a blistering brief last week that confirms what readers here have heard: the Veblen West owners' plan to lease their bankrupt dairy back to themselves and their objections to last week's sale are a sham intended to delay court action until Rick Millner can talk enough investors into floating him the capital necessary to keep the "hopelessly insolvent" dairy in his hands.

Extra kudos to attorneys Damgaard and Morehead for banging out this damning 18-page assessment of Millner et al.'s hoodwinkery in less than 24 hours. You guys should blog!

Some highlights from the brief [In Re: Veblen West Dairy, "Brief In Response To Objections Of Certain Equity Owners Of Veblen West Dairy Llp And Hill Grain Farms, Inc., To Trustee’s Motion For Authority To Sell All Or Substantially All Assets Of The Bankruptcy Estate By In Court Auction," U.S. Bankruptcy Court, District of South Dakota, Case 10-10071, Document 441]:

Some of the Equity Owners were apparently able to obtain financing for, and successfully bid at the Veblen East 363 sale. The Veblen East sale featured notice and bidding procedures that were materially-indistinguishable from Trustee Allred’s. In fact, the 363 Motions in East and West are nearly identical in that regard. This begs the question: why are the Equity Owners objecting now, when some of them purchased Veblen East under identical conditions? Clearly, the Equity Owners were unable to secure the necessary financing to purchase Veblen West. They are objecting to buy more time. The plan the Equity Owners have proposed is so deficient in so many ways, that it must be an effort to delay the proceedings [p. 9].

The evidence will show that Vantage Cattle, one of the Debtor’s related insider entities, and a source of replacement heifers for debtor, did not have a claim against the Debtor as of the date of filing. Indeed, Vantage Cattle is not one of the creditors in Debtor’s case. However, the evidence, including Debtor’s aged accounts payable reports, will show that, in August and September 2010, the Debtor purchased approximately 450 head of fresh replacement heifers at a cost of over $680,000. But the Debtor never paid for them.

This evidence will highlight the Debtor’s efforts to show a positive cash flow, while keeping cattle numbers up artificially. During June and July 2010, the Debtor’s cattle herd numbers dropped significantly. (Doc. 253 at 8-22.) The Debtor was then faced with a choice. It could spend the money on cattle and show a negative cash flow, or it could continue to experience a drop in cattle numbers and a drop in milk production. Either result would have been damaging to Debtor’s claim that it could successfully reorganize. The Debtor avoided these two alternatives in part by obtaining hundreds of additional cattle from its insider-owned sister entity, Vantage Cattle. But Debtor but did not pay Vantage for the livestock. If it had, it could not have shown a positive cash flow. In other words, Debtor has covered up its negative cash-flow by playing a shell-game with an insider related entity. It is this type of insider transaction that led to a Trustee being appointed in this case [emphasis mine; pp. 13–14].

The Equity Owner’s plan also comes with projections purporting 8 to support their claim that the plan is feasible. (Doc. 412 at 127 – 156.) However, when even a few of the assumptions made in those projections are tested, it is clear they are simply too optimistic to be believed. The Equity Owners rely on a “pounds of milk given, per cow, per day” assumption starting at 77 lbs/cow/day, quickly escalating to 81/cow/day. During the case Debtor has never achieved that target, and has at times been under 70 lbs/cow/day.

The Equity Owners also assume a combined cull and death loss for the cattle of 2.62% monthly or 31.44% on an annualized basis. Through Sept, 2010, the Debtor’s herd has an annualized cull and death rate of 60.5% and that, during the same period, the Veblen East lactating unit has an annualized rate of 64.8%, showing that the 2010 results West has achieved are not artificially poor by comparison. In other words, the Equity Owners’ projections assume a much lower expense for herd replacement–one of the largest expenses in the projections [footnote, p. 14].

Trustee Forrest C. Allred filed a new motion yesterday requesting a sale free and clear of liens on November 1. The motion notes that certain members of the Veblen West ownership have asserted that the dairy will be in full compliance with the environmental clean-up ordered by DENR of the dairy's manure lagoons. DENR has not confirmed but will be inspecting on Friday, the deadline for compliance. Interested parties have until October 29 to file objections.

-----------------------------------------
correction: I originally incorrectly attributed the brief to bankruptcy trustee Forrest C. Allred. The brief actually came from attorney Roger Damgaard and Sander Moorhead, representing AgStar. I regret the error.

