Workers at NORPAC Foods prepare onions for processing. Under a settlement deal, the cooperative will pay some compensation to member farms for crop deliveries.

Two Oregon farms are countersuing the former NORPAC cooperative for refusing to pay for 2019 crops after repeatedly assuring farmers they’d be reimbursed despite the processor’s bankruptcy.

Hopper Bros. of Woodburn and Kenagy Family Farm of Albany were among the growers sued by the cooperative last month for alleged breach of contract. They’ve now filed a court document that answers the cooperative’s lawsuit and includes counterclaims against the processor.

According to their counterclaims, farmer-members were convinced to supply NORPAC with crops last year with pledges that CoBank, a major creditor, would provide financing to compensate them for that produce.

The document cites a letter to farmers from NORPAC’s CEO, Shawn Campbell, who said that “a financing commitment from CoBank” would ensure the cooperative has “resources to pay operating expenses such as payments to you for your 2019 crop.”

However, the cooperative — now called North Pacific Canners & Packers — didn’t notify farmers they wouldn’t actually be paid for 2019 crops until last December, after they’d already been delivered to the processor, the court filing said.

Farmer-members only received “harvest and hauling advances” and weren’t compensated for the full economic value of the crops, which were nonetheless sold as inventory along with other assets for more than $100 million, the document said.

“They grew for NORPAC based on these promises of payment,” said Rebecca Russell, attorney for the two farms. “Without those promises, the growers would not have delivered.”

Capital Press was unable to reach the cooperative’s bankruptcy attorney as of press time.

According to the cooperative’s complaint, the farmers have asserted bankruptcy claims worth about $2.3 million that are allegedly secured with collateral, violating provisions in their contracts that prohibit such agricultural liens against NORPAC.

The complaint seeks a declaration from a bankruptcy judge that these claims are worth nothing because farmers, as owners of the cooperative, are subordinate to all other creditors in the case.

In their answer to this complaint, Hopper Bros. and Kenagy Family Farm allege that NORPAC became a “debtor in possession” upon filing for bankruptcy in August 2019 and has since “failed to operate as a cooperative” under Oregon law, so it can’t now claim their liens are invalid.

The processor’s claims are also barred because NORPAC’s board of directors didn’t adopt resolutions of liquidation or dissolution as required under the cooperative’s articles of incorporation, the answer said.

NORPAC’s board of directors did not vote to file for bankruptcy, Russell said.

Growers were persuaded to continue delivering crops to the processor, which allowed it to continue operating despite the bankruptcy, she said.

Without those deliveries, “its value would have been far lower” in an asset sale, Russell said.

For that reason, deliveries that allowed NORPAC to function as a company should be treated as secured administrative claims, she said. “That’s the entire purpose of the administrative expense rule in bankruptcy court.”

NORPAC did not make the promised payments to growers contingent on the original asset sale to Oregon Potato Co., which ultimately fell through in October, Russell said.

The cooperative waited until December — after all crops had been delivered — to tell growers they wouldn’t be paid, rather than notifying them when Oregon Potato Co. pulled out a month and a half earlier, she said.

The farms have asked a bankruptcy judge to declare as valid all agricultural liens and secured administrative claims filed by them and similarly situated growers. Farmers should also be able to reclaim crops delivered 45 days before the bankruptcy filing, they argue.

The harvest and hauling advances received by growers didn’t cover the full amount of money they spent growing, harvesting and delivering those crops, said Russell. “They are losing much more than the profit.”

I've been working at Capital Press since 2006 and I primarily cover legislative, regulatory and legal issues.

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