Eurochem N. Am. Corp. v. Ganske

EUROCHEM NORTH AMERICA CORP.

f/k/a/ EuroChem Trading USA Corporation, Plaintiff, v. W. KENT GANSKE, individually and d/b/a and sole proprietor of AG CONSULTANTS,and JULIE L. GANSKE, Defendants.

W. KENT GANSKE, individually and d/b/a AG CONSULTANTS,and JULIE GANSKE, Counter-Plaintiffs and Third-Party Plaintiffs,andWS AG CENTER, INC., Third-Party Plaintiffs, v. EUROCHEM NORTH AMERICA CORP,f/k/a/ Eurochem Trading USA Corporation, Plaintiff and Counter-Defendant,andEUROCHEM GROUP AG, SCOTT SIMON, IVAN BOASHERLIEV,

and EUROCHEM NORTH AMERICA CORP., successor by merger to Ben-Trei Fertilizer Company

and successor by merger to Ben-Trie, Ltd., Third-Party Defendants.

18-cv-16-slc

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN

December 30, 2019

OPINION AND ORDER

This is a civil action for monetary relief in which plaintiff EuroChem North America Corp. (formerly known as EuroChem Trading USA Corporation, referred to hereafter as "ECTUS") alleges that defendants W. Kent Ganske and his wife, Julie Ganske, breached their guaranties to plaintiff by failing to pay the indebtedness owed by their company, WS AG Center, Inc. ("WSAG"). On October 21-22, 2019, this court held a bench trial on the Ganskes' counterclaims that they were fraudulently induced into signing their guaranties and that Julie Ganske's guaranty was not supported by adequate consideration.¹ Having seen and heard the witnesses testify and having assessed their credibility, having reviewed the trial exhibits, and having considered the arguments made in the post-trial briefs, the court finds that the Ganskes have failed to establish that their guaranties are invalid because of fraud or lack of consideration. Accordingly, there being no dispute that WSAG owes ECTUS more than $14 million and that the Ganskes have failed to pay that debt, ECTUS is entitled to judgment on its breach of guaranty claims.

FACTS

A. The Parties

ECTUS is a wholesaler of fertilizer and other agricultural chemicals to customers in the United States and is a wholly-owned subsidiary of EuroChem Group AG ("EuroChem"). In 2016-17, EuroChem had four divisions: mining, fertilizer, logistics, and marketing/sales. The marketing/sales division of EuroChem was further divided into global geographic regions; ECTUS was the North American division. From 2012-2017, Ivan Boasher was the president of ECTUS, and reported directly to Terje Bakken, head of EuroChem's marketing/sales division. Bakken, EuroChem's CEO Dmitry Strezhnev, and its CFO, Andre Ilyin, were considered EuroChem's "senior management" at that time.

WSAG is an agricultural product wholesaler and retailer owned by defendants W. Kent and Julie Ganske. W. Kent Ganske also does business under a sole proprietorship known as AG Consultants.²

B. The Debt and the Initial Payment Schedule

Beginning in 2010, ECTUS and WSAG entered into a series of contracts for the sale of urea, phosphate and other products from ECTUS to WSAG. Ganske dealt directly with Boasher and the two had a good business relationship for many years. Typically, Boasher and Ganske would negotiate a purchase over the phone, and Lisa Smith, ECTUS's financial manager, would follow up with a written purchase order. Boasher permitted Ganske to purchase product on credit.

In 2016, WSAG began falling behind on its payments. By November 16, 2016, it had run up a debt of $21,486,951.44. That month, Boasher, Smith, and Ganske worked out a payment schedule that, if followed, would have repaid WSAG's debt in full by May 31, 2017. This was the agreed-upon schedule:

November 30, 2016

$2,032,576.79

December 30, 2016

$4,177,233.13

January 31, 2017

$ 912,486.60

February 28, 2017

$ 995,251.74

March 31, 2017

$3,113,867.71

April 28, 2017

$4,906,834.31

May 31, 2017

$5,348,701.16

Ganske made the first payment of $2,032,576.79 due on November 30, 2016, but he only paid $700,000 towards the $4,177,233.13 payment due in December. In January 2017, Ganske paid the December deficiency and part of the payment due on January 31, 2017. However, by late January 2017, WSAG and Ganske remained $600,000 behind schedule.

C. January-February, 2017

In January 2017, WSAG's large debt came to the attention and concern of EuroChem's senior management. The senior management team decided to send in Marc Hechler, then head of finance and controlling for EuroChem's marketing/sales division, to assess the situation and to help Boasher resolve WSAG's large debt. As part of this assessment, ECTUS asked W. Kent Ganske to provide corporate and personal financial information to ECTUS for review. Meanwhile, it stopped shipping product to Ganske due to WSAG's non-payment.