Veblen West Auction May Still Happen Today

I reported yesterday that the bankruptcy liquidation of the Veblen West factory dairy scheduled for today may have been placed on hold by dairy exploiter Rick Millner's latest financial shell game. But new court documents show that today's hearing on the Trustee's motion for liquidation is still on, and the Trustee is arguing for the sale to go forward this afternoon.

I'm poring through a new stack of court documents right now trying to make sense of the situation. Apparently the U.S. Bankruptcy Court of South Dakota got legally spammed yesterday, with a whole batch of nearly identical objections to the auction flooding in. Unfortunately for the objecting parties, they didn't pay attention to the clock. The court's deadline for objections was Thursday noon; all but one of the copycat objections were filed at 2:12 p.m. or later. Trustee Forrest C. Allred thus moves those objections be ruled untimely and thrown out.

Allred also documents shenanigans by the Veblen West equity owners, including Rick Millner, to sabotage the Veblen West auction. Evidently their objection to the sale revolves around the absence of an option for the buyer on silage. Allred says there is an option... or would be if Rick Millner would quit playing games and check his e-mail. The trustee has made concessions to the silage group (Rick Millner and fellow Veblen West owners) and negotiated a silage option, but Millner has persisted in raising the price: he agreed to $35.00 per ton of silage, then hiked his asking price to $45.00, then $49.93. Each time, Allred caved on the price and sent option documents for Millner to sign. Each time, Millner failed to reply. Millner tries to blame his lack of response on not receiving the e-mail attachment on September 13... but he admitted to the trustee yesterday that when he checked his inbox, he found the attachment there after all. Yeah. Right.

Trustee Allred comes to the following conclusion:

The silage group – which is substantially the same as the “Certain Equity Owners” described above, is deliberately refusing to comply with the negotiated option in order to chill bidding, and to delay and block the proposed said. This is particularly inappropriate in light of the fact that one of the Certain Equity Owners’ objections to the sale is that the bidding procedure proposed in the motion will chill bidding [Forrest C. Allred, Trustee, In Re: Veblen West Dairy LLP, Case 10-10071, Document 440, United States Bankruptcy Court, District of South Dakota, 2010.10.07].

The latest tactics from the Veblen West owners smell of obfuscation and obstruction par excellence. Trustee Allred can see through it; let's hope the court does as well.
----------------------------
Bonus Objection: The untimely objections all include this amusing "come-to-enviro-Jesus" paragraph:

10. The Trustee's Motion to Sell the assets is also inappropriate in that the sale proposes to sell the assets subject to environmental contingencies. This problem should be rememdied prior to the sale in order to maximize the value of the assets.

I want ever so much to look those folks in the eye and say, "No s#!t!"... since really, that's what they're wishing here. Now the creditors realize that Millner's own environmental abuses have wrecked the dairy's sale value and that he ought to be held accountable and forced by DENR to clean up his manure violations.

Update 15:02 CDT: No sale today! An observer in the field reports the silage objection won the day. The trustee will take another swing at Millner's legal armor soon.

Bankrupt Veblen West Owners Plan: Let's Lease It to Ourselves!

The Veblen Dairy shell game continues. Serial dairy wrecker Rick Millner and fourteen partners have filed a 158-page document with bankruptcy court asking for a chance to reorganize his bankrupt Veblen West mega-feedlot. The plan proposes to allow Vista Family Dairies to lease Veblen West Dairy for $140,000 a month for 15 years. It proposes to pay off all secured creditors over time without interest.

The filing also appears to fit Millner's pattern of using legal and financial trickery to squeeze every penny out of his assets and stave off court and state action that would hold him responsible for his bad business practices. Judge Charles L. Nail yesterday ordered a hearing on the Disclosure Statement and Reorganization Plan be held on November 18... which I take it means the filing by Millner and the Veblen West equity holders has successfully put off the bankruptcy liquidation auction, scheduled for tomorrow, for another five weeks.

And it's just a shell game. Compare the members of the petitioning Veblen West Dairy equity holders with the members of Vista Family Dairies, as listed in the Disclosure Statement and Reorganization Plan:

Veblen West Dairy major equity holders	Vista Family Dairy members
Aaron Anderson	Aaron Anderson
Duayne Baldwin
Jay Hill	Jay Hill
Jordan Hill	Jordan Hill
Rick Millner	Rick Millner
Denny Pherson	Dennis Pherson
David Viessman	David Viessman
Doug Viessman	Doug Viessman
Randy Viessman	Randy Viessman
Terry Viessman	Terry Viessman
Wayne Viessman	Wayne Viessman
Mark Wyum	Mark Wyum
Michael Wyum	Michael Wyum
Steve Wyum
Wyum Trust
	Robert Jameson
	Jeff Topp

Comparison of Veblen West Dairy equity owners
with Vista Family Dairies members
(Duayne! Steve! Why hold back?)

