Eastern Livestock owes Superior $19 million
December 23, 2010
OMAHA (DTN) – Superior Livestock’s general manager said the company is lucky that it’s going to be able to withstand the more than $19 million shortfall it faces due to Eastern Livestock Company’s collapse.
Jim Odle, the general manager and former owner of the online and satellite cattle auction service, also said the industry has seen rough times before and will make it through the damage that’s been left in the wake of Eastern Livestock’s downfall.
“It’s hard to see the positive because it’s been so visibly negative,” Odle told DTN. “If you look back through the past, there have been many more dollars lost in dairy, in bank failures. All we can do is work, clean up the mess and try to keep all the money from going to attorneys’ hands. That’s how it lines up in a lot of bankruptcy cases.”
Superior Livestock is the largest petitioning creditor in the involuntary bankruptcy proceedings against Eastern Livestock. The Grain Inspection, Packers and Stockyards Administration (GIPSA) estimates that Eastern Livestock’s failure has left more than 740 sellers short $130 million.
Outside of what Eastern owes to Fifth Third Bank – the cattle brokerage is $13 million overdrawn and in default on a $32 million loan – Eastern owes Superior Livestock the most, according to court documents. Superior’s filings in the bankruptcy proceedings allege it’s owed $19,270,617.70.
And in court filings in Texas, Superior Livestock has alleged that Fifth Third Bank failed to follow its fiduciary responsibilities as a lender and contributed to the heavy losses throughout the cattle business.
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Eastern failed to fulfill its end of the bargain on about 500 contracts with Superior between Oct. 22 and Nov. 13. Checks worth $8.96 million were returned with the note “refer to maker,” according to a spreadsheet included in court documents. Superior Livestock stopped depositing the checks it received from Eastern on Oct. 28 and between Oct. 29 and Nov. 1 Superior received checks totaling $4.34 million that it did not deposit. Superior received no payment for $5.98 million worth of cattle. The spreadsheet indicated that some of the cattle sold to Eastern are still in Superior’s possession, but Superior has already paid the seller for the cattle.
Odle said it’s important to focus on the positive.
“The market has been good and that’s a blessing,” he said. “We haven’t seen any problems” filling the gap left by Eastern. He’s noticed there are more buyers than usual bidding in his company’s auctions as more feedlots are purchasing their cattle directly.
“Getting Eastern out of the picture has created competition in the industry that Eastern had taken away,” he said.
Eastern Livestock was doing about $10.75 million of business every two days based on a GIPSA requirement that Eastern increase its bond to $1.15 million and the formula used to compute bond amounts.
Superior is involved in another case resulting from the confusion of Eastern Livestock’s collapse.
Three large feeders in Texas – Friona Industries, Cactus Growers and J&F Oklahoma Holdings – have asked the federal court in Amarillo to sort out funds that are in dispute. After Eastern Livestock’s checks bounced, many sellers turned to the feedlots, who received the cattle sold through Eastern, requesting payment be made directly to them and not through Eastern.
Instead of making payments, the feedlots deposited the disputed funds with the court, about $6.9 million between the three feeders. The feedyards are requesting that the court allow them to recoup the cost of down payments made on cattle that Eastern didn’t deliver and allow them to recover what they’ll lose in replacing those cattle at a higher price, according to court documents. Then, they’re requesting the court figure out who will be paid what.
Messages left for the lawyers for Cactus Growers, Friona Industries and J&F Oklahoma Holdings by DTN were not immediately returned.
Superior Livestock was involved in business transactions with all three feeders through Eastern Livestock, according to the court documents. Superior has only filed an answer to Friona’s claim.
In court documents, Superior Livestock argues that it’s entitled to $776,109.69 of the $2,542,846.79 interpled funds, which is the legal term for the contested funds deposited with the court by Friona.
Odle said he can’t blame Friona for taking the legal route it did.
“They just want to know who to pay,” he said. “I’d rather see that than what lots of people are doing, just waiting for someone to demand payment. That’s being a little bit dishonest I think by not interpleading that money and using it to keep buying. It will all shake out, but it’s not a fun deal.”
Perhaps one of the more interesting parts of Superior Livestock’s answer in the case is the cross claim it makes against Fifth Third Bank. The Cincinnati-based bank’s lawsuit against Eastern Livestock argues that it’s the creditor that should be paid first. Superior is arguing that if Fifth Third Bank claims any interest in the proceeds of the Superior-Friona transactions, the court should favor Superior because the bank “engaged in inequitable conduct with respect to Superior.”
Superior’s cross claim argues that Fifth Third was familiar with all aspects of Eastern’s business and “knew or should have known that Eastern’s business practices, including those involving the Superior-Friona Lots, were unsound” and that “Fifth Third’s decision to permit the practices to continue put cattlemen and cattle auctioneers, such as Superior, at risk of loss. Nevertheless, Fifth Third allowed Eastern’s practices to continue, and allowed $19,000,000 of Eastern’s checks payable to Superior and drawn on Eastern’s account with Fifth Third to be returned.”
A media representative from Fifth Third Bank declined to comment on ongoing litigation.