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.”
The dispute centers around the North Lot feedlot, a 25,000-head operation located a short distance from Tyson’s meatpacking plant in Pasco, WA.
In court documents, Tyson Fresh Meats stated Easterday Ranches did not solicit other bids for the feedlot, including a bid from Tyson, and sold it to AB Livestock LLC (Agri Beef) for $16 million. Tyson called the bid “woefully inadequate” and offered $25 million—a 56 percent premium over what Agri Beef paid.
In court documents, Agri Beef President Matt Buyers said that the Idaho-based company bought the feedlot in good faith.
Background
In December 2020, Tyson Fresh Meats revealed it was investigating a beef supplier due to an overstatement of live cattle inventory by as much as $285 million at the end of the fiscal year, Oct. 3. The investigation by Tyson showed over 200,000 head of cattle were reported to be in inventory but did not exist. Cody Easterday defrauded the company of over $225 million and received reimbursement from Tyson for nonexistent cattle, feed and other supplies.
While attempting to settle the matter, Easterday claimed the feedlot was worth an estimated $20 million. Tyson claimed in court documents the two “engaged in extensive correspondence” about the North Lot, and Easterday expressed “willingness to transfer ownership of the property to Tyson in partial satisfaction of the debtor’s obligations to Tyson.”
Tyson was informed in a conference call on Jan. 22 with Easterday and Peter Richter of Paladin Management Group the North Lot had been sold. In a separate phone call later that day between Easterday and Shane Miller of Tyson, Easterday stated he could disclose the purchaser’s identity of the North Lot only after the close of business on Monday, Jan. 25.
Over the weekend, Tyson attempted to stop the sale of the feedlot with an appointment of receivership. On Monday, Tyson learned the sale closed the previous Friday, and the buyer was Agri Beef for $16 million.
Easterday Ranches filed for Chapter 11 bankruptcy shortly before the motion for appointment of a receiver was scheduled to be heard.
In February, a post-sale appraisal of the feedlot concluded it was worth $9 million, and Tyson claimed in court documents it was flawed and did not consider Tyson’s interest in the property. Tyson sent a letter on May 28, offering an “‘as is, where is’ offer subject only to environmental and due diligence contingencies” of $25 million for the North Lot.
In addition to objecting to the Agri Beef sale, Tyson raised issues with how the proceeds were distributed. Of the $16 million purchase, $11.7 million went to companies owned by the Easterday family members—Easterday Farms and English Hay Company.
Court documents said of the $11.7 million, some of the funds were to repay outstanding feed bills, $2 million “was a purported prepayment of feed bills not even prepared yet” and $5 million was for repayment of a loan from Easterday Farms. Tyson claimed the loan from Easterday Farms to Easterday Ranches did not exist and that Easterday Farms owed Easterday Ranches $10 million.
A total of $1.2 million was distributed to bankruptcy restructuring advisers Paladin Management Group and Easterday’s lawyer, Richard Pachulski of the firm Pachulski, Stang, Ziehl and Jones.
A total of $2.1 million was paid to third-party creditors, some of which went unpaid, according to court documents.
Hearings
At a hearing on Aug. 8 regarding the sale to Agri Beef, Alan Kornfeld, attorney for Easterday Ranches, claimed Tyson made a $10 million offer for the North Lot despite Tyson’s assertion it “did not have an opportunity to bid.”
Bankruptcy Judge Whitman Holt replied, “If what you [Kornfeld] just said is accurate, that in January of 2021 there was a $10 million offer from Tyson, I think that’s highly germane to the standing issue because the narrative in [Tyson’s] motion is deeply inconsistent with that.”
At issue in the hearing was the appraisal value of $9 million, which Tyson claimed was made after the sale. Kornfeld stated the offer by Tyson was in line with the appraised value, and Holt pointed out the inconsistency between the appraisal and Agri Beef’s offer suggests something is wrong with the appraisal.
In court documents filed on Aug. 24 by lawyers for Easterday, there were three appraisals for the North Lot between 2016 to 2021 for between $8.75 million and $10 million, “all of which are consistent with Tyson’s own just-disclosed ‘soft’ offer in December 2020, which supports a value of $10 million.”
The court documents also state that while they were trying to make amends in December by using the North Lot to offset the amount owed to Tyson, it ceased paying for feed costs, resulting in a $12 million shortfall that necessitated the sale to continue operating.
Lawyers for Easterday also argued an after-the-fact offer by Tyson would be reduced by the “significant costs of litigation,” and the remaining proceeds would “round-trip” back to Tyson as they are the holder of 90 percent of the claims. “In short, any potential benefit to other unsecured creditors is virtually nonexistent,” the court documents state.
On Aug. 16, Holt approved the bid by Agri Beef for the assets of equipment, tractors, feed trucks and pickups on the North Lot for $1 million minus outstanding rent, for a total of $900,610.
Hyperams LLC appraised the assets on the North Lot for ordinary liquidation value, which showed the value at $771,900 minus $127,190 in liquidation and marketing costs. Hyperams stated it would take approximately 16-24 weeks to liquidate the assets.
Agri Beef argued in court filings that “any proposed sale of property of the estate is to maximize the proceeds received by the estate,” and the bid would net $228,000 to the estate.
Holt stated at the approval of the sale of the assets that if they invalidate the sale of the feedlot to Agri Beef, they would need to gather the assets.
“If you lose ownership and title to the real property, you’d still own the equipment, and that creates kind of a logistical issue; you’d have to come get your stuff off the property.”
Tyson supported the sale of land owned by Easterday Farms for $210 million to Farmland Reserve Inc., which operates as AgriNorthwest and is owned by The Church of Jesus Christ of Latter-day Saints.
Easterday pled guilty in March to one count of wire fraud and is scheduled to be sentenced on Oct. 5 and agreed to pay Tyson restitution of $233 million. — Charles Wallace, WLJ editor
