Easterday Ranches files bankruptcy after Tyson sues over non-existent cattle
At the end of January, Tyson Fresh Meats filed a lawsuit against one of the largest farming and ranching families in Washington, Easterday Ranches, in an effort to recover losses from fictitious fed cattle sales and feed costs. Additionally, Tyson was hoping to recover 54,000 head of cattle still standing in an Easterday feedlot north of Pasco, Washington. The lawsuit was filed in Franklin County Superior Court in Pasco.
On February 1, days after Tyson sued Easterday Ranches, the ranching operation filed for chapter 11 bankruptcy in federal court. Official Form 204 in Easterday Ranches’ bankruptcy filings lists twenty of their largest unsecured claims. The top unsecured claim comes from Tyson Fresh Meats with at least $225 million. The second largest unsecured claim comes from Segale Properties at $8,647,408.57. All twenty unsecured claims add up to $236,671,645.
On February 8, according to bankruptcy filings, the other half of the family business, Easterday Farms, also filed chapter 11 bankruptcy. Court documents show that Easterday Farms continues to sell feed to the ranching side of the operation, Easterday Ranches. According to T. Scott Avila, co-chief restructuring agent hired by the Easterdays, Easterday Farms’ partners, Cody, Debby and Karen L. Easterday transferred control of both the ranch and farm operation to their board of directors, which is made up of Craig A. Barbarosh, R. Todd Neilson and Thomas Sanders. This transfer allows the board to take over business decisions.
The Easterday operation is made up of two entities – Easterday Ranches and Easterday Farms. The family began to build its operation in the Columbia Basin in 1958. The operation includes thousands of acres of farmland, a dairy and thousands of feeder cattle, according to the company website.
Easterday family also owns a Beechcraft King Air 90 airplane, along with a 6,500 square foot airplane hangar at the Pasco airport, according to the Franklin County Assessor’s office. In Scottsdale, Arizona, the family owns a $1 million 3,594-square-feet second home, according to the Maricopa County Assessor
The South Dakota-based meat giant, Tyson, sued Easterday Ranches claiming losses of more than $225 million on January 27. A company-led investigation by Tyson revealed that Easterday falsified documents to obtain reimbursement from Tyson of more than $200 million in connection with approximately 200,000 head of fictional cattle. According to Tyson, Cody Easterday, president of Easterday Ranches, admitted to the scheme and also admitted the fraud was initiated to cover extensive commodity trading losses he had experienced. On February 1, Washington Trust Bank of Spokane joined the lawsuit claiming that Easterday Ranches violated the terms of a loan agreement.
On December 21, 2020, Tyson filed corrected financial results for its beef segment with the Securities and Exchange Commission (SEC) for fiscal years 2017 through 2020. Form 8-K in the report stated that investigations and procedures performed with the assistance of outside advisors, revealed that the supplier, Easterday Ranches, caused Tyson to overstate their live cattle inventory as of fiscal year ended October 3, 2020, by an estimated amount of $285 million. For fiscal 2017 through 2020, Easterday Ranches made up approximately 2 percent of the total cattle supplied to Tyson’s beef segment. “As we disclosed in December, this misappropriation of funds has cost Tyson more than $200 million, which the company is working to recoup,” stated Gary Mickelson, senior director of public relations for Tyson Foods.
Matt Thompson, industry consultant and former feedlot manager, questions how this fiasco between Easterday Ranches and Tyson ever occurred. “Being an outside observer that has experience managing similar size feeding operations, it is very difficult for me to understand how such a debacle could have occurred without people on the inside at Tyson being involved,” said Thompson.
Modern commercial feedlots have extensive data tracking and reporting systems as well as procedures, Uniform Commercial Code (UCC) filings and safeguards to prevent misunderstandings like this. Feedlots track and record all charges to specific lots of cattle on a daily basis. “How a situation could occur involving more than a $200 million loss on cattle that did not exist is beyond my ability to comprehend,” stated Thompson. “If the cattle were worth $2,000 per head (currently worth significantly less than that), then that would mean 142,500 head of cattle were missing. Does Tyson not do monthly reporting? Do they not inspect the cattle they own? Did they hold security over the cattle?”