Somehow the court is willing to entertain the idea that the major owners of a bankrupt dairy should be able to lease that failed operation back to themselves... and be able to refinance their loans for longer terms and a lower interest rate.

What's this shell game about? Here's my read from the outside:

1. Rick Millner was able to get his buddies together to form Vista Family Dairies and float the capital to buy back Veblen East and its cattle outright for $23.1 million.
2. Millner's pals are now tapped out and can't come up with the additional $8.7 million to make a minimum bid for Veblen West.
3. Millner thus needs to put the bankruptcy auction on hold while he hustles more investors to back his scheme. Thus, the "lease it to ourselves!" plan.

And all this keeps the dairy in Millner's hands and keeps him from paying the price for his literally dirty business practices.

-----------------------------------
The Disclosure Statement includes some other howlers:

1. True to form, Millner blames everyone but himself for Veblen West's troubles. He blames the AgStar receiver for cutting business relationships (including some of the convoluted, boundary-blurring dealings with Millner's affiliate operations in the neighborhood). He blames market conditions and the weather. What ever happened to the capitalist ethos of personal resposnibility?
   
2. Rick Millner stepped down as Veblen West managing partner in May 2010 to assuage concerns about conflicts of interest. But Millner's partners appointed Michael Wyum in his place. Wyum kept Millner's Prairie Ridge Management as Veblen West's contract manager. Wyum was also Millner's partner in the still-contested shell game that turned MCC Dairy into Veblen West.
   
3. During an evidentiary hearing in May, Cargill animal nutrition consultant Ian Woods "testified that the conditions at Veblen West are 'excellent.'"
4. The equity owners declare their belief that Veblen West Dairy "is an industry leader, is well-managed, and was operating a clean, orderly and productive dairy operation."
   

Bankruptcy Trustee Moves for Veblen West Dairy Auction

The other shoe drops in the Veblen manure pile: bankruptcy trustee Forrest C. Allred filed a motion for sale of the bankrupt Veblen West Dairy in U.S. Bankruptcy Court yesterday. Judge Charles L. Nail granted the motion to set the auction date for October 8. That's next Friday. Any objections must be filed by next week Thursday and will be heard by Judge Nail the same day right before the proposed auction.

Bankruptcy receiver AgStar and Madville Times readers knew this was coming. So do Veblen East bankruptcy-sale purchasers Vista Family Dairies: that new corporation, formed this month by partners of former Veblen East and West owner Richard Millner, is included in the parties served notice of the motion for sale.

Buyers beware: if you place the winning bid for this 137-acre, three-site mega-dairy, you will assume full responsibility for fulfilling the obligations set forth in an order from the South Dakota Department of Environment and Natural Resources requiring the reduction of manure levels in the dairy lagoons to legal levels. Here's how Trustee Allred's motion explains the situation:

Debtor is subject to an administrative order requiring it to have 270 days of capacity in its lagoons by October 15. Debtor has been pumping manure in accordance with its normal practice. While Debtor expects to comply with the administrative order, the Trustee cannot and does not guarantee Debtor will achieve compliance, and there is risk of non-compliance. Failure of Debtor to meet this deadline could result in significant curtailment, or even cessation, of Debtor’s normal operating activities. The successful bidder shall be fully responsible and liable for all work, equipment, costs and expenses, including manure removal, required to fully comply with the Compliance Agreement captioned “In re the Matter of Veblen West Dairy, LLP Violating Their General Water Pollution Control Permit for Concentrated Animal Feeding Operations” dated April 1, 2010, as well as any and all other regulatory compliance matters. Prospective buyers may obtain a copy of the Compliance Agreement upon request from the Trustee. The successful bidder assumes, at closing, all responsibility and will be liable for all environmental issues related to the dairy [emphasis mine; Forrest C. Allred, Motion to Sell Free and Clear of Liens by In-Court Auction, In Re: Veblen West Dairy LLP, United States Bankruptcy Court, District of South Dakota, Case 10-10071, Document 392, 2010.09.27].

In other words, if you buy Veblen West on October 8, you have seven days to measure just how much crap Rick Millner has saddled you with and get rid of it, on your dime, over and above the price you pay (minimum bid: $8.7 million) to acquire this operation.

