State to settle closed mill dispute

The state will pay $1.3 million to settle litigation stemming from a failed cypress mill in Tangipahoa Parish, ending a three-year legal battle.

“We lost in district court. We lost in appellate court. We sent it to the Supreme Court, where they upheld the decision of the appellate court,” state Agriculture and Forestry Commissioner Mike Strain said.

The mill was a pet project of Strain’s predecessor, Bob Odom.

Odom gave the state’s guarantee on loans that private businesses were supposed to repay. When the businesses failed to make payments, banks turned to the state for the money.

Through the Louisiana Market Commission, a state committee chaired by the agriculture commissioner, Odom gave financial backing to a $3.2 million loan that Louisiana State Cypress secured with Texans Federal Credit Union.

Odom also used taxpayers as collateral for a syrup mill in Lacassine near Lake Charles. Like the cypress mill, that project failed as well, forcing the state to buy $7 million in bank loans that Odom guaranteed.

The cypress mill closed not long after Wal-Mart stopped buying Louisiana cypress mulch. Louisiana State Cypress ceased repaying the loan, prompting Texans to sue.

Strain asked the Legislature to pay the debt. Legislators refused. Strain then raised the argument that the guarantees were invalid because Odom neglected to get the state Bond Commission’s permission for them.

The courts sided with Texans, which is in conservatorship.

“As painful as it is ... I think they’re entitled to enforce the guaranty,” state District Court Judge Tim Kelley with the 19th Judicial District told the state.

The courts found that legislators eliminated the requirement that the Louisiana Market Commission seek the state Bond Commission’s approval on loans and loan guarantees in 1978. The only limitation left in the law was that the market commission not exceed $20 million in outstanding loans and loan guarantees at any one time.

Strain said he made more than one settlement offer to Texans.

“I offered them the mill. They said, ‘No, thanks.’ They wanted the cash,” he said.

The mill sits idle in Roseland on a lonely stretch of country road. The 35 acres of land appraised for $182,000 in 2009. The buildings and equipment are worth more than $1 million.

With penalties and interest, the judgment against the state was $5.4 million when Strain made a second offer.

“Every day we didn’t settle it, it was growing by $1,500 a day. So I made an offer,” he said.

Texans accepted $1.3 million. Strain gave the bank $800,000 in marketing commission funds and $480,000 from his department’s budget.

John Fairbanks, public affairs specialist for the National Credit Union Administration, said: “The settlement agreement was in the best interests of the state of Louisiana, Texans Federal Credit Union and the credit union’s members.”

With the settlement, Strain can focus his attention on untangling the money problems tied to the Lacassine syrup mill.

He said he is working on leasing the cypress mill property and putting the equipment up at auction.

In the meantime, Strain said, the state agriculture department no longer is in the business of guaranteeing loans for private businesses. He dissolved the market commission and is disposing of the mills.

“I’m going to make a silk purse out of these ears,” he said.