Sask. farmers accuse Regina canola trader of 'predatory lending' in class action lawsuit
Plaintiffs claim Regina-based Input Capital ruined their lives through unfair contracts
Not long ago, Morris Feduk was running a 39,000-acre farming operation in the Melville area. He says he was worth about $8 million.
Now, it's almost all gone.
The 61-year-old says he's teetering on the brink of bankruptcy, facing a "bleak" and "hopeless" future. He says the only land he has left is his homestead, where his family has been for 115 years.
Feduk blames Regina-based Input Capital. He says his dealings with the company have resulted in virtually all of his farm equipment being seized and his land being foreclosed on.
"It's pretty much took away my way of life," Feduk told CBC's iTeam.
Feduk and five other farm families who have entered into contracts with Input are launching a class action lawsuit, claiming "Input practised predatory lending" and it "failed to follow laws put in place for consumer safety." The lawsuit was filed Wednesday.
The plaintiffs say the contracts with Input are fundamentally unfair because the crop yields expected by Input weren't realistic given that bad weather can so often limit production and "even if there were no problems with the weather, equipment, or the quality of the crops, the requirements set by Input were unachievable."
"Input's actions are so seemingly dishonest and false," the claim says. "The misdirection games they play with class member's lives should be put under intense scrutiny."
The plaintiffs are asking the court to find Input's contracts illegal and of no force and to either eliminate the debt they owe altogether or to limit the "rate of interest" charged by Input to what is "commercially fair."
Input hasn't yet filed a statement of defence, but in an email to CBC it said "we completely deny all of the false allegations and accusations made in the Statement of Claim. It is our intention to defend this action vigorously in court where actual facts will matter."
Input says it's a successful company that has "hundreds of high quality, satisfied clients and our business is growing rapidly. Our company has a reputation for dealing honestly and fairly with farmers and providing them with access to alternative funding to make their operations successful."
"We are disappointed that a couple of farmers who were not able to meet their obligations after many years of working together to help them succeed have decided to follow this course of action."
Chasing 'that one big year'
Feduk said in an interview with CBC that he was approached in 2009 by Gord Nystuen, a representative of Input's precursor company, Assiniboia Land Management. Nystuen is a former deputy minister of Agriculture and former Chief of Staff to NDP Premier Lorne Calvert.
Nystuen is also one of the founders of Input, along with Doug Emsley and Brad Farquhar. Emsley chaired the transition team when the Saskatchewan Party government came to power in 2007 and he served as a special advisor and assistant principal secretary to Saskatchewan Party Premier Brad Wall. Farquhar is a former executive director of the Saskatchewan Party and was a candidate for the Conservative Party of Canada in the 2006 election.
Feduk said Nystuen offered a partnership of sorts, in which the company would share the risk for Feduk's future crops. He said Nystuen told him the firm would pay up-front for a fixed amount of his 2010 canola crop for an agreed upon price per bushel. Instead of repaying with cash, Feduk would repay with canola.
Feduk said that agreed-upon price would be set below the current market value. He said he was told that when it came time to sell, if the market price had gone down then Input would lose out but if the price went up the company would share the gain with him.
Class members were induced to believe that Input was working with them in a partnership.- From a class action lawsuit filed against Input Capital
"So that's what made it kind of appealing," said Feduk. "You've got someone that's willing to take a share of the risk, unlike a financial institution that will borrow you the money but 'we want this money back plus interest and the risk is all yours.' "
He said the up-front cash was also appealing because at the time he was "stretched to the limit" financially but was eager to keep growing his operation.
"Being a farmer, your goal is to get the crop in and harvest it and hit that one big year where you're going to do really well," Feduk explained. "That, I've been looking for all my life."
Feduk didn't seek legal advice
Feduk decided to sign on. He said initially, there wasn't a lot of paperwork and he didn't seek the advice of a lawyer before signing the agreement.
According to Tony Merchant, the lawyer representing Feduk in the new class-action suit, among the farmers named in the suit, it was common to enter into contracts with Input without legal advice, which he blames in part on Input.
The lawsuit says Input persuaded farmers that this was a partnership in which the company would share the risk and work with the farmer, making them better-off than they would be without Input's help.
"Class members were induced to believe that Input was working with them in a partnership and that if something out of their control occurred, Input would work with them towards getting their streaming contracts fulfilled."
The plaintiffs claim that Input was in a fiduciary relationship with them, meaning it had a responsibility to look out for the interests of the farmers. The class action says the company failed to do that.
