(Editor's note: A previous version of this story incorrectly used the Easterday Farms Produce Co.'s logo. This logo is unrelated to either of the debtors or the bankruptcy; there is no evidence that Easterday Farms Produce Co. has engaged in anything but commercially ethical conduct. WLJ regrets the error and apologizes for any suggestion that Easterday Farms Produce Co. was involved in any of the conduct or activities referenced in this article.)
Easterday Ranches has settled with the Commodity Futures Trading Commission (CFTC), agreeing to pay $30 million after other creditors are paid.
The settlement approved by U.S. Bankruptcy Judge Whitman Holt on Nov. 17 settles commodity fraud charges against Cody Easterday and Easterday Ranches.
Easterday’s “ghost cattle” scheme enabled Easterday Ranches to submit false cattle inventory, purchase and sales figures to the Chicago Mercantile Exchange in two hedge exemption applications seeking permission to exceed the exchange’s speculative position limits and avoid disciplinary action, according to court documents.
The settlement documents state the estate will pay CFTC once all other unsecured creditors are paid and “pari passu” (Latin for equal footing) with the $233 million claim by Tyson.
Christopher Durbin, an attorney for Easterday creditors, said at the settlement hearing, “The effect of that claim if it were not subordinated (would be) to swamp and overwhelm the estate.”
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.
On Nov. 9, Tyson filed an objection to the settlement, stating it does not believe its direct claim is subject to subordination or disallowance and “indeed believes any such contention would be frivolous.” Tyson argued that subordination of the restitution obligation “presents a staging problem” and leaves Tyson exposed. Tyson stated it does not object to the unconditional subordination of the separate CFTC claim.
In reply to Tyson’s objection, Easterday Ranches’ lawyers said the settlement with CFTC allows Tyson to be paid “while simultaneously not punishing innocent unsecured creditors who are, in effect, ‘secondary’ victims of the fraud that forms the basis of the CFTC’s complaint.” Lawyers asserted in the reply that the CFTC made the compromise, and “Tyson conveniently fails to realize a number of competing concerns embodied in the relief the CFTC negotiated.”
The reply continued, “Tyson objects to the settlement negotiated by the CFTC because it wants a second bite at the apple in the event that the Tyson claim is disallowed or equitably subordinated. Such a self-serving demand goes too far and displaces the sound judgement of the CFTC.”
The federal judge overseeing the bankruptcy proceedings of Easterday Farms and Easterday Ranches granted the sale of the Easterday equipment to a newly formed corporation and blocked Tyson Fresh Meats from acquiring the feedlot under AB Livestock LLC (Agri Beef).
In other matters related to the bankruptcy, Richard Pachulski, lawyer for the Easterday estate, told Holt that creditors are asking for further information related to the personal assets and the Easterday family’s remaining business interests.
Lawyers for Easterday’s mother, Karen, have asked for a mediator, stating they have provided numerous documents in discovery requested by the creditors.
“I understand some parties want to know every dime and penny she has and every transaction she has entered into the last 40 years,” Timothy Conway, Karen Easterday’s attorney, said.
Pachulski said it would delay settlement by appointing a mediator, and if the mediator asks questions regarding what they are fighting about, “Nobody will be able to give the mediator the answer.”
Holt said he would appoint another judge as a mediator if the parties agreed.
Holt will hold a hearing on Dec. 2 regarding the proposed settlement with Prudential Insurance Co. According to court documents filed on Nov. 11, Prudential would receive slightly over $3.1 million, plus $215,000 in attorney and other fees.
Tyson Fresh Meats recently filed a motion to halt the sale of a feedlot once owned by the now-bankrupt Easterday Ranches and sold to Agri Beef “in a fire sale transaction on the eve of bankruptcy.”
Prudential and the debtors believe the proposed settlement appropriately balances the interests of both sides and will eliminate potentially hundreds of thousands of dollars for future Prudential attorney fees and interest charges, which are currently held in escrow.
Currently, there is $9.2 million in escrow for past and future legal fees, Prudential’s asserted prepayment fee and future potential default rate interest accruals on account of Prudential’s remaining claims.
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.
The settlement agreement states over $6 million would be released to the estate, maximizing the estate’s return from the net sale proceeds.
The properties Easterday took out two loans for in 2020 from Prudential—which totaled approximately $50 million—were sold, along with several Easterday farms in Benton County, for $209 million to Farmland Reserve Inc., owned by the Church of Jesus Christ of Latter-Day Saints.
The status conference on Dec. 2 will also discuss mediation options. — Charles Wallace, WLJ editor