MINNEAPOLIS (CN) – The State of Minnesota helped drive Gopher State Ethanol into bankruptcy by promising to subsidize its production at 20 cents per gallon, then reducing the subsidy to 13 cents, to be repaid at some indefinite time in the future, the company says. Then Minnesota enacted an unconstitutional law that made Gopher State the only company that would not be paid those missing 7 cents, according to its claim in Federal Court.
Plaintiff BHGNC LLC claims Gopher State agreed in 1998 to set up an ethanol plant in St. Paul, based on the state’s promise that it would subsidize production at 10 cents a gallon from June 2000 through June 2010. Gopher State says it relied on this promise to get its plant up and running by June 2000.
“Despite its original unconditional commitment, the State later decided not to fully fund the 20-cent-per gallon promise. Instead, it paid ethanol producers 13 cents per gallon and committed to make up the full amount of the 7-cents-per-gallon deficiency over time.”
By 2003, the reduced subsidy, flat sales and increased production costs drove Gopher State into the red, and it filed for bankruptcy in August 2004, the complaint states. For a while, defendant the state paid the company’s financial backers their “deficiency payments,” but this year, “the State adopted legislation that singled out Gopher State and Plaintiff to be cut off from any further deficiency payments owed for under-funding in prior years,” the complaint states.
“In disregard of a decision by the United States Bankruptcy Court, the State further enacted legislation calling for funds withheld from Plaintiff to be directed toward unsecured creditors of Gopher State, who had not received payment in the Bankruptcy Court. These actions by the State harmed Plaintiff by depriving it of the right to receive the Gopher State deficiency payments that they had obtained through contract and through the Bankruptcy Court’s decisions.”
The bill at issue, Senate File No. 3683, was signed into law on May 12. It singled out Gopher State with this language: “the commissioner shall not make a deficiency payment to an entity that no longer produces ethanol on a commercial scale at the location for which the entity qualified for producer payments, or to an assignee of the entity.”
Plaintiff says that “Gopher State is the only ethanol producer in Minnesota that is owed deficiency payments by the State and that is no longer producing ethanol on a commercial scale at the location where it qualified for producer payments.”
BHGNC claims the legislation is unconstitutional. BHGNC is a Minnesota LLC that “has been assigned all right, title and interest of the Financial Backers to obtain deficiency payments owed by the State as a result of Gopher State’s ethanol production.”
It is represented by Mark Wisser with Anthony Ostlund Baer.