Frozen peas head to the bagging machines at NORPAC Foods in Salem.

The former NORPAC cooperative has filed a complaint alleging that a seed supplier lacks collateral for a $1.8 million bankruptcy claim against the defunct processor.

Since filing for bankruptcy in August 2019, the cooperative — now called North Pacific Canners & Packers — has sold substantially all of its assets and paid off most creditors whose loans are secured with collateral.

Now, the debtor has roughly $40 million left to distribute to remaining creditors. Those whose loans are determined not to be secured with collateral stand to recover 10% to 45% of the money they’re owed under the cooperative’s bankruptcy plan, depending on the outcome of litigation.

Among those who are seeking to recoup funds are member farms that claim they’re owed money for crops delivered in 2019, some of whom have been sued by NORPAC.

HM.Clause Inc., a seed company, has filed a claim for $1.8 million that it alleges is secured by NORPAC’s inventory and the proceeds from inventory.

However, the cooperative has now filed a lawsuit arguing that HM.Clause’s claim should be treated as unsecured — meaning the company would stand to recover less money — under the terms of Oregon grain lien law.

According to the complaint, most farmers didn't immediately pay for seed that HM.Clause delivered to NORPAC, but instead had those amounts subtracted from their eventual crop payments.

Last year, some growers decided to pay for the seed upfront, for which NORPAC received about $122,000, but none of that seed came from HM.Clause, the complaint said.

Under Oregon law, a grain producer’s lien only attaches to actual seed or the proceeds of that seed, but the cooperative no longer has any of HM.Clause’s seed left, according to the debtor.

The crops grown from HM.Clause seed, or the proceeds from those crops, are not covered by Oregon grain lien law, the complaint said.

For that reason, the cooperative has asked a bankruptcy judge to declare that none of HM.Clause’s $1.8 million claim is secured by a lien. Alternatively, the lawsuit seeks a declaration that the only secured amount is a proportional share of the $122,000 that NORPAC farmers paid upfront for seed.

Under HM.Clause’s interpretation of the law, the proceeds from crops grown from seeds should also be covered by a grain producer’s lien, said Vartan Saravia, the company’s general counsel.

However, there isn’t a lot of case law that’s exactly on-point for such disputes, so the attorneys must convince the judge that other legal precedents bolster their case, he said.

“We’ll see what the court has to say about it,” Saravia said.

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

Recommended for you