Up until January 22, Tyson had been quiet as to who the cattle supplier was that misappropriated such a large amount of funds, but then the news broke that Easterday Ranches was planning to sell their “North Lot” to one of Tyson’s competitors, Agri Beef Livestock. Easterdays’ “North Lot” is made up of 1,500 acres that includes a considerably large feedlot and irrigated and dry land farm ground. According to the Franklin County Assessor’s Office, the parcel of land sold for $16 million dollars.
AB Livestock is a division of Agri Beef Company located in Boise, Idaho. Agri Beef Co. is well known for their beef brands; Snake River Farms, St. Helens Beef, Double R Ranch and Rancho El Oro. Agri Beef also owns Washington Beef, a reputable beef packer based in Toppenish, Washington that has a daily slaughter capacity of 1,550 head.
The sale of Easterday’s North Lot is uncertain since the operation has declared bankruptcy. According to Patrick Patino, attorney at Patino Law Office in Omaha, NE, the sale of the feedlot may be considered a fraudulent transfer, meaning that the Debtor in Possession (DIP) may seek to avoid transfer. “To determine whether the transfer is fraudulent is highly fact-dependent. Based upon the alleged nefarious acts of the debtor in this case, there is likely to be a heightened level of scrutiny to uncover potential avoidable transfers and pressure the debtor in possession to pursue those actions through the bankruptcy case by utilizing an adversary proceeding,” stated Patino.
During the week of February 8, Tyson filed a motion in the U.S. Bankruptcy Court in the Eastern District of Washington claiming that Paladin Management Group, a financial and operational consulting service hired by the Easterday family, “engineered a surreptitious sale of its largest unencumbered parcel in a fire sale transaction on the eve of bankruptcy.” Eighty percent of the funds from this sale, about $12 million, were allocated to benefit the Easterday family when they should have been given to third party creditors.
Thompson acknowledges that the cattle business has plenty of stories of well meaning people who found themselves in large wrecks with cattle or futures losses where they continued to dig themselves in deeper trying to recover. “There are huge amounts of money involved in small cattle transactions, but again, it is difficult to understand how Tyson could have allowed this debacle to happen to one of their larger suppliers, let alone a smaller supplier like Easterday Ranches. There must be more to this story than we’re being told,” stated Thompson.
Over the past decade, the Chicago Mercantile Exchange (CME) Conduct Committee has fined Cody Easterday twice. The CME Group reported that between January 27, 2013 and February 24, 2014, Easterday entered buy orders in both Live Cattle and Feeder Cattle futures contracts during the pre-opening session at prices higher than the prevailing bid. The entry and cancellation of these orders caused excessive fluctuations in the publicly displayed Indicative Opening Price (“IOP”). The CME Business Conduct Committee found that Easterday violated Rules 432.Q. and T.
On October 22, 2015, Easterday was ordered to pay a fine of $20,000 to the Exchange and his access to all CME Group trading floors and direct access to all electronic trading clearing platforms owned or controlled by CME Group was suspended for fifteen days, according to CME Group.
Between the dates of July 5, 2017 through August 2, 2017, Easterday entered orders in Live Cattle and Feeder Cattle with reckless disregard for the adverse impact on the orderly conduct of trading, reported CME Group. Specifically, Easterday entered orders that partially offset sizable positions in Live Cattle and Feeder Cattle futures that he acquired during regular trading hours. The panel of the CME Business Conduct Committee concluded that Easterday violated CME Rule 575.D.
On May 23, 2019, in accordance with the settlement offer, the Panel ordered Easterday to pay a fine of $30,000 to the Exchange and to have his access to all CME Group trading floors and direct access to all electronic trading and clearing platforms owned or controlled by CME Group suspended for a period of 20 days.
The Easterday patriarch, Gale Easterday was killed in a head on collision on Interstate 182 in Pasco, Washington on December 10, 2020.
Tyson, along with the major packers (JBS, National Beef/Marfrig and Cargill) is accused of price-fixing across all protein sectors in a number of lawsuits and is under investigation by the U.S. Department of Justice for alleged anti-trust violations.
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