Bankruptcy Judge Lets Tyson Feed 54,000 Cows Amid Ranch Feud

(Bloomberg) -- A U.S. bankruptcy judge protected a much-needed cash infusion for Easterday Ranches Inc., helping ensure that its 54,000 cattle will continue to eat.

The cattle farm in Washington state filed for Chapter 11 bankruptcy on Monday after its only customer, Tyson Fresh Meats Inc., sued for more than $200 million, claiming it was being billed for the upkeep of bovines that don't exist, court papers show. Tyson slashed payments to the ranch, and Easterday quickly ran low on cash, threatening its ability to feed the animals.

The business projects it will run out of cattle feed on Thursday, according to court papers. But Tyson has agreed to wire $1.75 million to the ranch so it can replenish its feed, Maxim Litvak of Pachulski Stang Ziehl & Jones said in an emergency bankruptcy hearing Wednesday. U.S. Bankruptcy Judge Whitman Holt subsequently approved a motion barring creditors from laying claim to the money.

Death Risk

Without the order, Easterday would have been “forced to terminate operations, which would have the drastic effect of putting approximately 54,000 cattle at risk of death,” Co-Chief Restructuring Officer T. Scott Avila said in a court declaration.

“It would obviously be an environmental disaster to not be able to feed that cattle and allow that cattle to wither away and die,” Litvak said in the hearing Wednesday. “That is obviously not something the debtor would ever allow to happen.”

“We're following the proper procedures through bankruptcy court to ensure that all cattle that remain at Easterday feedlots are properly cared for,” a representative for Tyson said in an emailed statement before the hearing. “Tyson Foods is not taking action that subjects these cattle to risk. To the contrary, Tyson is keenly focused on the health and well-being of the cattle that remain at Easterday Ranches.”

The cattle ranch is part of an 18,000-acre farm that also grows potatoes, onions, corn and wheat in southeast Washington. The farm business sells grain to the ranch to feed the cattle, and Tyson reimburses the ranch for the cost of raising the animals.

Invoice Fraud

The problem, Tyson alleges, is that many of the cattle it was paying to feed didn't exist. Fraudulent invoices led Tyson to overpay for the purchase and feeding of cattle by more than $200 million, the meat giant alleges in a lawsuit filed last month.

A former top official of Easterday Ranches “freely admitted” to creating phony invoices in conversations with Tyson, Richard Pachulski of Pachulski Stang Ziehl & Jones said in the hearing. Members of the family that managed the businesses have since relinquished control of the farm, he said.

Tyson cut payments to Easterday, but still paid the ranch's vendors directly prior to the bankruptcy, according to court papers. Tyson also asked for a court-appointed receiver to take over the ranch, which then filed for bankruptcy.

The farming segment of the business will also file for bankruptcy, likely within the next week, Pachulski said.

The case is Easterday Ranches Inc., 21-00141-WLH11, U.S. Bankruptcy Court for the Eastern District of Washington (Spokane/Yakima). To view the docket on Bloomberg Law, click here.

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