LDS church-linked firm to bid on bankrupt Easterday properties
For the Basin Business Journal | May 31, 2021 1:00 AM
SPOKANE — A Salt Lake City-based real estate company attached to the Church of Jesus Christ of Latter-day Saints has signaled its intention to make a nearly $200 million bid on the property of bankrupt Easterday Farms and Easterday Ranches.
During a regular monthly court hearing, May 19, in front of U.S. Federal Bankruptcy Court Judge Whitman Holt, attorney Richard Pachulski announced that Farmland Reserve Inc. was preparing to make a $196 million “stalking horse” bid on all of the property — real and personal — owned by Easterday Farms and Easterday Ranches.
The two companies filed for bankruptcy in early February following revelations Cody Easterday, the son of company founder Gale Easterday, had lost over $200 million between 2011 and 2020 — more than $50 million in 2018 alone — speculating on cattle and corn futures.
To make up for that loss, Easterday concocted a scheme to bilk Tyson Fresh Meats out of $244 million between 2016 and 2020 by billing the South Dakota-based meat processing giant for 266,000 head of non-existent cattle as part of a deal to supply cattle to Tyson’s Pasco meat processing plant.
In federal criminal court in late March, Easterday pleaded guilty to defrauding both Tyson and the Commodities Futures Trading Commission — the federal agency charged with overseeing commodities futures and options trading — and faces a possible 20 years in prison when he is scheduled to be sentenced on Aug. 4.
Pachulski, who represents both Easterday Farms and Easterday Ranches in the bankruptcy proceedings, said Farmland Reserve is prepared to bid $196 million for all the property owned by the two bankrupt companies — $188 million for the property itself, $500,000 in legal fees, a $5 million payment upon close of the deal, and an estimated $3 million in state transfer taxes normally paid by the seller.
Farmland owns “significant property in Eastern Washington” and across the state, Pachulski said.
However, as a “stalking horse bid,” Pachulski explained the Farmland Reserve offer is only a minimum bid. With an auction for all Easterday properties scheduled for June 14, and with the submission of bids scheduled to start on June 4, Pachulski said federal bankruptcy law still requires the court to maximize return to the two companies’ creditors, and thus all the real and personal property held by the two companies could still be sold off piecemeal.
“Farmland will have to make its own determination to bid on pieces,” Pachulski said. “If they make their determination, it’s entirely their choice.”
Up for auction on June 14 are 56 parcels in Benton County totaling over 33,000 acres, as well as several farm manager houses and seven state water rights.
A hearing is scheduled for May 27 to consider the “stalking horse bid” motion. If all goes well, Pachulski said the entire bankruptcy process could be wrapped up before the end of the year.
The two Easterday Companies listed outstanding debts of roughly $420 million, including $80 million in debt secured by liens on real and physical property. In filings with Franklin County Superior Court and included as part of the federal bankruptcy case, Spokane-based Washington Trust Bank listed a $45 million line of credit extended on Sept. 3, 2020, of which $44.6 million — including more than $200,000 in unpaid interest — remained outstanding as of March 21, 2021.
According to the court affidavit, the loan was guaranteed and signed by company head Gale Easterday, who died on Dec. 10, 2020, when the vehicle he was driving the wrong way on an interstate crashed head-on into an Easterday-owned semi-tractor trailer.
As one of the co-signers for the line of credit, Washington Trust said his death was a trigger for default on the loan, according to a second court document filed with the Franklin County Court and included as part of the bankruptcy documents.
Jay Indyke, an attorney representing a committee of unsecured Easterday Ranches creditors, said if a resolution is to be reached, his clients would need more information, but the debtors and all of the creditors were “making progress.”
“There are several parties including the debtor that have been very cooperative,” he said. “We are in the process of getting more information.”
While in most bankruptcy cases there is typically only one creditor committee, in this case there are six separate creditors committees comprised of various unsecured creditors and represented by a dozen law firms.
Timothy Conway, an attorney representing Gale Easterday’s wife Karen — who is also a part-owner of the family business — said his client was supportive of the Farmland Reserve deal.
“We all have a common goal of maximizing the assets available to pay creditors and trying to do this as efficiently as possible,” he said.
Pachulski said once the properties sell at the June auction, he expects all sales to close “sometime in August” and hopes to arrange a settlement between the Easterdays and their creditors as quickly as possible.
“The parties are extremely cooperative,” he said. “The core issue is to get the assets sold, put together a plan so we can move through and try to get a settlement between the Easterdays and the committees and the various creditors involved in the case.”
As part of the conditions of his release from federal custody as he awaits sentencing, Cody Easterday was forbidden from traveling outside of the Eastern District of Washington. However, Judge John T. Rodgers approved allowing Easterday to travel to Boise, Idaho, from May 15 to May 22, to attend the birth of a grandchild.
The effect of the Easterday fraud on meat processors and the meat industry has been difficult to ascertain, as both companies and industry groups, such as the North American Meat Institute, the American Association of Meat Processors, the National Cattlemen’s Beef Association and Farm Bureau Federation, have either not returned requests for comment on the matter or have said they will not comment given the continuing court case.
However, equity analyst Arun Sundaram with independent research firm CFRA said the sheer size and complexity of Tyson’s supply contracts — the company works with nearly 4,000 farmers to supply its $16 billion beef business — meant Easterday probably thought his fraudulent invoices would be “a rounding error.”
Sundaram also said the Easterday fraud also highlights the risks associated with complex supply chains. Unlike chicken producers, beef processing is not vertically integrated, Sundaram said, with roughly 700,000 individual farms and ranches across the country raising 30 million head of cattle each year.
It’s a complex process that requires a lot of effort to keep on top of.
“Tyson Foods will likely look to fortify its internal controls after experiencing this fraud,” Sundaram wrote in an email to the Basin Business Journal. “I’m surprised it took them several years to figure out the cattle they were paying to feed did not exist.”
“Effective internal controls are supposed to safeguard from these kind of activities, so unless Easterday was colluding with multiple parties, it is rare to see this kind of fraud go unnoticed for several years,” he wrote.
Charles H. Featherstone can be reached at email@example.com.