Easterday Ranches, Inc.
CASE SUMMARY: Easterday’s Sole Customer Tyson, With Over $200M Litigation Claim, Agrees to Provide ‘Urgent’ Funding Through Prepayments Under Cattle Feeding Agreement
Wed 02/03/2021 13:07 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Notice
Easterday Ranches, a Pasco, Wash.-based cattle ranch whose sole customer is Tyson Fresh Meats Inc., filed for chapter 11 protection on Monday in the Bankruptcy Court for the Eastern District of Washington. The case was precipitated by Tyson filing a lawsuit on Jan. 24 in Washington state court against the debtor, alleging that the debtor’s former president, Cody Easterday, engaged in fraudulent “forward billing.” Tyson allegedly overpaid more than $200 million for the purchase and feeding of “non-existent” or “missing” cattle on account of Easterday’s submission of “fraudulent invoices and records.” As a result, Tyson reduced its payments under a cattle feeding agreement, which the debtor says significantly reduced its ability to fund ongoing operations. However, on a prepetition basis, Tyson has advanced certain costs associated with the care of the cattle directly to the debtor’s vendors or other parties in an “effort to preserve the debtor’s business operations and protect the cattle in the near term.” Continue reading for our First Day team's case summary of the Easterday chapter 11 filing and Request a Trial for access to the linked documents and analysis as well as our coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.
On Jan. 31, the debtor’s former directors and shareholders elected an independent board, which determined to file for bankruptcy in light of an “imminent” hearing scheduled for the petition date on Tyson’s request for the appointment of a receiver in connection with its lawsuit.
According to the first day declaration of Paladin Management Group’s T. Scott Avila, who serves as co-chief restructuring officer alongside Paladin’s Peter Richter, the debtor commenced the case with minimal cash on hand. As its sole customer, all of the debtor’s operating receipts are generated from its relationship with Tyson, and consequently, the debtor says it requires immediate and urgent funding “that only Tyson is willing to provide through prepayments against amounts accruing postpetition under the Cattle Feeding Agreement.” Projecting that the feed on hand will last no later than Thursday, Feb. 4, the debtor says it would face immediate and irreparable harm and would be forced to terminate operations, “putting approximately 54,000 cattle at risk of death,” absent prompt receipt and access to the funds contemplated by the cash collateral motion.
The first day hearing has been scheduled for today, Wednesday, Feb. 3, at 4 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
Washington Trust asserted nonmonetary defaults in mid-January but agreed to a forbearance through the end of January. However, on Jan. 26 Washington Trust sent a notice of default related to the filing of the Tyson lawsuit and the “untimely” death of guarantor Gale Easterday in December 2020. According to the Onion Business, Washington “produce icon” Easterday, the “family patriarch” died in a head-on collision, hitting the “semi that was hauling potatoes for Easterday farms.”
Other Easterday family members are also guarantors of the revolving loan. Nondebtor affiliate, Easterday Farms Partnership is a co-borrower with the debtor on the Washington Trust loan, along with the Prudential mortgage, and is a guarantor under the AXA loan. The mortgages “purportedly” have as collateral certain of the owned real estate of the debtor and Easterday Farms Partnership.
The debtor is represented by Pachulski Stang Ziehl & Jones as bankruptcy counsel, Bush Kornfeld as local, general and litigation counsel, and Davis Wright Tremaine as special counsel. T. Scott Avila and Peter Richter of Paladin Management Group are co-CROs. The case has been assigned to Judge Whitman L. Holt (case number 21-00141).
Background
Since relocating to southeastern Washington in 1958, the Easterday family farm has grown to more than 18,000 acres of potatoes, onions, corn and wheat. The farm’s grain products are sold to the debtor, which represents the Easterday family cattle business, whose sole customer is Tyson.
The cattle purchased by the debtor are located and raised at various parcels of real property owned by the debtor or certain nondebtor affiliates, which have been developed as feedlots - specialized facilities for the purpose of feeding, housing and caring for cattle while the cattle mature to a sufficient weight and size to be processed by Tyson or its designees. As of Feb. 1, there were about 54,000 head of cattle at the feedlots at various levels of maturity, ranging from two months in age to 16 months. Pursuant to a cattle feeding agreement, Tyson is obligated to reimburse the debtor, or otherwise fund, 100% of the procurement, feeding and care cost of the cattle. Such obligations are deducted from the sale of the cattle when transferred to Tyson (or its affiliate) for processing pursuant to a formula set forth in the agreement.