To double your exciting market uncertainty, you also don't find out how many cows you're buying until after the auction. The motion says the Debtor owns 3700 head of cattle, but they constantly move from dairy to dairy, and there's no way to set a firm number before the auction. (Sounds like a convenient way to hide assets from bankruptcy court, don't you think?) You at least get to bid per head (minimum opener: $800), but you don't get a complete inventory until after the sale. You also get to pay for any disease testing on the cattle you buy.

To review: put up $8.7 million, plus $800 per head, and you can take possession of Veblen West Dairy, which may or may not be in compliance with environmental rules, may or may not have a feasible number of cattle in its inventory, and may or may not have sick cattle, none of which you'll be able to find out until you assume liability for the operation.

My dairy experience is limited to milk on my Toasty-O's, but am I wrong in concluding that Veblen West sounds like a really, really bad investment?

If you are considering bidding for the Veblen West Dairy, read the DENR order. Read the history of this environmental and financial mess. Then think long and hard about whether you want to put any money into this financially and morally bankrupt operation.
---------------------------
Update 2010.09.30: The impending Veblen West Dairy auction gets a little press from North Dakota television. South Dakota press still AWOL....

Veblen Dairy's Korean Investors Keep Green Cards...

...but probably lose green.

I noted that those attending the bankruptcy auction of the Veblen East Dairy last week included Terry N. Prendergast, representing the Hanul Professional Law Corporation. Hanul is the Korean law outfit that handles EB-5 visa applications for foreign investors participating in South Dakota Regional Center programs. That's the program through which rich foreigners can buy their green cards simply by dumping a half-million dollars or more into American job creation projects. Veblen East Dairy is one of several projects in South Dakota that has benefited from this investment program.

So I got to wondering: could any of those Korean investors be losing their green cards due to the failure of Richard Millner's Veblen operation?

I contacted Joop Bollen, president of the SDRC, to find out what's up with our Korean investors. Mr. Bollen says the Korean may have a fight on their hands to recoup their investment, but their green cards are safe.

All that matters to the EB-5 program is that the investors' money creates jobs within the first two years. Each investor's money needs to generate 10 jobs, direct or indirect. The EB-5 program calculates that one job on a dairy operation translates into 2.66 jobs in the local economy (hire one guy to shovel poop, and he goes to town to buy more beer and lumber, which generates enough economic activity for the bar and the lumberyard to hire 1.66 new people). Thus, if one Korean's $500,000 can be shown to create four actual dairy jobs, the EB-5 number crunchers apply that multiplier, declare 10.64 jobs created, and Uncle Sam erases the word "conditional" from the Korean's green card. Welcome to America!

The Veblen East Dairy satisfied the job creation criterion for all of its Korean investors before it declared bankruptcy. Most of the Korean investors have already received their permanent status. A few investors have applied for but not yet received approval of permanent status from the feds, but the bankruptcy proceedings and change of ownership have no impact on those remaining applications. It doesn't matter who owns the operation, as long as the jobs have been created. And as I understand Mr. Bollen's explanation, it wouldn't even matter if the new owners couldn't keep the dairy going and the whole operation collapsed. Once the EB-5 investors' money creates the necessary jobs (real and statistically assumed), their green cards are secure.

Not so secure are their greenbacks, which are what Mr. Prendergast was in the neighborhood last week to check on. Mr. Bollen's office isn't involved at all with the bankruptcy proceedings, but he says Hanul and the Korean investors are discussing how they might recoup their investment with the new owners' group organized by Richard Millner (that's Vista "Family" Dairies). The investors might well "have to take a haircut," says Bollen. I am encouraged, at least, to see that the Korean investors are still paying attention and trying to hold Millner and partners accountable for their cash.
----------------------------------
Bonus Business: Vista "Family" Dairies has 30 days to get together the $23.1 million it bid for Veblen East. If Millner's minions can't convince their remaining friends to chip in for this latest Millner shell game, VFD loses the bid, and backup bidder Whetstone Valley Dairy gets Veblen East. According to the articles of organization filed last week with the Secretary of State, Whetstone Valley Dairy, LLC, is managed by Steve Myers and Michael Crinion of Brookings.

