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THE AFTERMATH OF
THE PIPELINE FOODS
BANKRUPTCY
By Harriet Behar
FARMERS NOT PAID AFTER
BANKRUPTCY
On July 8, 2021, Pipeline Foods, a grain buyer,
processor, and marketer of organic and non-GMO
grains declared bankruptcy. At the time of the
bankruptcy, farmers were affected in two ways. 1)
They had delivered grain but not been paid, and now
would not be paid by Pipeline Foods or 2) They had
outstanding contracts to deliver grain to a company
they now knew was bankrupt and unable to pay them
if the grain was delivered.
Farmers who were waiting on payment had to deal
with the state protections for farmers based on the
In a company press release, Anthony Sepich, chief executive
officer of Pipeline Foods, LLC, said, “[t]he impact of the
Coronavirus (COVID-19) pandemic coupled with the Company’s
secured debt obligations have caused significant financial
distress on our business. As a result, we believe that a
bankruptcy filing and a potential sale of the business, portions of
the business, and certain of its assets is the best path forward to
unlock value for the benefit of all creditors. I would like to thank
all of our employees, growers, customers, and business partners
for their dedication and continued support through these
unprecedented times.”
states where their farmers were located or the state
they delivered grain into. Many states have grain
dealer licensing programs that administer funds or
insurance programs to cover obligations from grain
application and loss coverage details vary by state.
2022 CLAWBACK LETTERS SENT TO
FARMERS
OFA covered most states affected in the summer of
Approximately one year after the bankruptcy, in the
2021.
summer of 2022, farmers who had received payment for
dealer defaults. Each state has its own program, so the
delivered grain within 90 days of the bankruptcy 2021
FARMERS HOLDING CONTRACTS TO
DELIVER GRAIN
date, started to receive “clawback” letters, demanding
Farmers who were held in contracts to deliver grain
trustee of the Pipeline bankruptcy estate, all money they
were, for the most part, able to negotiate out of those
had been paid for grain delivered during this 90-day time
contracts and protect their grain. From July 30, 2021,
frame to the law firm within 21 days. These one-page
through September 10, 2021, the Bankruptcy Court
letters were very short and to the point, listing the
entered Orders Approving Stipulation Establishing
amount to be returned or else the firm would commence
Procedures for Grain Sellers to Sell Grain and
litigation. Different approaches were taken by a variety
Mitigate Damages to farmers under contract to
of farmers to this clawback letter after they verified this
deliver grain to Pipeline Foods facilities in Minnesota,
surprising and disturbing letter was not a scam.
they send a legal firm, a court-appointed liquidating
Iowa, and Michigan. Where farmers under contract to
deliver grain to a Pipeline Foods location in Iowa,
Organic Farmers Association, sent out communications
Minnesota or Michigan were able to submit a form to
to help farmers understand this legal activity of
opt out of any deliveries of Undelivered Grain that are
“clawback”, and what avenues they could use to lessen or
otherwise due for delivery after July 8, 2021.
avoid losing their hard-earned payments for their grain.
multiple years’ harvests in one sale, this type of
HOW DID FARMERS RESPOND TO THE
2022 CLAWBACK?
clawback is especially onerous for grain producers and
SMALLER PAYMENTS:
could easily result in the loss of their land and
The old adage, “Don’t put all of your eggs in one basket”
livelihood, and even push the farm operation into
applies to this situation. Speaking to farmers who were
bankruptcy, in order to raise the funds to meet the
caught in the clawback time frame, it appears that
monetary obligations demanded in the clawback
smaller dollar amounts were not as aggressively
letter. Understanding the bankruptcy rules and typical
pursued as larger ones. Since the liquidation law firm
activities taken by the large creditors to recoup as
would need to file a lawsuit, which costs money, the
much money as possible from the bankrupt business,
smaller amounts of grain deliveries would not return
can be informative in helping farmers lessen their
enough dollars to justify the firm’s time in court. Some
exposure to loss of income, caused by their buyer’s
farmers split the grain payments with the owners of
bankruptcy.
their rented land, and this lessened the value of each of
Since grain farmers may sell a full year, or even
the payments. This might have been more attractive to
Unfortunately, a farmer cannot protect themselves
pursue for the law firm if it had been one larger
from future clawback within their contracts, nor can
payment. Splitting up payments, such as among family
they specify that if the grain buyer enters bankruptcy,
members, could be a strategy to lessen the farm’s
the contract would be null and void. There is a
exposure to clawback litigation.
limitation on how many months can go by after the
bankruptcy date, when a clawback letter can be sent to
ARGUED PAYMENTS WERE WITHIN THE ORDINARY
obtain funds from those who deliver grain to the
COURSE OF BUSINESS:
bankrupt entity. There are circumstances that dictate
Dairy farmers who were caught up in the Dean Foods
the limitation, but it’s approximately two years. For the
bankruptcy
Pipeline Foods bankruptcy, that limitation has been
bankruptcy law to declare that their sales were “in the
reached, so if you or someone you know has not yet
ordinary course of their business relationship” with the
gotten a clawback letter, or has not received
bankrupt company. In addition, they stated that the
secondary communication about a clawback letter not
payment received was not “preferential payment
currently in active litigation, you can now rest easier
treatment”. These two phrases are important, and at
and collect your daily mail without worry.
least one farmer wrote a letter back to the Pipeline
in
2020
used
language
within
the
Foods litigating law firm, using these phrases within a
letter that also stated they would not be returning any
money they had received. Almost a year has gone by
since they sent the letter, and there has not been any
further communication.