The debtor’s shareholders and former board members - Cody Easterday, Debby Easterday and Karen Easterday - elected an independent board on Jan. 31 and resigned as directors and officers. The same day, the independent board appointed the co-CROs.
The debtor’s largest unsecured creditors are listed below:
The case representatives are as follows:
Cash Collateral Motion
The debtor requests the use of cash collateral of Washington Trust Bank and says that although an agreement has not yet been reached, it will “continue to endeavor to reach agreement” with Washington Trust on a consensual form of interim order. The debtor also requests to use any funds to be prepaid by Tyson to the debtor, while reserving all rights to assert that the prepayments from Tyson do not constitute cash collateral of Washington Trust.
According to the motion, Tyson is “prepared to prepay the Debtor’s estate certain amounts accruing postpetition under the Cattle Feeding Agreement in order that the estate will have cash on hand.” The debtor says the cash collateral motion is designed to the extent that Washington Trust asserts a lien on any cash collateral of the debtor, including the funds it expects Tyson to prepay.
The debtor requests the use of cash collateral on an interim basis through the earliest of the entry of a final order (which must be entered within 28 days after entry of the interim order), the effective date of a confirmed plan of reorganization, the closing of a sale of substantially all assets of the debtor, a material breach by the debtor under the interim order, or such other date agreed to in writing between the debtor and Washington Trust.
Adequate protection for Washington Trust would be in the form of a replacement lien (excluding avoidance actions and their proceeds) and a superpriority administrative expense claim, which would not extend to avoidance actions or their proceeds.
The proposed budget for the use of cash collateral is HERE.
First Day Motions
The debtor has only filed one first day motion aside from its cash collateral motion, to use its cash management system, in which it discloses that it has bank accounts with Washington Trust Bank, Mechanics Bank and U.S. Bank. The U.S. Trustee objects to the debtor’s cash management motion, saying that the debtor has not described any “factual basis for complex banking operations.”
The U.S. Trustee also objects to the debtor’s cash collateral motion, arguing that there is no showing that the funding of a segregated account for professional fees, or of $60,000 in independent directors fees, is urgent. Further, the U.S. Trustee says that “from documents found in the state court motions for the appointment of a receiver,” the debtor’s counsel appears to hold a “significant” retainer from the prepetition sale of the North Feedlot proceeds, along with Paladin Management Group. The U.S. Trustee also objects to the segregated funds for professional fees to be used only to pay professionals of the debtor and an official committee of unsecured creditors, saying that it should also be available for any equivalent administrative creditor and should not be restricted in the event of administrative insolvency.
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Notice
| Summary |
| Easterday Ranch is a cattle ranch whose sole customer is Tyson Fresh Meats Inc. |
| Case precipitated by a $225 million litigation claim asserted by Tyson, who alleges that Easterday’s former president caused Tyson to pay more than $200 million for “non-existent” or “missing” cattle |
| With feed levels projected to run out by Thursday, Tyson has agreed to provide “urgent” funding through prepayments against amounts accruing postpetition under a cattle feeding agreement |
Easterday Ranches, a Pasco, Wash.-based cattle ranch whose sole customer is Tyson Fresh Meats Inc., filed for chapter 11 protection on Monday in the Bankruptcy Court for the Eastern District of Washington. The case was precipitated by Tyson filing a lawsuit on Jan. 24 in Washington state court against the debtor, alleging that the debtor’s former president, Cody Easterday, engaged in fraudulent “forward billing.” Tyson allegedly overpaid more than $200 million for the purchase and feeding of “non-existent” or “missing” cattle on account of Easterday’s submission of “fraudulent invoices and records.” As a result, Tyson reduced its payments under a cattle feeding agreement, which the debtor says significantly reduced its ability to fund ongoing operations. However, on a prepetition basis, Tyson has advanced certain costs associated with the care of the cattle directly to the debtor’s vendors or other parties in an “effort to preserve the debtor’s business operations and protect the cattle in the near term.” Continue reading for our First Day team's case summary of the Easterday chapter 11 filing and Request a Trial for access to the linked documents and analysis as well as our coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.
