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SF Special: When a Family-Owned Elevator Goes Belly Up

Part 1: Disbelief turns to anger as farmers try to understand how their local elevator could fold

When the Porter Elevator locked its doors to customers in December 2015, the relationship it had built as a trusted business partner was shattered. In this four-part series, we examine what happened when the Minnesota elevator went under.

As the tallest building in Porter, Minnesota, the Porter Elevator Feed Mill has played a critical role in the growth of the community. As a wholesale feed dealer, the company buys and sells grain, stores grain, hauls feed and grain, and processes and sells feed. Built in the 1930s, local farmers have looked to its owners as a trusted business partner for decades.

“I grew up in this area and have lived here my whole life,” says Leon VanDerostyne, who farms with his brother, Jim. “For more than 30 years, I’ve been storing and marketing my grain through the Porter Elevator. In all that time, I never had a problem getting paid.”

That all changed on December 10, 2015. At noon that day, Bruce Tetrick, president of the elevator, locked the doors to his customers for the last time. Within 15 minutes of folding, the rumors began to circulate.

“My brother Jim, as well as our brother, Gary, who also farms and did business with the elevator, called to tell me they’d heard the elevator had closed down,” says VanDerostyne.

While those conversations were unsettling, a phone call to his bank, the First Security Bank - Sleepy Eye, a day later was even more disheartening.

“I had gone into the elevator on December 9 to sell 34,800 bushels of corn I had in storage,” he says. “Bruce handed me a check for $111,229. I deposited it in my account that same day. When I heard the elevator closed, I was worried about that check and called my bank Friday morning. That was when the bank told me the check was no good.”

VanDerostyne also had 1,235 bushels of spring wheat and 14,144 bushels of soybeans in open storage, 231.5 bushels of corn in the grain bank, and 1,000 bushels of soybeans on a deferred payment contract.


Building a better system

In this rural farming community, few were untouched by what happened that fateful day. As the reality of the situation started to unfold, farmers understandably had questions.

“Nobody knew what to do,” says VanDerostyne.

“Before the Porter Elevator, the state of Minnesota hadn’t dealt with a situation like this for 10 years or so,” says Kevin Stroup, an attorney with Stoneberg, Giles and Stroup in Marshall, Minnesota. “The calls started coming into our office shortly after noon the day the elevator closed. A number of them were from farmers who all had similar questions.”

Based on the suggestion of another grain elevator it represents, the firm decided to hold an informational meeting as a courtesy to farmers.

“What we found was that there was no good central location for these folks to get answers. There were a lot of rumors, and we wanted to quell as many as we could,” he says.

More than 100 people showed up for the meeting, which included farmers as well as several of the area’s main ag lenders. The majority of questions centered around what the path would be going forward, especially since it was likely that Tetrick would file for bankruptcy.

“We shared what we knew, what we didn’t know, and how the process works because it appeared that he was going to file for bankruptcy,” says Stroup.

Ultimately, the privately held elevator filed for Chapter 7 on December 23, 2015. At the time of the filing, court documents showed total assets of $3.6 million and liabilities of $4.2 million. More than $1 million of those liabilities were in unsecured claims including VanDerostyne’s bounced grain check and the grain he had delayed payment on.

Classifying Claims

According to Stroup, the nearly 90 farmers affected by the closure fell into three buckets.

Bucket 1: You had grain in storage.

“If you stored grain at the elevator, you still own that grain,” says Stroup.

Because the grain was still owned by the farmers, it was rumored that they had the right to reclaim their commodity.   

“A farmer does have state law reclamation rights relating to the sale of goods (grain) under the Uniform Commercial Code,” says Greg Bucher, who is also an attorney with Stoneberg, Giles and Stroup. “That said, once an elevator files for bankruptcy, and the automatic stay imposed, the exercise of the state law right of reclamation, and any litigation over that issue, occurs under the oversight of the bankruptcy court.”

Ned Bergman, USDA’s chief of the examination branch, says in theory farmers could have taken back their grain. “In reality, there are a lot of weaknesses in allowing them to do that,” he notes.

“For instance, if a farmer was to take redelivery, who would pay for the costs, like transportation, associated with taking that grain back? The farmer would,” says Carie Pintado, USDA’s chief of the licensing branch.

It’s also about quality and quantity.

“When you do a liquidation, you are never quite sure of the quality of the grain,” Bergman notes. “You can make basic determinations, but you don’t know what you’ve got until you empty those bins.”

“Plus, until you clean out an elevator, you really don’t know how much grain is actually there,” Stroup adds. “You can measure it to your heart’s content and usually that’s accurate, but you’re not 100% sure.”

Once the USDA knew what they were dealing with and ownership of the grain was established, the agency then went out into the marketplace to find companies willing to work with them to liquidate the stored grain, which included corn, soybeans, wheat, and oats. Farmer’s Cooperative Elevator in Hanley Falls was awarded the bid and sold the commodities at an established benchmark.

“What we have to do is, on a particular day, say this is the benchmark and legally establish what the fair market price is,” explains Bergman. “When the liquidation is complete, the proceeds are placed in a grain fund, which is mandated by the U.S. Warehouse Act. Affected farmers are issued checks from this fund, and all funds have to be distributed on a pro-rata basis.”

As with any situation like this, the USDA hopes to recover 100% in the sales. If they don’t, a $230,000 federal bond the elevator had kicks in to make up the difference. “If necessary, we work with the bonding company to recoup any losses and include them in the distribution,” he notes.

According to court documents, the proceeds of the sale totaled a little over $3 million – more than enough to cover the $2.8 million owed farmers after subtracting storage fees. Payments were distributed to farmers in installments. Farmers received the last approximately 9% owed to them the week of April 10, 2017. Any excess funds from the sale are used to pay secured creditors like banks.