Another farmer hired an attorney well versed in
STRATEGIES TO PROTECT AGAINST
BUYER BANKRUPTCY
bankruptcy law, and able to practice in Delaware, where
Working with longer term established businesses, who
the bankruptcy was filed. While the attorney fees were a
have significant equity in their infrastructure rather
little over $10,000, the many months of negotiations
than debt, is a protective strategy. Selling to numerous
between the farmer’s attorney and the bankruptcy firm
legacy businesses, rather than one, also lessens your
cut the amount demanded in clawback letter, to almost
exposure to losing money if one of them goes into
one-third of what was originally listed. This farmer
bankruptcy.
ATTORNEY SETTLEMENT FOR LESSER AMOUNT:
needed to take out a loan to pay this lesser amount, and
so incurred interest payments as well, but the total
Knowing the rules and protections of both the state
amount lost to the bankruptcy court was much less than
where the grain was produced, as well as where the
the original amount demanded in the clawback.
grain was delivered, can also prepare you to act quickly
to lessen losses. Some states have indemnity funds to
IGNORED THE LETTER/ SHOW UP IN COURT:
protect farmers who are not paid for grain delivered
Ignoring the letter was another strategy adopted by
and some states protect farmers with bonds that grain
farmers. One farmer represented himself after being
dealers hold with the state when they are licensed to
brought into the bankruptcy court after ignoring the
buy and sell grain. While some state indemnity funds
letter, but his case was dismissed by the judge and he did
will cover up to 90% of unpaid grain payments,
not need to make any payments.
unfortunately, many state bonds required are short of
the protections needed to cover all debts, especially for
ARGUED CASH PAYMENTS:
the larger businesses. Organic grain producers as well
One farmer requested that Pipeline Foods pay him
as nonorganic grain producers located in or delivering
before delivery after a discussion with a banker. The
grain in Iowa dried up the Iowa Indemnity Fund in fall
farmer was told by his banker after he had received the
2022 after another Iowa-based organic grain company,
Pipeline check and was sent a clawback letter, that
Global Processing Inc. declared bankruptcy. The Iowa
wiring money between banks is seen as cash, and that
legislature had to approve a call for all Iowa grain
cash payments are not allowed to be clawed back in
farmers to replenish the funds, an act that hasn’t been
bankruptcy proceedings. There is a cost to wire funds,
necessary since the fund was created in 1986.
but this could be another method to protect yourself.
WERE THERE WARNING SIGNS AT PIPELINE FOODS?
While Pipeline Foods appeared to be a dynamic and growing business, their rapid growth was
a warning sign. To grow the business in their early years, they offered the highest price in the
market to attract growers and their grains to be their suppliers. This also caused them to
incur debt. In order to fund rapid growth, an international market presence in organic and
non-GMO grains, as well as acquisitions of storage and processing facilities, they took on a
higher debt load. The bankruptcy itself was caused by some nervousness of the main
investors in Pipeline Foods, and their concern that the business was not performing to
expectations.
One victory in this story relates to the State of
Minnesota’s quick response to increase protections
for farmers for future buyer bankruptcies. Before
IT HAPPENED AGAIN
2023, Minnesota used bonds purchased by elevators
In October 2022, another organic grain company,
to compensate growers who went unpaid for
Global Processing Inc. of Kanawha, Iowa organic
delivered or stored grain. The required bond
soybean business filed for bankruptcy, claiming it
amounts proved to be too low to cover all the claims
owed at least 100 creditors $10 million.
in the Pipeline Foods bankruptcy, which caused
farmers to suffer significant losses. In May 2023, the
The Iowa Department of Agriculture (IDALS)
state of Minnesota created a $10 million grain
suspended the warehouse and grain dealer
indemnity fund to compensate growers if an elevator
licenses of Global Processing Inc. in early October
or grain buyer declares bankruptcy. when first
2022 because the company failed to “have
purchasers fail to pay them for delivered grain or
sufficient funds to cover producer grain checks”
redeliver the grain. This will better protect farmers
and failed to file the required monthly financial
located in Minnesota or selling grain into Minnesota,
statements.
and provides some enhanced features over the Iowa
indemnity fund. Other states may better protect
The company had organic food-grade soybean
farmers by creating indemnity funds rather than
processing facilities in Iowa, Nebraska, Illinois, and
relying on bonds.
Minnesota.
Harriet Behar runs organic Sweet
Springs Farm in Gays Mills, Wisconsin.
She serves on the OFA Governing
Council and Policy Committee and has
been involved with federal, state, and
local policy advocacy for over 30 years.