Vista Family Dairies Exists! Looks Like Millner Buying Bankrupt Dairy Back

Vista Family Dairies, the high bidder in last week's auction of bankrupt and polluting Veblen East mega-dairy, finally exists, as of Tuesday, September 21. The South Dakota Secretary of State has finally received the LLC's Articles of Organization. Vista Family Dairies has the same street address as Prairie Ridge Management, the company headed by Richard Millner that built Veblen East and lobbied the South Dakota Legislature to exempt huge dairies from the Family Farm Act.

Vista's agent is Jorden Hill of Veblen. Its organizers are Robert Jameson of West Fargo, ND; Jeffrey Topp of Grace City, ND; and Wayne Viessman of Gary, SD. Hill and Viessman have been partners with Millner in his previous South Dakota dairy exploits and in lobbying Congress for easier regs on hiring foreign workers.

Millner's name isn't on the Vista "Family" Dairies papers... but how much would you like to bet he's rounding up the investors for what feels like a bankruptcy shell game?

Press AWOL on Huge Veblen Dairy Bankruptcy Sale

Last week David Newquist said the traditional press just doesn't have the time or motivation to cover agriculture. Here's support for that contention: I'm hearing from my sources that the bankruptcy auction to liquidate the environmental atrocity known as Veblen East went forward last week. The buyer, "Vista Family Dairies LLC," apparently bid $21,300,000: $800 for each of 5000 head of cattle and $17,300,000 for the facility. That's the minimum requested bid for the cattle and $1,300,000 more than the minimum requested bid for the facility. The bid is also less than half the $50 million Veblen East cost to build.

No information for Vista Family Dairies LLC is available online, not even corporate papers or fictitious name registration on the Secretary of State's website... and if I'm reading state statute correctly, Vista Family Dairies LLC needs to have such papers filed before conducting business like bidding in a bankruptcy auction.

Vista Family Dairies is likely not the happy family operation its name implies. I'm betting it's Veblen East owner Rick Millner, who is surely scurrying around northeastern South Dakota and beyond trying to find investors who don't know his history of fleecing business partners, stiffing suppliers, and driving dairy operations into the ground through bad business and environmental practices.

And those potential investors won't know the history of either Millner or Veblen East because the local media haven't covered it. In all my blogging about Richard Millner's troubled dairy operations, I have relied on primary source, court documents, and AgWeek. Emily Arthur-Richardt of the Aberdeen American News did a good job in 2007 on the story of the Veblen East Dairy getting built with money from rich foreigners buying their way to the front of the line for green cards. However, on Millner's environmental violations and bankruptcy, the South Dakota press has been mostly silent. (Readers, you are welcome to submit links and articles to prove my memory faulty!)

By one account, polluting Veblen East and its bankrupt twin dairy Veblen West make up 15% of South Dakota's dairy industry. If a hospital or credit card call center that made up 15% of its industry in this state polluted the neighboring watershed, went broke, and was auctioned off to a mystery LLC, the media would be covering it... wouldn't they?

The Veblen East auction and pending Veblen West bankruptcy activity are big financial and environmental news. On this important story, the professional press are AWOL.

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.

Guest Column: North Dakota Farm Owed Million by Millner

Below is a letter to the editor from Sandra Banish, a North Dakota farm wife who says her farm is owed over a million dollars by the bankrupt Veblen East Dairy. She says the dairy debacle wrought by Prairie Ridge Management's failure to keep its dairies in the black has devastated not just her family finances but the entire local economy. The text also appears in the September 1, 2010, print edition of the Marshall County Journal.

My Dairy Diary
by Sandra Banish

I am JAFW. (Just a Farm Wife) My husband and I farm in the southeastern part of North Dakota. In the spring of 2008, we grew 1,000 acres of corn. The corn that was grown on our farm was contracted for silage chopping with Veblen East Dairy, Veblen, South Dakota.

I started to get worried when my husband and I did not hear form Veblen East Dairy about payment in December, 2008. The dairy in Veblen, South Dakota chopped our corn for silage in the fall of 2008. Richard Millner from Prairie Ridge Management, Veblen, South Dakota was the individual we made the contracts with, which included a contract for 2008 silage corn which included a late-fee agreement, 2009 corn silage agreement/contract and an oral agreement/ contract for receiving shelled corn from us. This management company manages many dairies including Veblen East Dairy.

In December 2008, my husband spoke with Mr. Millner and it sounded like times were tough to get some form of payment. My husband had emailed Rick Millner several times and I started to email Mr. Millner. We received very few replies.

Now it was January 2009, I sent a reminder that for the contract I signed, partial payment was due.

