NORPAC

Workers at NORPAC Foods prepare onions for processing. A judge has ruled that a union’s objection must be addressed before the sale of the cooperative’s Oregon facilities can go through.

PORTLAND — A federal judge has approved the $49 million sale of the bankrupt NORPAC cooperative’s three Oregon food processing facilities, though a union’s objection to the deal must still be resolved.

U.S. Bankruptcy Judge Peter McKittrick said the sale of NORPAC’s properties in Brooks, Salem and Stayton to Lineage Logistics, a Michigan-based cold storage company, were in the best interests of the company’s creditors.

However, the closing will be contingent on the cancellation of a collective bargaining agreement between NORPAC and the International Brotherhood of Teamsters union, or a determination that the contract is effectively terminated by the transaction.

It’s also possible the issue will be rendered moot if agribusiness entrepreneur Frank Tiegs — who plans to operate the Brooks facility — reaches a deal with the union before closing.

A further hearing on the matter has been scheduled for Jan. 24 in Portland, Ore.

The Teamsters objected to the sale because it’s still negotiating whether Tiegs will participate in a pension plan that covers full-time NORPAC employees. According to the union, Tiegs qualifies as a successor to NORPAC under a collective bargaining agreement, and the cooperative can be held liable if he doesn’t assume the provisions of that contract.

Another possibility is that NORPAC’s collective bargaining agreement was properly rejected, which requires that the cooperative negotiate in “good faith” before terminating the union contract.

However, NORPAC argued during a Jan. 14 bankruptcy hearing that Lineage Logistics doesn’t qualify as a successor, since it would act as a landlord and not a food processor under the collective bargaining agreement.

The successor provision also doesn’t apply because Lineage Logistics is only buying property, not the actual NORPAC business, said Albert Kennedy, the cooperative’s attorney.

NORPAC’s inventory and intellectual property were already sold off along with its facility in Quincy, Wash., so now only real estate and equipment are changing hands, he said.

“The debtor is not transferring its business. It is out of business,” Kennedy said. “This is simply an asset sale. There is no business being sold by NORPAC.”

The cooperative also negotiated in good faith before rejecting the contract, as no buyers were willing to assume the collective bargaining agreement. McKittrick approved the sale at the urging of attorneys for CoBank — NORPAC’s major debtor with about $125 million in loans outstanding — as well as those for Tiegs and Lineage Logistics, who argued it would be risky to hold up the sale.

The judge said he will decide after the Jan. 24 hearing whether NORPAC properly rejected the union contract or whether the successorship provision did not apply to Lineage Logistics.

Joe Van Leuven, an attorney for Tiegs, said the dispute may soon be moot because his client has already reached an agreement in principle with the union and a new contract may soon be finalized.

During the Jan. 14 hearing, NORPAC resolved an objection filed by a committee representing unsecured creditors — such as farmers who own the cooperative — who don’t have collateral for loans to the processor and are last in line for repayment.

The unsecured creditors objected to a provision that would allow Lineage Logistics to seek up to $6 million for six months after the deal in compensation for potential misrepresentations.

The committee also objected to a provision that called for Lineage Logistics to receive $1.225 million if it pulls out of the transaction due to misrepresentations before closing.

Scott Cargill, attorney for the unsecured creditors committee, said these terms were overly generous to Lineage Logistics, which had time to conduct due diligence on NORPAC’s properties.

After discussing the issue, the parties agreed that Lineage Logistics would only be able to seek $3.5 million for 90 days after closing for alleged misrepresentations.

The $1.225 million fee provision was eliminated, though Lineage Logistics will still be able to assert a claim for actual damages if it pulls out before closing due to misrepresentations.

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