After selling the properties from Easterday Farms and Easterday Ranches in bankruptcy to Farmland Reserve Inc. for $209 million, two insurance companies still asserted claims from the sale proceeds, despite being reimbursed.
Prudential Insurance Inc. and Equitable Financial Life Insurance Co. sought reimbursement for prepayment penalties on loans the Easterday family secured on their properties, reimbursement for default interest due to Easterday’s bankruptcy, and attorney fees.
The mortgages on the properties owned by Easterday Farms and Easterday Ranches totaled approximately $75.5 million. Prudential Insurance Inc. of America was owed roughly $50 million on two loans obtained in 2020, and Equitable Life Insurance Co. was owed $25.5 million for loans in 2015 and 2020.
In court documents filed on Sept. 29, Equitable agreed to settle for $2.25 million, plus attorney fees from the closing date, not to exceed $100,000. Equitable was seeking $3.2 million in prepayment fees. Court documents showed $700,000 was set aside in escrow for future potential Equitable legal fees, plus over $472,000 for potential default rate interest accruals. Equitable stated the settlement frees up $1 million for the benefit of the estate.
On Oct. 19, U.S. Bankruptcy Judge Whitman Holt approved the settlement agreement with Equitable.
Contrary to Equitable, Prudential Insurance Inc. did not settle prior to the court hearing on Oct. 20. Prudential claimed it was owed $6.9 million in prepayment penalties and $2.1 million because Easterday’s bankruptcy triggered a 12 percent default interest rate. Additionally, Prudential was claiming $377,000 in attorney fees and $41,000 for a title report “in anticipation of a potential judicial foreclosure action against Prudential’s non-debtor borrowers.”
In a hearing in September, lawyers for Easterday called the calculation Prudential used for reimbursement “unconscionable,” and they would not suffer any harm in the prepayment. Lawyers also stated it would diminish the amount unsecured creditors will receive.
On Oct. 6, Prudential filed a response to the objection, stating that the prepayment premium is enforceable under the bankruptcy code. Prudential also argued the default interest rate is consistent with the Washington authority, as “equitable principles do not justify a limitation on the default interest that the six sophisticated borrowers (Cody Easterday, along with his wife Debby, parents Gale and Karen, Easterday Farms and Easterday Ranches) agreed to pay Prudential, at a rate consistent with Washington law.”
Prudential also maintained it incurred legal expenses to “protect its interest,” respond to requests by the estate and “resist tactical moves by debtors, Easterdays and other parties in interest.”
According to the Prudential response, it was repaid the principal, non-default and default interest, and a portion of its fees and expenses. However, Prudential claimed the prepayment premium of $6.9 million is being held in escrow, along with approximately $377,000 for the unpaid portion of its fees and expenses.
At a hearing on Oct. 20, Holt stated he is not sure the record supports that the Easterdays were “sophisticated” borrowers. “Certainly people can be wealthy and good at what they do without necessarily being sophisticated in the sense that I think Prudential hopes to use it,” Holt said, referring to the response. Holt said, though, he is not prepared to state on record if anyone is sophisticated, and that will have to be determined.
On behalf of the debtors, the representing lawyer said they appreciated the settlement with Equitable and have made overtures to Prudential for a settlement. At this point, lawyers on both sides have not made a deal, and they are currently obtaining depositions and engaging in discovery. According to the American Bar Association, discovery is the “formal process of exchanging information between the parties about the witnesses and evidence they’ll present at trial.”
Holt has scheduled an in-person hearing on March 28, 2022, well after the sentencing date of Cody Easterday on Jan. 24, 2022. Easterday pled guilty to one count of wire fraud and faces up to 20 years in prison.
Richard Pachulski, the lawyer for the Easterdays, said Paladin Management, the Easterdays and the creditors are working on an agreement for repayment. Pachulski noted there are two major issues with the settlement. The first is the tax issues, and they are working with the Easterdays’ tax accountants, and the second is the “nature of the entities and the nature of the claim.”
Pachulski asserted the Easterdays need to be “an integral part of this resolution,” as the allocation terms provided what the Easterdays need to contribute. Pachulski said the parties need to sit down with the Easterdays and work on a consensual deal. Otherwise, there will be an allocation fight.
Pachulski is hopeful that all parties can come to an agreement before the next hearing on Nov. 17. Pachulski believes all the parties are working in good faith and working hard to get the agreement done.
“We only have so big a pie, and everybody would like what adds up to about 1.6 times that pie, and we’re trying to work with that under those circumstances,” Pachulski said. — Charles Wallace, WLJ editor