From January 29 thru February 2, I wrote several emails wondering where the payment was. I received very few responses. The responses came in the form of emails and a few phone calls from Prairie Ridge Management Company. The responses were just comments on how hard Rick Millner was working on the money that was owed to us.

On February 2, 2009 until October 9, 2009, I sent many emails and made numerous calls after calls. I received very few responses. Finally we received a partial payment for the 2008 silage. There was still a large amount that was owed to us by the dairy. There were the other agreements/contracts that never were addressed. This debt was growing every day due to the late fee in the contract.

Finally on Jan 20, 2010, we contacted an attorney.

We had papers served on the dairy on March 1, 2010.

On March 5, 2010 a receiver from AG Star was appointed to the dairy.

Chapter 11 was filed in July 2010 on Veblen East Dairy; we cannot collect the money that is owed to us because of the bankruptcy protection law.

Now it is August 2010, and the corn is maturing in the field. It is silage chopping time.

No money. Promissory note is due in on Sept. 01, 2010. We cannot collect due to the Bankruptcy Protection Law.

Rumors have it that the dairy may get sold. Then there goes my money.

With the late fee contract, shelled corn that was sold, the promissory note and all the other financial agreements/contracts, the debt that is owed to us is over 1 million dollars.

While looking at the creditor’s list from the South Dakota Bankruptcy Court, it looks like over 300 creditors are listed. The dairy owes many vendors and growers. It looked like we weren’t the only ones that got caught in this web of deception.
The debt is over 60 million dollars.

As a farmer, my husband works hard and grew a product. We had signed contracts. We kept in touch with the dairy. We did everything we could think of to protect us financially except one thing. We should have never done business with the dairy.

We will never do business with the dairy until they make this right with us. I am asking all creditors that have done business with the dairy and that is owed money, stop all transactions with the dairy until you get your account settled.

We have to make a stand.

I believe the way Mr. Richard (Rick) Eugene Millner managed funds from the dairy is in question.

When I got into yelling matches with Mr. Millner., he would always tell me. Sandy, don’t take this to the personal level, I am taking this whole mess very personal. Wouldn’t you?

This dairy has been struggling for a long time. Ag Star Financial Services granted loans last fall (2009) to Veblen East Dairy. I do not understand how Veblen East Dairy could get a loan from Ag Star Financial Services and in 6 months, Ag Star is questioning the loan with a receivership.

Many growers including myself are owed a large sum of money. At this time, I believe an investigation should be done on this situation.

This crumbling situation is causing an economical disaster in the community and the surrounding community. It has caused hardship which includes everyone from the local store owner, to the grower who grows the corn for feed. For every dollar that was taken away from the local community and put into the hands of an attorney who has no ties to this area, is a dollar that is gone from the community. That dollar will not circulate and be spent at the local store or given to a local charity. Veblen South Dakota and its surrounding communities have lost money that should have been theirs.

In reality, Ag Star and the dairies in Veblen, South Dakota are not very popular around here and the money that is being paid to all the attorneys on both sides is very disheartening to the ones who are owed money.

My husband and I grew a product and worked hard for it and now we are owed a large amount of money. This does not sit right with me. The only thing at this time I can do is to inform anybody who wants to listen, what a mess this situation has become.

I am spear heading a campaign of "JUST SAY NO TO MOO". No selling of corn in any shape or form to the dairy without a settlement of all past debts that are owed and full payment of the new crop. All payments must be in the form of a wire transfer. No form of Escrows. All payment must made and be secured before any choppers enter fields.

May this situation resolve quickly and our community heal without any lasting injuries. Feel free to contact me through email with any comments or questions.

Sincerely,
Sandra Banish
Cayuga North Dakota
wifefarm at yahoo dot com

Veblen East CAFO Owes $45 Million, Can't Clean up Manure

The latest filing in the bankruptcy proceedings for the Veblen East mega-feedlot show just how badly owner Richard Millner has managed the facility, both financially and environmentally. In a motion filed Thursday, receiver AgStar Financial notes that the Veblen East operation filed for Chapter 11 bankruptcy on July 2, joining Veblen West and two other Millner CAFOs in bankruptcy. AgStar states that the debtor (and in this filing, "debtor" appears to refer just to the Veblen East operation) owes them $45 million.

$45 million. Let's see: If Veblen East has a capacity of 8176 head of dairy cattle, raising $45 million would require selling every one of those cows for over $5000. Anyone have cow prices handy?

