TCFA’s Advice on Eastern Livestock’s Problem
On Tuesday, the Texas Cattle Feeders Association sent the following information to its members, which include both buyers and sellers involved with the Eastern Livestock mess. The advice appears sound for anybody caught up in it.
Subject: Notice of Eastern Livestock Receivership
“Texas Cattle Feeders Association has learned that Fifth Third Bank, the primary lender to Eastern Livestock, LLC and the holder of a perfected general lien on all Eastern’s assets, has initiated an action against Eastern in the state court of Hamilton County, Ohio. As a part of such action, Fifth Third has obtained an Order for the Immediate Appointment of a Receiver. The Receiver, Elizabeth M. Lynch of Development Specialists, Inc., was on premises as of November 10, 2010. Under the receivership order, the receiver is empowered to take immediate possession of all assets and books and records of Eastern. The receivership order contains extensive provisions. Of particular interest to TCFA members will be the provisions that authorize the receiver to either perform or reject existing Eastern contracts “. . . to the extent that the Receiver determines, in her sole discretion, that such performance or rejection will preserve and maximize the value of the [assets of Eastern].”
“TCFA reminds members that they should seek independent legal advice regarding their specific situation. However, TCFA counsel suggests that, until the status of the receivership and the bank’s lien becomes clearer, the following will be the typical reaction of parties:
“Parties who have delivered cattle to Eastern and have either not been paid or received dishonored checks will not be able to get any immediate payment from Eastern pending the Receiver’s assessment of Eastern’s situation.
“Parties who have contracts for future delivery of cattle to Eastern will not make delivery of cattle to Eastern or other parties unless fully satisfied regarding payment arrangements and source of payments.
“Parties who have received delivery of cattle from Eastern and have delayed payment because of recent uncertainties will continue to withhold payment until more clarity comes from the Receiver’s office or other authorities. There is nothing in the order specifically providing authority for purchasers to direct pay Eastern suppliers, thus avoiding the bank’s possible position. TCFA’s counsel is unaware of any release by Eastern’s bank of any of its potential claims.
"Parties who have contracts for future delivery of cattle from Eastern should make sure that actions taken are “commercially reasonable” insofar as expectations for delivery under those contracts. While it would appear unlikely that Eastern will be able to perform contracts for future delivery, especially in the near term, the Receiver currently has the power to affirm or reject the contracts. It is theoretically possible, therefore, that the Receiver could attempt to affirm or perform contracts favorable to Eastern. Claims for refunds of down payment money may be asserted as offsets or separate claims in any subsequent litigation or bankruptcy. “Cover” purchases of replacement cattle should be documented and, preferably should occur after notice to Eastern. Claims for recovery of losses due to market differentials will, again, be claims subject to litigation in the courts or in bankruptcy. Consequently, holders of these claims should not assume any future recovery.”