“Everybody who had grain stored at the Porter Elevator had to be treated the same because grain was all stored essentially on a comingled basis,” says Bergman.

While some may not agree, he says liquidating that grain and then issuing checks to farmers at the liquidation price was the cleanest and most efficient way to take care of the problem. “In the end, it was probably the most beneficial way to handle it for the farmer as well,” he notes.

Bucket 2: You sold grain and received a check from the elevator.

Leon VanDerostyne
“If you sold your grain and received a check, whether it was good or not, you are considered an unsecured creditor,” explains Stroup. “The title to that grain was transferred to and is held by the elevator with that sale.”

“Since the check bounced, I posted a letter on the elevator’s door requesting to reclaim my grain,” says VanDerostyne. “Even though I knew my corn was still in the elevator, I was told it no longer belonged to me because I sold it. I was now considered a creditor. My grain was basically taken away from me and the proceeds were given to the bank once it was sold.”

As an unsecured creditor, VanDerostyne and others who fell into this bucket could apply for compensation through a bond the elevator had with the state of Minnesota. According to Nick Milanowski, the Minnesota Department of Agriculture (MDA) received $2,001,042.45 in claims from 12 producers.  

“All submitted claims, associated paperwork, internal documents, and records from inspector visits were reviewed to determine which claims were valid and which were not,” says Milanowski, the MDA Fruit, Vegetable & Grain Unit supervisor, plant protection division. “Once final determinations were made, 11 producers who had filed $1,106,435.17 in total claims were found to be valid. In the case of multiple claims, a pro rata share is calculated and dispersed.”

However, the bond would only cover $125,000.

“Almost a year after the elevator closed, I received a check for approximately $13,000, which was around 12% of what I was originally owed on the grain check that bounced,” says VanDerostyne.

Had he left his corn where it was, his story would have been much different.

“If my grain was in storage, I would have received the full amount owed to me,” says VanDerostyne. “I’d have been a thousand times better off if Bruce hadn’t given me a check that day. If this would have happened to me when I first started farming, I’d have been finished.”

The only reason he sold grain that day was because there was a piece of farmland up for sale he had planned to bid on the following week.

“Not only did I lose out on that investment, I lost out on years of revenue I could have had from the crops grown on that land,” says VanDerostyne.

Bucket 3: You sold grain and delayed payment.

“If a farmer sold his grain and deferred the payment, that grain now belongs to the elevator. In this instance, he is again seen as an unsecured creditor,” Stroup says.

When the MDA reviewed the documents, it found that some of the claims against the bond represented signed contracts.

“The voluntary extension of credit contracts (VECC) or deferred payment contracts are not covered by the bond,” says Milanowski.

However, VECCs that were not signed presented a challenge … and a loophole.

“Contracts that are not signed by the seller are covered by the bond because the seller has not signed acknowledging the additional risk the contract presents,” he explains. “Due to that, there were some contracts that were included in the bond disbursement.”

The Other Painful Truth

The next harsh reality came when the elevator’s assets were liquidated to settle outstanding debt.

“When the equipment was auctioned off, it was grouped together, and just the big-ticket items were sold,” says VanDerostyne. “I don’t feel they maximized the amount of money they could have gotten for this stuff, which put the farmer further back in line to get some of the money owed him that wasn’t covered by the state bond.”

“It wasn’t made clear to farmers that it didn’t matter how those assets were sold,” says Stroup. “They were never going to get any money out of the liquidation of the equipment or the real estate because there was no equity in either one.”

“If there were any excess funds after the liquidation, secured creditors like banks get paid first in the bankruptcy process,” says Bucher.


A Sense of Betrayal

As if losing a six-figure paycheck isn’t maddening enough, the difficult part comes in trying to understand how one of your own could do this to you.

“I went to school with Bruce. He was a member of our community,” says VanDerostyne. “I trusted him.”

Austin Muhl
“This was a family-owned operation and had been for a number of years,” says Stroup. “It’s why people were so comfortable with them.”

Attempts to reach Tetrick for comment were unsuccessful.

Like VanDerostyne, Austin Muhl knew Tetrick as well as his son, Jacob, who also worked at the elevator for years.

“I considered them friends,” says the young farmer. “They were reasonable and fair. If there were ever a time when there wasn’t much work, they would usually find work to keep you busy. They were actually the best guys to do business with.”

Muhl was a farmer who not only purchased feed from the elevator, but also hauled grain for the business. As a customer, he had an outstanding feed bill when the elevator went on lockdown. As a vendor, he was also owed money.

In the second installment of this four-part series, the First Security Bank – Sleepy Eye takes a handful of Minnesota farmers to court, including Muhl, to try to recoup some of its losses after the elevator files for bankruptcy. 


Laurie Bedord, Advanced Technology Editor, first learned about the Porter Elevator bankruptcy in February 2016. At the time, farmers were hesitant to talk because the investigation was ongoing and it was still a very sensitive subject in the community. Nine months later, she began contacting farmers who did business with the elevator, a vendor hired by the elevator, two attorneys who offered legal advice to some of the parties affected, as well as a representative from the Minnesota Department of Agriculture and USDA officials involved in the case.

Bedord also interviewed a Minnesota state representative working to change the legislation affecting elevator insolvencies. In addition, she spoke with the North Dakota Public Service Commission to compare the legislation it has in place with Minnesota to protect farmers in an elevator bankruptcy situation.

Hundreds of pages of court documents provided detailed information on the financial situation of the family-owned elevator as well as the names of the numerous farmers, suppliers, and vendors affected by the bankruptcy.

Attempts to reach the president of the Porter Elevator for comment were unsuccessful.


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