Since taking over Veblen East, AgStar has sunk $2 million into keeping the dairy going. AgStar says that effort may be all for naught, given the dire economic and environmental situation at the dairy. AgStar says some parties have expressed an interest in buying the dairy, but "All of the offers indicate that, given the myriad of problems that plague the dairy, there is conclusively no going concern value to be maintained or salvaged by its continued operation and ultimate sale."

But someone has to keep operating the dairy, if for no other reason than to satisfy the state's orders to clean up its massive illegal manure levels, right?

The DENR has issued two notices of violation within the last year. Most importantly, DENR has set October 15, 2010, as the absolute deadline when Debtor’s manure lagoons have to be pumped to a predetermined level. AgStar’s retained experts and individuals in the employ of the state court receiver (VAST), who have worked on the environmental problems for some time, have advised that, it will be a challenge at best and impossible at worst for the Debtor to meet DENR’s lagoon requirements by October 15, 2010, if the cattle remain on the premises [AgStar Financial, Motion for Relief from Automatic Stay, United States Bankruptcy Court, District of South Dakota, Case 10-10146, Document 170, 2010.08.19].

In other words, there is so much cow poop at Veblen East, the owners will have to shut it down to clean it up. Would you buy a dairy in that situation?

The dairy may not last more than a month: AgStar says there's about a month's worth of silage left, and purchasing a year's supply fo silage would cost (by Rick Millner's estimate) $1.6 million, money Veblen East doesn't have.

AgStar is thus moving for relief so it can pursue the only viable business course: liquidate the herd, clean the place up so it's saleable, and turn the place back into a functioning dairy generating revenue and jobs sooner than standard bankruptcy foreclosure would.

Recall that Rick Millner took advantage of government assistance to get foreign investors to sink $13.5 million into the project in return for green cards. Those investors didn't care about the viability of the project; they bought their green cards and forgot all about holding Millner accountable for providing a return on their investment.

And now shoddy management and profiteering leaves Veblen with two bankrupt dairies, a huge chunk of its workforce in peril, a big purchaser of local ag products unable to pay its bills, and a watershed polluted.

If I caused that much damage, I'd be in jail. When will Rick Millner be held accountable for the damage he has done?
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Related: See Robert Reich's discussion of another bad egg in corporate agriculture, Jack DeCoster. This big-money miscreant owns Wright County Egg, the company that has made thousands of Americans sick with salmonella poisoning and now is recalling 380 million eggs. DeCoster is also a major investor in a second egg seller caught in the recall. DeCoster has a long history of illegal business practices... yet he has been allowed to stay in business, abusing immigrant labor and poisoning consumers and the environment. Reich offers a fine blog raison d'être: "Before we can get rid of corporate rotten eggs we need to know about them."

Millner Continues Legal Games, Claims Milk Not Product of Cows

Veblen, South Dakota, dairy operator Richard Millner had one of his polluting mega-feedlots, Veblen East, taken away in March when a Minnesota court placed it in receivership. Millner's Veblen West and his dairies in North Dakota and Minnesota have since declared bankruptcy. (The Minnesota dairy in Thief River Falls was denied a permit to operate due to environmental violations.) The Chapter 11 filings are quite likely part of a shell game, as Millner is likely trying to prevent creditors from getting their hands on any more of his assets.

I just came across two rulings from U.S. Bankruptcy Court Judge Charles L. Nail, Jr., that give some idea of the monkeyshines Millner is willing to resort to in his dairy endgame. The first ruling, dated July 9, deals with the question of whether AgStar, the receiver of Veblen East, has any security claim to milk Millner's cows have produced since AgStar took over the dairy in March. As I understand it, if your property goes into receivership, any products you make from that property after receivership or from other property you put up as security aren't wholly yours to do with as you please. The receiver can claim those products or the proceeds from the sale of those products to pay down the debts you owe.

Millner argued in court that milk from his cows is not a "product" of his cows.

Apparently, Millner's lawyers were able to cite some court rulings that support this remarkable conclusion. Fortunately for common sense, Judge Nail was able to cite a majority of rulings that "have reached the opposite conclusion." Let's hear from the judge:

Debtor is correct when it says neither the bankruptcy code nor the South Dakota Codified Laws define the term "products."[ 4 ] However, when a term used in a statute is undefined, courts interpreting that statute must give that term its ordinary meaning. Hamilton v. Lanning, ___ U.S. ___, 2010 WL 2243704, *6 (2010) (citation omitted).

