Johnson Dairy sues New Frontier Bank

GREELEY – Johnson Dairy and owner John Johnson filed a complaint against New Frontier Bank, its former chief lending officer and a bank director alleging fraudulent and negligent behaviors.

Johnson and Johnson Dairy filed for Chapter 11 bankruptcy earlier this year. The complaint, filed Feb. 25 with the U.S. Bankruptcy Court in Denver, lists as defendants New Frontier Bank; Greg Bell, former chief lending officer at New Frontier; Tim Thissen, New Frontier board member and owner of Thissen Construction; Daniel and Susan Kruse, the sister and brother-in-law of Bell’s fiance; and William and Carol Bell, Greg Bell’s parents. According to the complaint, the defendants were all involved in a scheme that allowed New Frontier to continue lending to Johnson Dairy despite being beyond legal lending limits.

Johnson’s complaint details a series of transactions from 2003 to 2008 in which the Kruses and the Bells received loans from New Frontier to purchase cows from Johnson, which were immediately leased back to the dairy. The “cow-lease agreements,” according to the complaint, were actually disguised financing agreements that allowed the Kruses and the Bells to collect about 8 percent to 9 percent above their cost of the loan from New Frontier. The complaint alleges that Greg Bell was responsible for arranging the deals.

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New Frontier board member Thissen is accused of entering into a similar “heifer-growing agreement” in 2007 that, according to Johnson, would be converted into a cow-lease agreement more than a year later. The complaint asserts that Thissen decided not to convert to a cow-lease agreement to the monetary detriment of Johnson.

In a statement, New Frontier Bank asserts that the leasing of cows is a common practice in the dairy industry and that the Bells and the Kruses qualified to borrow money from the bank, having provided equity, personally guaranteeing the loans and being held liable for repayment. The bank also asserts that the heifer-growing arrangement with Thissen is also a common practice, and Johnson was paid all feed bills due under the agreement.

Additionally, Johnson alleges that he was required to purchase $1 million worth of bank stock last summer as a condition of financing for a $5 million loan, a practice known as tying. At the time, the complaint alleges, New Frontier was subject to a memorandum of understanding with banking regulators that required the bank to shore up liquidity. The complaint alleges New Frontier similarly tied loans to stock purchases for 10 to 12 other bank customers to raise capital.

New Frontier maintains that Johnson was given an opportunity to purchase stock in the same fashion as any current or potential stockholder and received all pertinent documentation.

“John Johnson was never required to buy stock,” according to the statement.

New Frontier is currently under a cease-and-desist order issued by the Federal Deposit Insurance Corp. Part of the order requires the bank to increase its capital levels and a deal is in the works to sell a 51 percent stake in the bank to a Boulder-based investment group for at least $30 million.

The bank is refuting the allegations made in Johnson’s complaint.

“New Frontier Bank stands behind their directors and officers,” the statement read. “There has been no wrongdoing or crimes committed. It is of public record if a director or officer has been fined or removed from banking regarding this matter or the cease and desist order, and there have been none.”

Attempts earlier this week to contact the attorney representing Johnson in the complaint were not returned in time for publication of this story.