A subsidiary of the Tillamook County Creamery Association has filed a lawsuit seeking to stop accepting milk from a troubled Oregon dairy in bankruptcy proceedings.
Lost Valley Farm of Boardman, Ore., began supplying Columbia River Processing, the subsidary, when the dairy opened last year. It has since run into serious regulatory and financial problems.
The company’s owner, Greg te Velde, owes about $67 million to Rabobank, a major agricultural lender that sought to foreclose on Lost Valley Farm’s cattle herd.
A liquidation auction of the cattle was halted in April by te Velde’s Chapter 11 bankruptcy filing, which protects the company from actions by creditors while it’s restructuring.
However, the dairy’s ability to sell milk to Columbia River Processing has been a major point of contention in the bankruptcy proceedings, with the Tillamook cooperative vowing to stop accepting deliveries at the end of May.
Tillamook CEO Patrick Criteser argued that his company has terminated its contract with Lost Valley Farm, but te Velde maintains the contract is valid and threatened to sue.
Columbia River Processing has filed an adversary case — a complaint related to the bankruptcy proceedings — asking a bankruptcy judge to declare that the contract was terminated before the Chapter 11 case was filed.
The company submitted a letter terminating its contract with te Velde in late February, citing the dairy’s failure to pay debts and the appointment of a receiver to oversee its operations.
Reputational damage to the Tillamook cooperative and high bacteria levels in Lost Valley Farm’s milk have also been cited by CRP in ending the milk-buying agreement.
When Columbia River Processing offered to negotiated a reinstatement of the contract, te Velde did not respond, according to the complaint.
If the judge isn’t willing to declare the contract invalid or allow CRP to terminate the agreement, the complaint seeks a judgment that would cause the dairy to its lose bankruptcy protections for any further contract violations.
The issue of CRP’s continued acceptance of milk is key to Lost Valley Farm’s ability to restructure and remain operational.
Rabobank cited the impending end of milk sales to CRP as a reason to lift the dairy’s bankruptcy protections, which would allow the cattle auction to move forward.
U.S. Bankruptcy Judge Fredrick Clement denied that request during a hearing last month, but may revisit the matter.
“Frankly, I think this issue is going to resolve itself one way or the other,” he said. “If Columbia River refuses to accept milk and the debtor is unable to force them to do so, undoubtedly this issue will ... rise to the top of the matters under consideration and will be addressed again by this court.”
The other major factor affecting Lost Valley Farm is its settlement of a lawsuit with Oregon farm regulators over improper wastewater disposal.
In court documents, te Velde acknowledged he was facing a contempt hearing because ODA claimed the dairy was out of compliance with the deal.
The judge declined to lift the dairy’s bankruptcy protections on these grounds, though he could reconsider if the ODA actually shuts down its operations.
“My guess is the Oregon Department of Agriculture has its remedies without seeking stay relief,” Clement said.