Easterday Ranches files for bankruptcy

PASCO — A major Columbia Basin feedlot operator filed for bankruptcy days after being accused by its sole customer of $225 million in fraudulent billing for the care and feeding of around 200,000 non-existent cows.

Easterday Ranches, which lists property — likely cattle — at two Grant County feed lots in the Royal City area, filed for Chapter 11 bankruptcy in federal court in Spokane last week after Tyson Fresh Meats, a South Dakota-based subsidiary of Arkansas-based Tyson Foods, filed suit in late January in Franklin County Superior Court alleging the fraud.

In a lawsuit filed Jan. 25, Tyson alleged “over the last several years” that Easterday “submitted false invoices” for more than 200,000 head of cattle “which did not exist” and feed that was not purchased “in excess of” $225 million.

Tyson also alleges Easterday’s president, Cody Easterday, admitted to the fraud and said he concocted the billing scheme “to offset over $200 million in losses he incurred in the commodities trading market.”

“That’s a huge number,” said Mark O’Brien, a futures broker with Los Angeles-based Cannon Trading, about the alleged 200,000 non-existent cows. “This is a big deal.”

In a long list of creditors provided to the bankruptcy court on Feb. 2, Easterday lists Country Hedging, part of CHS’s commodities trading operation; Rabo Agrifinance, an agricultural insurance and financial company, which also has trading operations; and the Commodities Futures Trading Commission, the federal agency, which regulates traded commodities markets.

Commodities futures markets are often used by farmers, food processors and other intermediaries to hedge against future risk and lock in prices, O’Brien said.

According to court documents, Tyson was Easterday’s sole customer, and Easterday signed a contract in February 2017 to provide Tyson with 145,000 to 180,500 cattle per year for the meat processor’s Pasco slaughterhouse. Last year, that contract was extended to August 2021.

In its Franklin County Superior Court filing, Tyson said it discovered the alleged fraud in late November and early December 2020, noting Easterday’s inventory records “were significantly in error.”

Hector Castro, director of communications for the Washington State Department of Agriculture (WSDA), said the department is going to start a review of its livestock inspection paperwork at both Easterday’s feedlots and at Tyson’s Pasco packing facility, beginning with January 2019, to see if there is any discrepancy in the numbers.

“We don’t know what we’ll find, if we find anything,” Castro said.

WSDA inspects cattle at feedlots monthly as part of its disease control programs, and also prepares a monthly slaughter report for in-state slaughterhouses.

In its Jan. 25 lawsuit, Tyson asked the Franklin County Superior Court to appoint a receiver — someone to manage the company’s finances and business operations — but Easterday filed for bankruptcy in federal court before that could happen. Chapter 11 bankruptcy is intended to give a company the chance to reorganize its business and deal with its creditors and takes precedence over any state court proceedings.

In its Feb. 1 bankruptcy filing, Easterday said Cody Easterday, his wife Debbie Easterday, and mother Karen Easterday, have resigned from “all officer positions” though the three retain their ownership shares — Cody and Debbie holding 25% each and Karen, the widow of Gale Easterday, holds 50%.

Gale, the son of company founder, Ervin Easterday, died Dec. 10 in a head-on collision with a semi-tractor trailer after attempting to enter Interstate 182 in Pasco using on offramp.

T. Scott Availa, a partner with Los Angeles-based Paladin Management, has been named the company’s chief restructuring officer.

Federal Bankruptcy Judge Whitman Holt on Wednesday gave permission for Easterday to release the cash needed to feed roughly 54,000 head of cattle belonging to Tyson that both Tyson and Easterday argued were “at risk of death” because Easterday was expected to run out of animal feed on Thursday.

However, in a separate court filing, Washington Trust Bank argued against allowing Easterday to spend any money caring for the cattle, noting they are not Easterday’s property and their care would not benefit the company. The bank also said it has primary claim on all of Easterday’s company property (except for real estate), after the bank extended a $45 million line of credit to Easterday on Sept. 3, 2020.

In its Feb. 1 bankruptcy filing, Easterday is disputing Tyson’s $225 million claim. Washington Trust Bank is not listed as one of the company’s top 20 creditors, though tarp retailer ITC Services of Moses Lake is, with an uncontested outstanding debt of $145,374, as is Pegram Construction of Othello at $123,984. According to the separate filing on Feb. 2, a number of smaller local companies — Central Machinery Sales, Connell Grain Growers and Lad Irrigation in Moses Lake, Kuo Testing, Othello Auto Parts, Othello Welding and Weyns Farms in Othello, Sunray Farms in Royal City, and Sun Basin Operations in Quincy — are all listed as potential claimants, though no figures were provided in the filing.

Charles H. Featherstone can be reached at cfeatherstone@columbiabasinherald.com.