On Jan. 31, the debtor’s former directors and shareholders elected an independent board, which determined to file for bankruptcy in light of an “imminent” hearing scheduled for the petition date on Tyson’s request for the appointment of a receiver in connection with its lawsuit.
According to the first day declaration of Paladin Management Group’s T. Scott Avila, who serves as co-chief restructuring officer alongside Paladin’s Peter Richter, the debtor commenced the case with minimal cash on hand. As its sole customer, all of the debtor’s operating receipts are generated from its relationship with Tyson, and consequently, the debtor says it requires immediate and urgent funding “that only Tyson is willing to provide through prepayments against amounts accruing postpetition under the Cattle Feeding Agreement.” Projecting that the feed on hand will last no later than Thursday, Feb. 4, the debtor says it would face immediate and irreparable harm and would be forced to terminate operations, “putting approximately 54,000 cattle at risk of death,” absent prompt receipt and access to the funds contemplated by the cash collateral motion.
The first day hearing has been scheduled for today, Wednesday, Feb. 3, at 4 p.m. ET.
The company reports $100 million to $500 million in both assets and liabilities. The company’s prepetition capital structure includes:
- Secured debt:
- Revolving loan (Washington Trust Bank): $45 million.
- Mortgages:
- Term loan (Prudential Insurance Co. of America): $50 million.
- Fixed rate loan (AXA Equitable Life Insurance Co.): $25.5 million.
- Unsecured debt:
- Trade debt: $12.5 million (“principally” trade payables, of which $388,341 is owed to nondebtor affiliate Easterday Farms Partnership).
- Tyson litigation claim: At least $225 million (according to the list of largest unsecured creditors).
- Equity: The debtor’s equityholders are as follows:
Washington Trust asserted nonmonetary defaults in mid-January but agreed to a forbearance through the end of January. However, on Jan. 26 Washington Trust sent a notice of default related to the filing of the Tyson lawsuit and the “untimely” death of guarantor Gale Easterday in December 2020. According to the Onion Business, Washington “produce icon” Easterday, the “family patriarch” died in a head-on collision, hitting the “semi that was hauling potatoes for Easterday farms.”
Other Easterday family members are also guarantors of the revolving loan. Nondebtor affiliate, Easterday Farms Partnership is a co-borrower with the debtor on the Washington Trust loan, along with the Prudential mortgage, and is a guarantor under the AXA loan. The mortgages “purportedly” have as collateral certain of the owned real estate of the debtor and Easterday Farms Partnership.
The debtor is represented by Pachulski Stang Ziehl & Jones as bankruptcy counsel, Bush Kornfeld as local, general and litigation counsel, and Davis Wright Tremaine as special counsel. T. Scott Avila and Peter Richter of Paladin Management Group are co-CROs. The case has been assigned to Judge Whitman L. Holt (case number 21-00141).
Background
Since relocating to southeastern Washington in 1958, the Easterday family farm has grown to more than 18,000 acres of potatoes, onions, corn and wheat. The farm’s grain products are sold to the debtor, which represents the Easterday family cattle business, whose sole customer is Tyson.
The cattle purchased by the debtor are located and raised at various parcels of real property owned by the debtor or certain nondebtor affiliates, which have been developed as feedlots - specialized facilities for the purpose of feeding, housing and caring for cattle while the cattle mature to a sufficient weight and size to be processed by Tyson or its designees. As of Feb. 1, there were about 54,000 head of cattle at the feedlots at various levels of maturity, ranging from two months in age to 16 months. Pursuant to a cattle feeding agreement, Tyson is obligated to reimburse the debtor, or otherwise fund, 100% of the procurement, feeding and care cost of the cattle. Such obligations are deducted from the sale of the cattle when transferred to Tyson (or its affiliate) for processing pursuant to a formula set forth in the agreement.
The debtor’s shareholders and former board members - Cody Easterday, Debby Easterday and Karen Easterday - elected an independent board on Jan. 31 and resigned as directors and officers. The same day, the independent board appointed the co-CROs.
