GRANITE FALLS -- A district judge has issued an injunction preventing the Granite Falls Energy board of governors from removing two of its members who are appointed by Glacial Lakes Energy of Watertown, S.D.
In a ruling sent to the two parties on Thursday, District Judge Paul Nelson agreed with Glacial Lakes Energy in its claims that the Granite Falls-based ethanol company acted wrongly by removing the two board members at a special meeting on Jan. 13.
The judge also ordered Granite Falls Energy LLC to reverse action it took at that meeting to record a transfer of shares in the company.
The injunction follows the filing of a lawsuit by Glacial Lakes Energy LLC against Granite Falls Energy LLC on Feb. 4.
The lawsuit claims that a purchase agreement was reached between Fagen Inc. of Granite Falls and Glacial Lakes Energy on Dec. 4, 2008.
It allows Fagen Inc. to acquire 2,000 of the 6,500 membership units or shares that Glacial Lakes Energy originally acquired in Granite Falls Energy.
The purchase agreement did not set a closing date for the transfer, but said it should occur within seven months. It also included language that would allow Glacial Lakes Energy -- if it found a buyer -- to sell its 6,500 membership units as a block within that seven-month period.
Under an agreement in which it originally purchased the 6,500 units, Glacial Lakes Energy has the right to appoint two members to the board of governors for Granite Falls Energy. That right would belong to a new, private party if that party were to purchase the 6,500 units as an entire block, according to court records.
The right to appoint the two governors remains as long as Glacial Lakes Energy or a new owner of its shares holds 20 percent of the shares in Granite Falls Energy.
Court records indicate that board members for Granite Falls Energy called a special meeting on Jan. 13 to discuss the purchase agreement between Fagen Inc. and Glacial Lakes Energy. They acted to record the purchase agreement as a stock transfer, which had the effect of showing that Glacial Lakes Energy no longer owned a 20 percent share in the company. The members subsequently acted to remove the Glacial Lakes Energy board members.
The two South Dakota members were present at the meeting and objected to the actions.
The lawsuit by Glacial Lakes Energy lists the seven Minnesota board members and Granite Falls Energy as defendants.
In his ruling, the judge determined that the transfer of shares had not occurred since a closing had not yet taken place. He also said that the right to designate two members of the board "greatly enhances the value and salability off the 6,500-unit block.'' Glacial Lakes claims that the action by Granite Falls Energy deprived it of that property value.
The judge has not yet issued a memorandum to accompany the order, but in his findings indicated that Glacial Lakes Energy would likely succeed in a lawsuit based on the merits of its claims.
This is the second dispute between the companies to reach the courts. Both companies had filed lawsuits for several millions of dollars against each other after Granite Falls Energy had ended a management contract it had with Glacial Lakes Energy. The two companies reached a confidential settlement over the claims in 2008.
Glacial Lakes Energy originally purchased the $6.5 million worth of shares when Granite Falls Energy was raising capital to build its 50 million-gallon-per-year ethanol plant in Granite Falls. The investment by Glacial Lakes allowed the company to meet its equity goals and acquire financing to begin construction. It began production in November 2005.