Doug Cooper and Joe Peiffer on Venue Reform
Doug Cooper recently visited with Joe on the Big Show regarding Bankruptcy Venue Reform.
Part 1 (Aired December 18, 2017):
Doug Cooper: I’m going to visit today with Joe Peiffer, he’s a lawyer with Ag & Business Legal Strategies, and he says this week he is hoping to get a bill on the floor of Congress called the Bankruptcy Venue Reform that he says will benefit farmers, employees, and creditors of companies doing business in Iowa by limiting the choice of place where bankruptcies can be filed. Joe, give us some background on this. Why is it needed?
Joe Peiffer: There’s a move afoot in Congress, and I’ve been working with a group of attorneys and Congressmen from all over the country to change where bankruptcies can be filed. I suspect that there are a lot of the listeners who remember the VeraSun ethanol plant bankruptcy that was filed in 2008. VeraSun had 26 ethanol plants in six midwestern states. Yet, it filed its bankruptcy in Wilmington, Delaware.
DC: What difference does that make, and why Delaware?
JP: It filed there because it had one of its affiliates, which is like a brother or sister corporation, that was incorporated in Delaware. Then, it could file every other affiliated business in Delaware because it had filed one there. It could properly file, and you can at this time, properly file a bankruptcy where a company is organized, which is where you incorporate. And then, any other brother or sister company, or parent or subsidiary, can follow whoever filed first. In VeraSun, every plant had a separate company. So, because every plant had a separate company, all they needed to do was have one that was organized in Delaware and then every other one could follow it to Delaware. Now, that affected an awful lot of farmers in the Midwest. I put together a short video because I had the privilege of representing over 100 farmers in the VeraSun bankruptcy. In VeraSun, the farmers had contracted to sell grain at very high prices. Unfortunately, the market turned. After the market turned and VeraSun hadn’t properly hedged its supply, it ended up in a cash crunch so it filed a Chapter 11 bankruptcy. Well, in that bankruptcy, all of the contracts that were out there with the farmers to supply grain were still enforceable by VeraSun, even though most of them were out of the money. You might have a contract for $7.00 corn and corn was $5.50. Common sense tells that the ethanol plant isn’t going to agree to pay you $7.00 when the going price is $5.50. The company did not have to reject your contract or let you out of it until it finished its bankruptcy plan. You don’t have to file a Chapter 11 bankruptcy plan for up to 120 days, sometimes that’s extended. So now all of the sudden, we’ve got farmers with contracts out there that VeraSun cannot be forced to honor but then if the price comes back and VeraSun’s in the money, VeraSun could make the farmer honor it—one sided as heck. So the farmers that I represented hired me to go out to Delaware with a farmer, Mark Kuhn, and we went out to seek, ask the judge whether we could speed up the process of VeraSun agreeing to accept or reject these contracts. So we wanted to do it on a plant-by-plant basis, so that we look at the Charles City plant, or we’d look at the plants up in Minnesota, on a plant-by-plant basis and have all the farmers that had contracts there ask the judge at one time to set up a mechanism to make them assume or reject the contract. The judge wasn’t interested. The judge said that every farmer could come out to Delaware and seek his assistance. Well, to me, it becomes a question of what’s the access to justice, because now you’ve got all of the people that had done business with the ethanol plants are out here in Iowa, Minnesota, Nebraska, the Dakotas, I can’t think, there were a couple in Michigan that were being called out to Delaware. When you go to Delaware, I’m not admitted in Delaware, so in order for me to appear in Delaware, I had to hire a lawyer to review everything I was doing and then to be in court with me to introduce me to the judge and ask the judge for permission to allow me to talk. You know, Delaware is a long way from Charles City, Iowa, so what we’ve been doing is working to see if there’s a way to make this more fair and to provide people with better access to the courts. And so what we’ve come upon is some language in a bill that we believe is going to be introduced Wednesday. It’s called the Bankruptcy Venue Reform Act of 2017. So, what I am asking people to do, then I’m going to ask farmers who believe like I do that it’s important that bankruptcy be filed close to where the creditors are and close to where the companies are doing business to support this. Call your senator. Ask your senator to support the bill and to co-sponsor it. Call your representative. Let them know that this bill’s coming, that you’re supporting it, that you want them to support it, and hopefully Congress will actually work quickly and do something.
DC: Joe, it’s the holiday season, the tax bill is being debated, what are the odds do you think, it could get done before Christmas or before the end of the year?
JP: I’m told there is an outside chance that it could get attached to the budget bill next week. I’m a realist, it probably won’t get done. But if we provide Congress with a lot of people calling in, emailing them, or even writing, my preference is that you, instead of write, that you email or call and tell them that you want them to co-sponsor the bill and to push it through. Then, even if it’s not passed next week, it will be there and on the front burner. I’ve been working on this project with these other lawyers from around the country for five years. I’m finally at the spot where we have language in a bill that I believe is going to solve that problem. Because, you never know when you’re going to have a packing plant file bankruptcy, or you’re going to have a dairy file bankruptcy, or when you’re going to have a grain elevator file bankruptcy or when you’re going to have another ethanol plant file bankruptcy. Typically, these big companies do not file close to where their customers are. For the most part, they would prefer filing far away so they can avoid having the bright sunlight shined on them so that we all can see what’s going on.
