FAYETTEVILLE - A bankruptcy judge has overruled objections by Veg Liquidation, the former owners of defunct Allens Inc., to nearly all of $1.16 million in unpaid bills claimed by a produce company.

In May, Jason Klinowski of Chicago, Veg Liquidation's special commodities act counsel, told Judge Ben Barry that Schmieding Produce acted as an agent of Allens and breached its fiduciary duty to the company, secured secret profits through inflated transportation expenses and charged too high an interest rate.

Greg Brown of Washington, D.C., argued that Schmieding was a third-party contractor of Allens, not its agent. He said Schmieding had a right to make a profit and had disclosed its rates to Allens. Brown said both federal and state laws allow the 18 percent interest that Schmieding charged.

Schmieding's claims were made under the Perishable Agriculture Commodities Act. Valid claims are paid dollar for dollar in bankruptcy cases and are moved to the head of the line for payment, even ahead of secured debt.

In his order issued earlier in the week, Barry sustained Veg Liquidation's objection to $9,247 of the claim that Schmieding agreed was not protected by the act and also sustained an objection that resulted in a deduction of $139 of the claim. Barry ruled the 18 percent interest was in conflict with state law, which only allows a maximum of 17 percent interest, and limited Schmieding to recovering no more than 17 percent annually.

Barry wrote Schmieding was not an agent of the debtor under common law and that freight charges were payable under the act.

"We are pleased with the decision," Brown wrote in an email Friday, adding that when accrued interest and fees are considered, Schmieding's claim under the act is about $1.4 million.

Klinowski said Barry's order is being reviewed and considered for possible appeal.

On Thursday, Barry ruled Hartung Brothers Inc.'s demand to be paid a $3.5 million portion of its claims against Veg Liquidation was premature.

Hartung Brothers Inc. had asked the court for sanctions and immediate payment, saying Veg Liquidation was acting in bad faith and dragging its feet by not paying the $3.5 million, part of a total of $8.2 million in claims for unpaid bills for peas and carrots sold to Allens under PACA.

In June, Barry heard Veg Liquidation's objection to the total $8.2 million Hartung claim. Veg Liquidation's attorney argued that the language of the act does not require Allens to consider fuel and freight charges as part of Hartung's claim. Hartung's attorney said Allens contracted for a delivered price for Hartung's vegetables, so freight and other charges counted toward the total cost of the produce.

Barry has yet to rule on the objection but said Thursday that he would issue an order soon.

In October, Allens Inc. filed for Chapter 11 protection in U.S. Bankruptcy Court for the Western District of Arkansas. The case has been shifted to Chapter 7. Sager Creek Acquisition Corp. bought the assets of Allens Inc. at auction in February with a winning bid of $123.8 million. The total value of the deal is just less than $160 million.

The new owners changed the name of Allens Inc. to Sager Creek Vegetable Co. in July. Sager Creek employs more than 1,000 people across its U.S. operations. In addition to its Siloam Springs plant and other Arkansas holdings, the company has operations in Georgia, North Carolina and Wisconsin.

In early August, Barry overruled the majority of objections made by Veg Liquidation to $1.9 million in claims made under Perishable Agriculture Commodities Act by D&E Farms of Pennsylvania. Veg Liquidation, along with Sager Creek, has appealed that ruling to the U.S. District Court of the Western District of Arkansas.

Business on 08/23/2014