AgStar argues "[o]ne does not have to grow up on a farm to understand that milk is a `product of' a cow." The Court agrees. Thus, the ordinary meaning of "product" includes milk produced by dairy cows. Debtor even admits as much — albeit most likely unintentionally — in its motion, in which it refers to its "dairy production operation" (paragraph 10), its "productive herd" (paragraph 13), its "production numbers" (paragraph 14), the "dairy production industry" (paragraph 14), "dairy products" (paragraph 17), and "dairy producers" (paragraph 18) (emphasis added) [In re: VEBLEN WEST DAIRY LLP , Chapter 11, Debtor. Bankr. No. 10-10071. United States Bankruptcy Court, D. South Dakota. July 9, 2010. CHARLES L. NAIL, Jr., Bankruptcy Judge. Retrieved 2010.07.19 from Leagle.com].

Sometimes it's got to be hard for a judge to keep a straight face.

The second ruling came just last Friday, as Judge Nail granted AgStar's motion to appoint a trustee to manage Veblen West. Apparently appointing a trustee in a Chapter 11 case is a big deal, something that happens only if there's serious concern about "fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case...."

AgStar asked for a trustee based on concerns about Millner's ongoing environmental issues and "numerous substantial transfers of assets and liabilities between and among Debtor and the several related entities."

The Court found the environmental problems "serious" and "ongoing." However, geologist Jeanne Goodman of the South Dakota Department of Environment and Natural Resources testified on Millner's behalf to outline Millner's compliance with DENR orders, and that was enough to convince the judge that Millner's response to his environmental violations is sufficiently "appropriate and reasonable" to avert appointing a trustee.

Worth noting: Judge Nail includes this footnote on the environmental portion of the July 16 ruling (emphasis mine):

The Court is mindful that in its July 8, 2010 motion seeking confirmation the automatic stay is not applicable to its waste water regulatory powers (doc. 261), South Dakota's Department of Environment and Natural Resources alleged:

Debtor has not taken the actions necessary to reduce the level of wastewater in its holding ponds or to ensure that it will reduce those levels within the time necessary in order to mitigate the possibility of a discharge this coming Fall or Winter. Rather, Debtor has increased the number of cattle being milked and water used, resulting in increased stress on the holding ponds and their storage capacity. . . . A failure or overflow of Debtor's wastewater holding ponds would result in an immediate and serious threat to public health.

This is certainly troubling. However, the allegations were made after the hearing on the instant motion. The Department and Debtor have resolved the motion, but not the environmental problems, by stipulation (doc. 277) [Footnote #4, In re: VEBLEN WEST DAIRY LLP, Chapter 11, Debtor. Bankr. No. 10-10071. United States Bankruptcy Court, D. South Dakota. July 16, 2010. CHARLES L. NAIL, Jr., Bankruptcy Judge. Retrieved 2010.07.19 from Leagle.com.]

Judge Nail also ruled that AgStar failed to establish "incompetence or gross mismanagement" in Veblen West's daily operations that would support appointing a trustee.

Judge Nail did find cause to appoint a trustee in what appears to be a lot of shady asset-shifting. The Court cites evidence of Millner moving money around to pay off debts of his other dairy ventures instead of paying creditors:

Debtor acknowledged some of the transfers of assets and liabilities and the changes in equity positions Steiner had questioned, and it did little to ease any of the Court's concern that Debtor's and its management team's pre-petition actions were not evenhanded and were primarily intended to benefit insiders and the several affiliated entities, rather than Debtor's creditors. Significantly, Debtor chose not to offer explanatory testimony from Shan Betzold, Prairie Ridge's controller, the individual Millner testified made the decision whom to pay and whom not to pay and who would therefore be most likely to possess firsthand knowledge of the facts needed to explain Debtor's seemingly aberrant use of its milk proceeds. Millner's own attempts to explain some of the transactions were fruitless, and his testimony raised more red flags than it lowered.

...the record is abundant and alarmingly clear that an independent entity needs to assess the case for possible voidable pre-petition preferences and fraudulent or constructively fraudulent conveyances [IN RE VEBLEN WEST DAIRY LLP, 2010.07.16].

Judge Nail thus appointed the Chapter 11 trustee.

At some point, one would think it would be easier to just admit you've done wrong, clean up the mess, and do honest business from here on out. But these rulings from Judge Nail suggest that's not a route Millner is inclined to take.

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Update 22:10 CDT: Millner isn't alone in bankruptcy: the U.S. Bankruptcy Court reports 1062 bankruptcy cases were filed in the District of South Dakota in the first half of 2010. That's up 11% from the same period in 2009