Growers at odds over cotton sales

Gaines County cotton growers won a major battle in court last week when a state judge set aside a co-operative’s arbitration rules as unconscionable and issued an injunction that could delay the sale of millions of dollars of cotton from the 2010 harvest.

That delay comes with prices fluctuating near record highs.

District Judge Kelly G. Moore issued the injunction in connection with suits filed by two groups of growers, each with different claims against Venture Cotton Cooperative, Noble Americas Corp. and the Ocho Gin Co. Both groups were part of the same cotton sale pool, but each filed different allegations related to their agreements with the pool.

Noble Americas, the U.S. division of Hong Kong-based global commodities trader, is the hired manager for the cooperative. The cooperative has no telephone number, but its street address in Houston is also listed as a Noble Americas office. Noble Americas did not respond to a request for comment for this story.

One suit, by the Alan Freeman Farms, headquartered in Lubbock, and the PDB Joint Venture, based in Seagraves, was filed in Gaines County District Court trying to void their contracts in a dispute over who controlled the “overs” — cotton produced beyond the estimated number of bales per acre in the futures contract.

According to court pleadings, Ocho Gin was acting as the agent seeking cotton contracts for Freeman and PDB. Ocho presented the growers with contracts from the co-operative specifying the amount of cotton they would sell. At the time, the growers also asked if the contract either bound the cooperative to buy the overage, or if the growers retained the right to sell it on the open market.

The suit also contends the growers were told at least three times they would be able to sell the overage elsewhere, but then the cooperative said the contract required the growers to sell their entire crop to Venture Cotton.

Freeman and PDB jointly hold at least $2.5 million in overage bales they could sell on the open market, but can’t at this time because of the dispute.

They’ve also asked that the contract be cancelled because they were told the purchasing pool was still open when they signed contracts on March 30, 2010, when in reality the pool had already closed.

Under the disputed contract, the growers had already turned over more than 4,400 bales, worth at least $4.17 million, to the cooperative.

The second complaint involves a group of 25 growers in Gaines County in the same Venture Cooperative pool contesting a demand for arbitration by the cooperative, which is seeking more than $4.6 million in damages for a combined 271 bales of cotton the growers didn’t deliver.

The growers delivered more than 98 percent of the crop on the enrolled acreage, but 19 of the growers fell short of the estimated bale production.

The 25 growers are contesting the terms of the arbitration, which would be conducted by the American Cotton Shippers Association.

Their concerns are that the growers would be denied the right in arbitration to conduct discovery to determine the reasoning behind the claims, and that the rules would deny the growers an opportunity to make counterclaims related to the contract.

In issuing the injunction, Moore wrote that because of current cotton prices, he would support an agreement allowing the parties to agree to sell the cotton and hold the proceeds in escrow until the case is resolved.

Moore, whose judicial district covers Terry and Yoakum counties, is also presiding judge for the state’s Ninth Judicial Administrative Region, which covers courts in the Panhandle and South Plains. He took on the case after the original judge in the matter, Carter Schildknecht, recused herself.

(Source: http://lubbockonline.com/money/2011-03-21/growers-odds-over-cotton-sales)