'Not the Santa Claus that they claimed they were'
Feduk's 2010 arrangement worked well, so he entered into a multi-year agreement with with the company. In 2011 his canola crop was poor and Feduk was unable to provide the amount of canola he promised.
Feduk said the company agreed to roll the amount he owed into the following year. But in order to do that, it would require him to sign a new contract with Input Capital.
The lawsuit says introducing new contracts when trouble came up was common practice for Input and the consequence of this move was to, in effect, impose unreasonable interest rates on farmers, driving them into debt.
"Instead of one contract and 'you're in trouble, let's work our way out,' it was always new contracts which was in essence interest upon interest or canola upon canola," Merchant said.
The lawsuit says Input placed farmers in a vulnerable situation where they were essentially forced to either sign or give up on that year's crop.
"If Class Members refused to sign the additional security required by Input, delays in removing Input from controlling the Class Member's operation were known by Class Members to make it impossible to complete their farming operation for the year in question."
Little by little everything just kept disappearing.- Morris Feduk
According to the lawsuit, early on Input said it was not a finance company but a buyer and seller of grain and that the money it provided to farmers wasn't a loan but merely the pre-purchase of canola.
The plaintiffs say there are a few problems with that.
First, Input has marketed itself as a buyer and seller of grain since it was founded. The lawsuit says the company wasn't licensed as a grain dealer under the Canada Grain Act until June 2017, which leads the plaintiffs to argue "the sales they were making prior to that licensing were illegal."
In addition, the plaintiffs argue that Input was in effect acting as a lender by charging interest and taking mortgages to secure the money provided.
The lawsuit says Input was loaning money illegally because until August 2015 it wasn't registered as a finance corporation in the province "and therefore was not licensed to loan monies to any person in Saskatchewan."
The lawsuit also claims Input was charging farmers interest without disclosing the details.
"The monies they advance compared to the grain valuation they demand, are significantly skewed and in fact the rate of interest they charge on the loan of money is excessive and usurious, under the Criminal Code, some at over 60%," says the statement of claim.
Feduk said he had no idea what sort of interest rate he was being charged, but he was getting nervous.
"It's starting to materialize that they're actually not the Santa Claus that they claimed they were," said Feduk.
Input requires security from Feduk
Feduk said in the spring of 2013, Input agreed to pre-buy his canola on the condition that he provide security: mortgages on his property and security agreements on his farm equipment.
He was reluctant but said he was in a tough spot.
"In order to get the crop planted, you didn't have a lot of options now that we're involved with (Input) and have a commitment of deliveries to them you aren't going to get another lender to come in and assume that position right?" he said.
The lawsuit says farmers in the class action had a difficult time doing business because "many licensed financial institutions, farm businesses, elevators, auctioneers, equipment dealers and other businesses now refuse to deal with farmers who have contracted with Input."
The 2013 and 2014 crop year was very wet in the Melville area and Feduk was only able to get half his crop in, which meant again he couldn't deliver to Input the canola he had promised.
He was getting further and further behind. But he says Input couldn't tell him how far behind.
"Our accountant had always asked them for a number -- what does this farming company owe you in dollars and cents," said Feduk. "They never would give a dollar amount."
The lawsuit says it has been difficult for farmers to get accurate information from Input.
It says they "had no access to any information as to the quantity of crop trucked away by Input… Class members had no way to track the grain to see if they had been meeting their commitments. Input failed to maintain adequate or any proper business records."
Feduk's farm placed in receivership
Feduk knew he was in trouble after the failures of the 2013 and 2014 crop years.
Input told him that in order for their relationship to continue into 2015, his farm would have to be placed into receivership. Input said Feduk could co-manage the operation with an onsite manager.
Input said it would pay Feduk for working on his farm and would pay his expenses. The crop produced would be sold to reduce his debt.
By that time, Feduk was getting legal advice. He said his lawyer told him he had no other viable option.
The class action lawsuit says the receiver decided to only plant part of the crop that year because farming costs were too expensive. And it says Input failed to pay some of the expenses, leaving debt on Feduk's accounts.
By the end of 2015, it was all over. Feduk said the company told him it was going to "realize on its security."
Feduk loses almost everything
In the spring of 2016, Input foreclosed on Feduk's land and seized much of his farm equipment, selling it off at auction.
In an email to CBC, Input said it took this action with the consent of the court.
"Little by little everything just kept disappearing," he said. "Tractors, combines, swathers, grain carts. There was everything."