On February 8-10, 2017, Hechler, Boasher and Smith traveled to Wisconsin to meet with Ganske. This was the first time Hechler met Ganske. The goals of the meeting were to gain an understanding of Ganske's business, assets, and liabilities, to find out why he had not been able to comply with the payment schedule he had agreed to in November, and, finally, to determine how he would repay the debt owed to ECTUS. Ganske, in turn, hoped to convince ECTUS, which had been supplying as much as 50% of Ganske's product, to extend WSAG additional credit and resume supplying product.

During the February meetings, Boasher and Hechler advised Ganske that EuroChem senior management was now involved in Ganske's account and would have to approve any future agreements. In fact, Smith expressly told Ganske during the February meetings that both she and Boasher had had their authority taken away from them. Boasher advised Ganske that EuroChem senior management had lost so much trust in him that they were concerned that Boasher and Ganske had conspired with one another to defraud EuroChem.

Ganske promised that he would get back on track with the payment schedule. Specifically, he promised to pay, within a couple of days, the $600,000 shortfall that he still owed for the January 31, 2017 payment, as well as the $995,251.74 payment due February 28,2017. Boasher and Hechler impressed upon Ganske the need to make these payments as promised in order to gain trust with EuroChem's senior management. Hechler also told Ganske several times that ECTUS would not be able to grant him additional credit.

Ganske made the $600,000 payment on February 17, 2017, but failed to make the payment due February 28, 2017. Ganske emailed Boasher on February 28, promising that another $1 million would be coming "in the next 10 days or so," and that he was working on obtaining the financial information ECTUS sought. Ganske also indicated that he had a plan for repaying ECTUS in full, but he needed ECTUS's help to get through the season. Ganske remarked that it was "ridiculous" for Boasher's superiors to suspect that the two of them were "in cahoots." In spite of his promises, Ganske failed to pay ECTUS $1 million within 10 days.

At the February meeting, Hechler and Boasher had asked Ganske and his wife to sign a personal guaranty securing the WSAG debt. Ganske expressed his willingness to sign whatever documents were needed to assure EuroChem that he would make good on his debt. After the meeting, the parties' lawyers exchanged drafts of the guaranty and continued to discuss its importance. EuroChem was concerned that it had no security interest against Ganske in the event he should be unable to pay his very large debt.

D. The Guaranty and the March 2017 Meeting

In addition to seeking a signed guaranty, ECTUS continued to seek financial information from Ganske. ECTUS deemed its receipt of this information crucial to understanding how WSAG had run up such a large debt, and whether WSAG and Ganske could repay it. Ganske provided some, but not all, of the financial information that ECTUS requested. Meanwhile,Ganske continued to ask ECTUS to grant him further credit. ECTUS refused to extend additional credit to Ganske and it refused to resume selling any product to him at that time.

After Ganske failed to make the promised $995,000 payment on February 28, 2017, Boasher and Hechler traveled again to Wisconsin to meet with Ganske on March 7-8, 2017. Their agenda was to discuss the $995,000 payment, to obtain the Ganskes' personal guaranties, to gather additional information on Ganske's finances, and to explore possible solutions to secure repayment of the substantial debt owed to ECTUS.

During the March meetings, the parties discussed several different methods by which Ganske could repay the WSAG debt owed to ECTUS. One of the options discussed was a "controlled consignment" agreement through which a percentage of the profit would go towards retirement of the debt and other funds to Ganske, with the hope of keeping his business afloat through the spring so that it could be sold later in the year. (Ganske testified that he believed ECTUS was going to buy his company, but he admitted that he knew that any purchase of his business would have to be approved by EuroChem senior management.) Another option discussed was for ECTUS's subsidiary, Ben-Trei Fertilizer Company ("Ben-Trei"), to lease space in Ganske's terminals, which Ganske referred to as a "put-through" arrangement. The parties also outlined terms of a revised payment agreement.

The parties did not reach any final agreements during their March meetings. Boasher and Hechler made clear to Ganske that they did not have authority to enter into any agreements with Ganske and that final approval of any agreement would have to come from EuroChem's senior management. Boasher and Hechler also made clear that Ganske needed to sign the guaranty if he wanted ECTUS to continue to work with him to repay the debt.

Both parties were represented by counsel (via telephone) during these discussions. Ganske's lawyer, David Pelletier, asked that the guaranty be conditioned upon the execution of a formal agreement containing a repayment plan, and he proposed specific language to this effect. ECTUS rejected this proposal, insisting that the guaranty be...