Missouri Soy Checkoff Suit

OMAHA (DTN) -- In a case highlighting conflicts of interests in a state checkoff program, Missouri soybean farmers won a major lawsuit Wednesday against a seed genetics company co-owned and managed by a former Missouri state soybean checkoff executive.

The Missouri Soybean Merchandising Council and Mid-America Research and Development Foundation were awarded a unanimous jury verdict of $602,945 against AgBorn Genetics, a Hermann, Missouri, seed company that failed to pay royalties on seed technology developed through the checkoff program.

The case is one of multiple lawsuits involving former Missouri soybean checkoff executives and their relationship with AgBorn Genetics. The verdict Wednesday stemmed from an initial effort by the Missouri Soybean Merchandising Council to void contracts that gave AgBorn Genetics exclusive licensing rights to certain seed genetics.

AgBorn Genetics was created in 2006 by William "Bill" Cook, a Garden City, Missouri, farmer who is heavily involved in the state soybean industry and who served as AgBorn chairman and CEO from 2008-2014. Alex Stemme served as general manager and chief operating officer for AgBorn. At the same time Stemme was an executive with the Missouri Soybean Merchandising Council, a position held from 1999 until December 2013

Chicago attorney Todd Rowden, one of the attorneys who represented the Missouri Soybean Merchandising Council, said there were two contracts at the core of the lawsuit, a master commercialization agreement and a sublicensing agreement over high-oleic soybean seeds. Farmer leaders on the soybean merchandising council launched an investigation and filed a lawsuit after learning their own staff owned a stake in AgBorn.

Specifically, staff for the merchandising council and foundation signed agreements granting "lifetime worldwide exclusive licensing rights" to commercially produce non-GMO high-oleic soybean seeds. Those contracts were voided in the litigation.

"It was just outrageous, but that's part of why this case was so critically important for the council to control its own technology," Rowden said.

Stemme and other council executives resigned in late 2013 as the merchandising council's farmer board began more intensely scrutinizing Stemme's licensing contracts and potential conflict of interest. Two other leaders of the merchandising council and Missouri Soybean Association were forced to resign as well.

Randall Grady, a St. Louis attorney who represents AgBorn and Stemme, told DTN on Thursday that the company will appeal the jury verdict and that the company "vehemently disagrees with some of the judge's rulings in the case and we are going to aggressively appeal those decisions." Grady declined to discuss details about AgBorn, but he said it is still operating and being run by Stemme.

Cook said in an interview Thursday he left AgBorn in 2014, but had worked with the Missouri Soybean Association for years. He said he helped the association on multiple projects, but he said he felt like he and other AgBorn board members were misled about what they were doing on the seed company.

"We were way more involved than what we wanted to be in the first place, so we got out of that as soon as we saw there was some kind of lawsuit," Cook said. "We didn't want to be involved in any of that stuff."

Cook said he believed AgBorn was set up to help the Missouri Soybean Association commercialize their products and breeding program. He said he wasn't fully aware of what the lawsuit was about, but did see the verdict. "I hate to see the association going through this." Cook added, "We always felt like we were doing the work of the soybean association."

Cook also said he does not know the extent of AgBorn's business operations or its assets.

In a statement, farmer David Lueck, the current chairman of the Missouri Soybean Merchandising Council, said the case was an important one for the state's soybean farmers.

"We take our responsibility to manage growers' soybean checkoff dollars very seriously and will continue to take any necessary steps to ensure farmers receive the benefit their investments in the checkoff," Lueck stated. "There's no excuse for anything less."

The lawsuit notes that the merchandising council made several attempts to audit AgBorn's sales before filing the lawsuit, but the company did not comply. During discovery for the lawsuit, Rowden said attorneys realized AgBorn had not reported the full extent of its sales under the licensing agreement. AgBorn had refused to present documents on sales, so the merchandising council issued subpoenas to seed companies that had been doing business with AgBorn. Those documents made it clear the royalties were several times higher than earlier believed.

"We saw hundreds of thousands of units of sales that were never reported and (royalties) never paid," Rowden said. "When we went into this, we didn't know this. We just wanted to negate the contracts because they were terrible contracts for the council."

Missouri Circuit Judge Charles McKenzie voided the master commercialization agreement and related licensing agreement over seed genetics between the merchandising council and AgBorn earlier this month, stating in part that agreement was unenforceable. The contract did not have details such as which technologies would be licensed to AgBorn, and lacked details on the price and form of royalties that should be paid.

AgBorn paid some royalties, but the trial showed more than $560,000 in royalties from sales that AgBorn did not pay. Documents show there was another $40,000 in royalties paid in which the checks did not clear.

Rowden said the award of $602,945 could rise, possibly to as much as $1 million, because of interest rates that could be imposed by the court on those royalties.

AgBorn also was hit with $59,167.61 in sanctions by the judge for failing to respond to court orders regarding motions to respond to requests for discovery throughout the case.

Stemme did not attend the trial. Plaintiffs introduced his testimony through video depositions from the case.

Missouri's three state soybean groups -- the Missouri Soybean Merchandising Council, Missouri Soybean Association and Mid-America Research and Development Foundation -- also have a separate lawsuit in Cole County, Missouri, pending against Stemme and Dale Ludwig, who served for more than 20 years as executive director and CEO for the three organizations. Ludwig resigned in late 2013 amid audits surrounding the organizations.

That lawsuit claims Ludwig and Stemme violated their fiduciary duties and conflict-of-interest policies regarding the organizations. For instance, the lawsuit alleges Ludwig and Stemme neglected to disclose their private business interests on annual disclosure forms even as the merchandising council and soybean association entered into business arrangements with those companies.

Cook's business ties to Ludwig and Stemme are detailed in the Cole County lawsuit, but he is not listed as a defendant. Cook said he was not aware of the case until it was brought to his attention by DTN.

The soybean groups allege Ludwig and Stemme used assets from the merchandising council to further the interests of AgBorn Genetics, including paying for Stemme's international travel that benefited AgBorn.

The lawsuit also alleges instances in which the former state soybean executives signed off on farm-equipment purchases that were then leased to companies they operated at below market rates or in which the lease payments were never made.

Chris Clayton can be reached at Chris.Clayton@dtn.com.

Follow him on Twitter at ChrisClaytonDTN

(GH/CZ)

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