After being accused of a “fraudulent scheme” by Tyson Fresh Meats, Easterday Ranches, Inc. on Feb. 1 filed for bankruptcy in the U.S. Bankruptcy Court in the Eastern District of Washington.
The company, located in Pasco, WA, was founded in 1996. The livestock operation is part of Easterday Farms, an enterprise of 18,000 acres of potatoes, onions, corn and wheat. According to the company website, grains from the farm are supplied to cattle on the feedlots.
Easterday Ranches, Inc. worked several years with Tyson Fresh Meats where Tyson would reimburse the company for the purchase and feeding costs of cattle housed in Easterday feedlots. The cattle were then shipped to Tyson’s meatpacking plant in Wallula, WA.
Tyson claimed Easterday submitted fake invoices that appeared to show cattle and corresponding feed that were never purchased. As of Oct. 3, Easterday Ranches claimed it had 186,000 cattle valued at about $321 million. The investigation by Tyson showed there were over 200,000 head of cattle reported to be in inventory that do not exist.
According to documents filed with the court, Easterday filed Chapter 11 bankruptcy, also known as a reorganization bankruptcy. The company lists assets between $100-500 million and debts of the same amount. The documents detailing the 20 largest creditors show Easterday Ranches owing Tyson Fresh Meats “at least” $225 million. In total, the records show a list of over 200 creditors consisting of suppliers, government agencies and an entity that loaned the company money. Paladin Management Group, LLC in Nevada will be providing “chief restructuring officers” to assist in the design and implementation of a restructuring plan.
Background
On Dec. 21, 2020, Tyson Foods Inc. filed new financial documents with the Securities and Exchange Commission (SEC) after discovering that one of its cattle suppliers misrepresented the number of cattle it purchased on behalf of Tyson. The misrepresentation resulted in Tyson overstating its cattle inventory by approximately $285 million for the fiscal year ended Oct. 3, 2020. Tyson stated the company in question supplied approximately 2 percent of its total supply each year, from fiscal years 2017 to 2020. In light of the finding, Tyson also amended its financial statements for 2018-2020 with the SEC and anticipated it would impact the cattle inventory for the first quarter of 2021.
According to the SEC filing, Tyson hired an outside adviser and found “no evidence that the company benefited from the supplier’s unlawful conduct or that anyone at the company took steps to alter financial statements to hide the transactions resulting from the supplier’s unlawful acts.” The company said at the time of filing, it would implement measures to ensure the accurate reporting of its live cattle numbers.
In late January, Tyson Fresh Meats, the beef and pork processing subsidiary of Tyson Foods Inc., filed a lawsuit against cattle company Easterday Ranches, Inc., accusing the company of filing false cattle invoices for 200,000 cattle and the feed associated with these missing cattle.
At the time of Tyson’s disclosure, it was quietly working with Cody Easterday, president and CEO of Easterday Ranches, until “Mr. [Cody] Easterday and Peter Richter (Easterday’s financial advisor) advised Tyson that Easterday Ranches intended to sell its ‘North Lot’—a feedlot of Easterday Ranches—within the next few days and dissipate the proceeds (possibly to insiders and affiliates of Mr. Easterday),” according to Tyson’s attorneys.
According to Northwest News Network and Franklin County Assessor’s office, Easterday Ranches, Inc. sold its North Lot to AB Livestock of Boise, ID, for $16 million on Jan. 22. The North Lot sits on 15,000 acres of irrigated and dryland farmland with a feedlot capacity of 25,000 head. AB Livestock is a division of Agri Beef Co., based in Boise, ID. Its meatpacking plant in Toppenish, WA, has a daily slaughter capacity of 1,550 head. In July 2020, Agri Beef announced it was building a 500-head-per-day meatpacking plant in Jerome, ID, and operate as True West Beef.
“This acquisition provides AB Livestock the opportunity to increase its business with local Northwest suppliers while reducing reliance on cattle supplies from Canada,” said Matt Buyers, president of AB Livestock, in a press release. “It also dramatically reduces our overall carbon footprint as it brings an additional source of fed-cattle supply much nearer to our Washington processing facility.”
In the interim, Tyson filed a restraining order against Easterday Ranches, asking for a third party to step in and administer the cattle-feeding business until the lawsuit and financial matters are settled. Tyson named Sean M. Harding, senior managing director of FTI Consulting in Atlanta, GA, as the “receiver” of the business. Tyson also filed an injunction to prevent the sale of the North Lot property in Franklin County.
“We were not aware the sale was completed when we filed our requests with the court, however, the news does not change our position on the need for a court-appointed receiver to take control of the remaining assets of Easterday Ranches,” Tyson said in a statement.
The properties would be “managed properly, liquidated appropriately and distributed in accordance with the law.” The properties had approximately 54,000 head of cattle on their feedlots that belonged to Tyson.
According to Northwest News Network, court documents stated Cody Easterday admitted to creating the scheme to make up more than $200 million in losses incurred in the commodities trading markets.
“As his commodities trading losses escalated, Mr. [Cody] Easterday explained that he began submitting fake feeding invoices as well as the fake cattle invoices,” said Jason Wenglarski, vice president of internal governance for Tyson Foods.
According to Tyson, Easterday secured his business with Tyson using his personal assets and his company’s property. But Tyson says it is not currently pursuing his personal property.
Tyson’s attorney, Allen D. Smith, told the judge who is hearing the lawsuit against Easterday, the company’s attempt to appoint a receiver is a moot point since the company is entering bankruptcy proceedings. Spokane-based Washington Trust Bank is seeking to join the lawsuit against Easterday, stating it is violating terms of a loan agreement. Easterday Ranches, Inc. received a Paycheck Protection Loan (PPP) of $876,100 through Washington Trust Bank, which was approved in April 2020. Easterday Ranches, Inc. reported total 2019 payroll expenses were approximately $4.21 million to qualify for the PPP loan amount received. Washington Trust Bank is continuing to seek a receiver or issue a temporary restraining order against the other Easterday entity, Easterday Farms Inc.
The bankruptcy court documents show Easterday is a 25 percent equity secure holder in Easterday Ranches, Inc., along with Debby and Karen L. Easterday. Several properties in Franklin and Grant counties, including the “South Lot,” a 35,000-head lot in Kennewick, WA, were listed in the documents.
The bankruptcy court documents did not reveal any assets belonging to Easterday Farms or the pending permit application by Easterday Farms Dairy LLC to operate a 30,000-cow dairy on the former site of Lost Valley Farm in Boardman, OR.
During the bankruptcy hearing, Co-chief Restructuring Officer T. Scott Avila with Paladin Management Group stated the judge needs to bar creditors from claiming money lent by Tyson to feed the 54,000 remaining cattle on Easterday’s feedlots.
The case, Tyson Fresh Meats, Inc. v. Easterday Ranches, Inc., is expected to go before a Franklin County judge sometime in February. — Charles Wallace, WLJ editor