DC: Joe Peiffer is a Cedar Rapids lawyer with Ag & Business Legal Strategies. I’m Doug Cooper on the Big Show.
Part 2 (Aired December 19, 2017):
Doug Cooper: Yesterday I visited with Joe Peiffer, a lawyer from Cedar Rapids. He is with Ag & Business Legal Strategies, and we discussed a pending bill in Congress, Bankruptcy Venue Reform. Joe, what’s the issue here? Is it the distance that’s the problem between Delaware and Iowa?
Joe Peiffer: The distance is part of it. What if you want to see and talk to the judge? You’ll see that I did a video on this where I had a farmer explain it and we show the distance. If that bill had been law in 2008 when VeraSun filed bankruptcy, its headquarters is in Sioux Falls, South Dakota, I believe that we’d have flooded the courtroom with folks to be there. We’d have had judges that are much more in tune with how farmers work and how ethanol works, too, and actually have a farmer featured on that, that will explain what happened and what he saw. The distance is one thing, the other thing is you’re having to hire lawyers – first off, the lawyers in Delaware may be fine lawyers but quite frankly, they don’t know much about agriculture. They know even less about how grain contracts work, so you have to hire a midwestern lawyer that knows about that, and then you have to hire another lawyer out of the state of Delaware. Delaware and the Southern District of New York are the two places where most of these cases are going, so all of a sudden, we’ve got folks, farmers who are disenfranchised, if you will. You know, you file a bankruptcy in November, during harvest, in Delaware. What are you gonna do? If you want to have a seat at the table, you gotta saddle up and fly out 900 miles to go to Delaware. If it had been filed in Sioux Falls, you’d have hopped in your truck and driven about three or four hours and been there. A lot cheaper. A lot more efficient, and it ends up, probably, with judges that know more about the topic area of the type of business you’re dealing with. So that’s what I’ve been working on hard for a long time and I can tell you up front I’m not being paid by anybody for the work I’m doing. I’m looking at saying what can be better for not only farmers, but for citizens in general, because there are a whole host of cases, that once they filed in a state far, far away, they generally don’t come home, and if you want to have a seat at the table, you get to go to where that bankruptcy was filed.
DC: What’s your gut tell you, Joe?
JP: My gut is that ultimately, we’re gonna get it done, but it’s gonna be a strong battle, I can tell you that right now. Senator Christopher Coons from Delaware is very frustrated. He caught wind that this was coming up and I can tell you the Delaware people will be going full force to say this thing’s no good. So, we need a full court press on our side to make sure that the Senators and the Congressmen know that we’re serious about this, and it will make it much easier for us to move forward, and it will provide the access that farmers deserve when people that are buying their products may go down.
DC: What would be the objection of those in Delaware? Is it money?
JP: Of course, it’s money. Delaware has a cottage industry. Delaware’s a much smaller state than Iowa, for example. In Iowa we’ve got four Congressmen. Delaware has one. Yet Delaware has the highest number of Chapter 11 bankruptcy filings in the country, and why does it do it? Because it has, it’s catered to this whole thing. So, we’re fortunate in that there was a proposal to make five temporary bankruptcy judgeships in Delaware permanent, and Senator Grassley pushed back and said no, we’re not gonna make them permanent. Had they been made permanent, the concept of changing bankruptcy venue laws would have been much more difficult because they’d say well, we’ve got all these judges in Delaware, why don’t we just have the cases out there? The objection from Delaware is, they’re gonna say our judges are more qualified and more experienced. Well, no judge comes in being totally experienced in being a judge in big cases, but all of the judges have the intellectual ability to do it, and the Court can shift where judges sit. They don’t have to sit. There are special or temporary judgeships. If it becomes when this is passed and the Courts start seeing a higher caseload in the Midwest, we’ll start having more bankruptcy judges here able to handle the cases. Our judges here are very capable. No, they haven’t done as many big cases as Delaware, but they can do it. As a citizen, I would much prefer being able to go observe justice and tell the judge my story in my state or an adjoining state than going to a bankruptcy that’s halfway across the country or in many instances, across the country. There are many instances where cases from California are filed in New York or Delaware. We think it’s bad here, from Iowa to Delaware. Imagine if you’re in southern California or you’re in northern California and your winery files bankruptcy in Delaware. Now, you’re a grape grower and you were selling to the winery. Now you’ve gotta go to Delaware to prosecute your rights. That doesn’t seem right to me.
DC: Cedar Rapids lawyer Joe Peiffer with Ag & Business Legal Strategies. The bill has yet to be filed. We’ll keep you posted. I’m Doug Cooper on the Big Show.