Feduk said the whole ordeal was especially tough on his aging brother, who until his death in March, lived with Feduk on the family farm.
"Maybe the hardest part was just watching what it was doing to my brother," he said. "He'd been here all his life. It was his retirement years really. And watching all this stuff disappearing really was working on him."
None of the claims in this lawsuit have been tested in court.
Input sold off equipment owned by Feduk's friend
It wasn't just Feduk's equipment that was disappearing. Some machinery that had been loaned to him by a friend was seized and sold too.
In the fall of 2015, Robert Mitrenga loaned Feduk a grain cart and a grain dryer.
They were seized with Feduk's other equipment. Input told CBC via email it took this action "according to the authority of a judge-issued court order," which included the sale of Mitrenga's grain cart.
According to an April 19, 2018 provincial court judgement, Mitrenga notified Input that the equipment belonged to him but the sale went ahead anyhow.
The judge in that case found against Input Capital, saying it committed a "wrongful act" and awarded Mitrenga $20,000.
'Do you want some more?': Feduk alleges assault
In a separate lawsuit filed last month, Feduk says TLF Dirtworx Inc., an agent of Input, was also seizing material.
According to the statement of claim, on April 20, 2016 Feduk noticed workers from the company were removing equipment from his brother's yard.
"Just after the plaintiff stated he was going to call the police he was struck from behind by one or both of the other two drivers," the statement of claim says.
The lawsuit says he was knocked unconscious.
When he came to, one of the men asked "do you want some more?"
Feduk was hospitalized and x-rayed. The doctor found he had "a concussion, injured kidneys, a bruised shoulder, a bruised arm and headaches."
Feduk says ongoing pain from the incident makes it difficult to continue doing farm work.
He says he complained to police shortly after the incident but he says to his knowledge, they have not charged anyone.
When CBC reached the owner of TLF Dirtworx by phone he hadn't yet heard of the lawsuit. The company has not yet filed a statement of defence.
None of the claims in this lawsuit against TLF Dirtworx have been tested in court.
Feduk living with regret
Feduk acknowledges his own part in his downfall. He said he regrets not walking away when Input asked him to put security on his land and equipment.
"At that time I should have said let's call 'er quits," Feduk told CBC. "You guys do what you've got to do and we'll fight on that basis and I'd have walked out of here certainly in a better situation than what I ended up."
He also regrets failing to get legal advice earlier.
Now he's the named plaintiff in this class action, which means it has been launched in his name.
Merchant said that, like Feduk, most of the other plaintiffs failed to get legal advice before signing contracts with Input.
He said the plaintiffs are claiming they were told one thing verbally yet something quite different showed up in the contract.
Merchant said ordinarily that would be a difficult hurdle to surmount.
"The contracts all say this is the only deal and it doesn't matter what got said to you," Merchant explained. "Everything in the contract, all the words, are supposed to be there and any inducements don't matter."
He said under ordinary circumstances, the law doesn't even allow people to testify about what they were verbally told if it contradicts the written agreement.
But, he says, a class action lawsuit provides a workaround.
"We are aided in getting around that through a class action by a whole variety of people saying the same thing," Merchant explained. "You say the same kind of thing was said to all of us and it's a systemic process of deception."
Class action lawyer's tactics questioned
In its email to CBC, Input questioned Merchant's tactics in launching this lawsuit. The company provided CBC with a copy of a letter the lawyer sent to a farmer in which he explained his strategy for this action.
In it, Merchant details his arguments and where he believes Input is vulnerable.
He tells the farmer that "launching a class action lawsuit, particularly a Tony Merchant class action, allows the threat of a powerful punch."
Merchant wrote that the farmer could use the lawsuit to generate a "negative story" about Input in the media and to target Input's investors.
"The impact could be enhanced through attacking Input in the perception of the investing public."
Input said this letter "clearly puts this entire action in question."
Merchant said that generally speaking, lawyers are conscious of the economic impact class action lawsuits have on defendants.
"This is part of the pressure that impacts defendants," he said to CBC in an email.
"There is nothing unusual about this as part of the tactics in trying to obtain fairness for people who have been wronged by some corporation. Annual filings by companies list all of the relative litigation. Companies have to take a reserve against profits against the possibility of losing litigation that might result in substantial judgements against them," Merchant said.
Feduk is glad to be joined by others in this suit but he said the fact he's not alone in this makes things worse in a way.
"It doesn't make you feel any better that someone else's misery is similar to your own. In my case it doesn't anyway," he said.