The debtor’s largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Tyson Fresh Meats Inc. | Dakota Dunes, S.D. | Litigation | $ 225,000,000
("at least") |
| Segale Properties | Tukwila, Wash. | Money Loaned | 8,647,409 |
| Animal Health International | Sunnyside, Wash. | Trade Debt | 1,081,634 |
| Sun Basin Operations-CHS | Quincy, Wash. | Trade Debt | 489,870 |
| Cenex Harvest States | Hermiston, Ore. | Trade Debt | 274,596 |
| Pacific Ag Products LLC | Sacramento, Calif. | Trade Debt | 213,298 |
| ITC Services | Moses Lake, Wash. | Trade Debt | 145,375 |
| Western Stockmen's LB | Seattle | Trade Debt | 140,784 |
| Brad Curtis Farms LLC | Mesa, Wash. | Trade Debt | 125,000 |
| Pegram Construction Inc. | Othello, Wash. | Trade Debt | 123,984 |
The case representatives are as follows:
| Case Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Bankruptcy
Counsel |
Richard M. Pachulski | Pachulski Stang
Ziehl & Jones |
Los Angeles |
| Alan J. Kornfeld | |||
| Jeffrey W. Dulberg | |||
| Maxim B. Litvak | |||
| Debtor's Local,
General and Litigation Counsel |
Thomas A. Buford, III | Bush Kornfeld | Seattle |
| Debtor's
Special Counsel |
N/A | Davis Wright
Tremaine |
N/A |
| Debtor's CRO | T. Scott Avila | Paladin
Management Group |
Los Angeles |
| Peter Richter | |||
| Counsel to
Washington Trust Bank |
Trevor R. Pincock | Lukins & Annis | Spokane, Wash. |
| United States Trustee | Gary W. Dyer | Office of the U.S Trustee | Spokane, Wash. |
Cash Collateral Motion
The debtor requests the use of cash collateral of Washington Trust Bank and says that although an agreement has not yet been reached, it will “continue to endeavor to reach agreement” with Washington Trust on a consensual form of interim order. The debtor also requests to use any funds to be prepaid by Tyson to the debtor, while reserving all rights to assert that the prepayments from Tyson do not constitute cash collateral of Washington Trust.
According to the motion, Tyson is “prepared to prepay the Debtor’s estate certain amounts accruing postpetition under the Cattle Feeding Agreement in order that the estate will have cash on hand.” The debtor says the cash collateral motion is designed to the extent that Washington Trust asserts a lien on any cash collateral of the debtor, including the funds it expects Tyson to prepay.
The debtor requests the use of cash collateral on an interim basis through the earliest of the entry of a final order (which must be entered within 28 days after entry of the interim order), the effective date of a confirmed plan of reorganization, the closing of a sale of substantially all assets of the debtor, a material breach by the debtor under the interim order, or such other date agreed to in writing between the debtor and Washington Trust.
Adequate protection for Washington Trust would be in the form of a replacement lien (excluding avoidance actions and their proceeds) and a superpriority administrative expense claim, which would not extend to avoidance actions or their proceeds.
The proposed budget for the use of cash collateral is HERE.
First Day Motions
The debtor has only filed one first day motion aside from its cash collateral motion, to use its cash management system, in which it discloses that it has bank accounts with Washington Trust Bank, Mechanics Bank and U.S. Bank. The U.S. Trustee objects to the debtor’s cash management motion, saying that the debtor has not described any “factual basis for complex banking operations.”
The U.S. Trustee also objects to the debtor’s cash collateral motion, arguing that there is no showing that the funding of a segregated account for professional fees, or of $60,000 in independent directors fees, is urgent. Further, the U.S. Trustee says that “from documents found in the state court motions for the appointment of a receiver,” the debtor’s counsel appears to hold a “significant” retainer from the prepetition sale of the North Feedlot proceeds, along with Paladin Management Group. The U.S. Trustee also objects to the segregated funds for professional fees to be used only to pay professionals of the debtor and an official committee of unsecured creditors, saying that it should also be available for any equivalent administrative creditor and should not be restricted in the event of administrative insolvency.
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