County prevails in legal fight with State Bank

$21,000 in logging letters of credit must be honored

Hank Murphy

     After a nearly daylong trial, Judge Leon Stenz ruled Tuesday in favor of Florence County in a long-running legal spat with the State Bank of Florence over the bank’s failure to honor almost $21,000 in letters of credit associated with timber sales gone sour.

     The trial featured nearly three hours of testimony from county forest administrator Pat Smith as well as appearances by Department of Natural Resources forester Stu Boren and State Bank senior vice president Clyde Nelson.

     At the heart of Tuesday’s proceeding was whether the county engaged in fraud in regard to its timber sale agreements with Turrie Forest Products Inc. – fraud so egregious as to give State Bank a reason to not honor two letters of credit obtained by Turrie, one for $10,300 and one for $10,552.

     “The defendant has failed to establish fraud in the transaction,” Stenz said in announcing his decision.

     Based on an earlier ruling by Stenz, the bank’s defense was confined to proving the county acted fraudulently in its transactions with Turrie. Further complicating the bank’s defense was the death in October of Randy Turrie, the late owner of the company in question.

     Letters of credit serve as a type of performance bond and are widely used by loggers throughout Wisconsin. State Bank issued letters of credit to Turrie Forest Products for three timber sale contracts awarded in 2005. Turrie, which previously had performed 79 good timber sales with Florence County, began a job called the Ski Hill sale in 2006. However, the logging company fell behind on payments to the county and eventually filed for bankruptcy in April 2007. State Bank honored the $23,872 letter of credit obtained for the Ski Hill sale, and the bank collected proceeds from the sale of logging equipment owned by Turrie – equipment that had served as collateral, Nelson testified.

     Even with $23,872 from letter of credit, Florence County was still out $18,000 for the Ski Hill sale. That debt to the county was discharged through bankruptcy, county counsel Steve Garbowicz argued. Still, Smith testified that Turrie made no attempt to harvest timber on the remaining two sales, the Dog Leg sale and the Bradles Blvd. South sale.

     In early 2010, Smith sent letters demanding State Bank honor the letters of credit obtained for the Dog Leg and Bradles sales. This time the bank refused.

     “The wood wasn’t cut,” Nelson testified under questioning by the bank’s attorney Kurtis Weiteng. Additionally, the bank believed that Turrie defaulted on the Ski Hill sale and owed the county about $18,000, which is why the county prevented Turrie from commencing work on Dog Leg and Bradles, Nelson testified.

     Garbowicz, however, argued in closing that there were other reasons why Turrie never fulfilled the remaining contracts.

     “They took all his stuff. I don’t know many loggers today who go out into the woods with a chainsaw. Then he had to hire skidders and all sorts of things; that’s why he didn’t cut the contracts. He lost his equipment,” Garbowicz said.

     Florence County and its taxpayers can’t “just walk away from $18,000 like nothing happened,” he argued. In the end, Turrie did not cut the Dog Leg and Bradles sales because he bid them too high, and the market for timber went down shortly after the sales were made.

     “Turrie was not going to cut those contracts because he could not sell the wood for the price he bid. Why would he cut them and lose his shirt? He couldn’t.” No other loggers or mills would assume the contracts because they were too high, he argued.

     In framing his decision, Stenz said he heard nothing to suggest the issue of money, or fraud, prevented Turrie from commencing cutting on Dog Leg and Bradles. 

     “He could perform,” Stenz reasoned. “He had the choice where he could perform under this contract. He chose not to.”

     Maybe it was because market prices deteriorated, Stenz said. “It could be that the bank took all his equipment. The bank may have as much responsibility or share in the blame that he couldn’t log this property because they took all his logging equipment. It’d be a heck of a lot easier for Turrie Forest Products to come up with $18,000 than a whole new set of equipment for a logging company. That’s pretty difficult to do.”

     As for fraud, Stenz said he found no showing “that the situation was manipulated by the county to take advantage of or profit from the bank.”