PASCO — One of the biggest farming and ranching families in Washington state filed for Chapter 11 bankruptcy protection Monday, after Tyson Foods Inc. previously alleged in court records the family defrauded it of more than $225 million related to 200,000 cattle that never existed.
The modern-day cattle rustling case is alleged in a civil suit in state court filed last month by Tyson Foods against Easterday Ranches Inc. The lawsuit was joined Monday by Spokane-based Washington Trust Bank.
An attorney for the bank told a judge Monday the Easterday family has been transferring assets and selling collateral in violation of its loan agreement.
At the hearing Monday in Pasco, Franklin County Superior Court Judge Samuel Swanberg approved Washington Trust's request for a temporary restraining order against a separate entity, Easterday Farms Inc., to prevent it from selling crops or assets in violation of the loan agreement with the bank.
The flurry of legal activity surrounds the Pasco-based Easterday family, which for decades has operated one of the largest agriculture operations in Washington, with more than 25,000 acres of farmland, a dairy operation and thousands of feeder cattle.
In a complaint filed last week, Tyson Foods alleged Easterday Ranches Inc. had defrauded the company over a period of years of more than $225 million by claiming to have purchased, fed and provided about 200,000 cattle that never existed. It was seeking immediate legal intervention to protect another 54,000 head of Tyson-owned cattle in Easterday possession.
For several years, Tyson Foods and the Easterday family, led by company president Cody Easterday, had provided a service by which Tyson would reimburse the Easterdays for the purchase and feeding costs of cattle housed in Easterday feedlots that were then provided to Tyson's packing plant in Wallula.
"President Cody Easterday admitted to the fraudulent scheme, and has explained that he concocted the scheme in order to offset over $200 million in losses he incurred in the commodities trading market," Tyson attorney Alan D. Smith wrote in the complaint.
As of October 3, Easterday Ranches claimed it had 186,000 cattle valued at about $321 million. Then in November and December, Tyson began to discover discrepancies, according to the suit.
"Its investigation, including the admissions of Defendant's President Cody Easterday, showed there were over 200,000 head of cattle that Defendant reported to be in inventory, but which did not exist," Smith wrote.
For several years, Easterday Ranches submitted fake invoices that appeared to show cattle and corresponding feed that were never purchased as part of a scheme "to defraud Plaintiff in a way that has caused Plaintiff losses of in excess of $225 million," the Tyson suit states.
Smith, the Tyson attorney, attended the Monday hearing by phone. He told Judge Swanberg that his request to appoint a receiver to oversee the Easterday Ranches operations was moot because he had just learned that the Easterdays had filed for Chapter 11 bankruptcy protection.
"So, we do not believe you can go forward on the Tyson request," Smith told Judge Swanberg. "Our action, with the defendant in bankruptcy, is stayed."
However, Washington Trust attorney Trevor Pincock, of the Spokane-based law firm Lukins & Annis, continued to seek to have the judge either appoint a receiver or issue a temporary restraining order against the other Easterday entity, Easterday Farms Inc., which is also based in Pasco.
"We submit that there has been some diversions and transfer of funds of Washington Trust Bank collateral that causes us some concern," Pincock said. "What we don't want to happen is to have cash collateral and other crop inventory to be sold to someone who doesn't have a claim or a right to it."
Online federal court records on Monday did not reflect the bankruptcy filing by Easterday Ranches Inc.
However, the attorney representing the Easterdays, Thomas Buford, confirmed the filing and said that Easterday Farms Inc. was also in the process off filing for Chapter 11 bankruptcy protection.
The Easderday family has "already put in independent management with full authority (to run the operations) with no connection to the Easterdays," Buford said. "I understand what Mr. Pincock is saying. But, we haven't even been able to review the allegations."
Swanberg then granted Pincock's request to place a temporary restraining order against the management of Easterday Farms Inc. to prevent any moves other than normal business operations.
He set a hearing for next week. If Easterday Farms had not filed for federal bankruptcy protection by then, "We will move forward at that time and decide whether a receivership should be put in place and who it should be," Swanberg said.