The Oregon Potato Co. claims information from a “whistleblower” at the NORPAC cooperative was the “last straw” that sank its deal to buy most of the bankrupt processor’s assets.
A top executive at NORPAC warned of dealings between the cooperative and Simplot, a rival processor, that threatened to diminish the agreement’s profitability for Oregon Potato Co., according to OPC’s vice president in court filings.
The allegation is the latest twist in ongoing bankruptcy proceedings that will determine how much money is repaid to NORPAC’s creditors — including farmers who are demanding payments for last year’s crops.
At the time NORPAC Foods filed for bankruptcy last year, the Oregon Potato Co. had planned to buy most of its facilities, equipment and inventory for $155.5 million.
However, agribusiness entrepreneur Frank Tiegs, the owner of Oregon Potato Co., pulled out of the deal shortly before competing bids for the assets were due.
A committee representing unsecured creditors — who don’t have collateral for loans — is seeking to file a lawsuit on NORPAC’s behalf, alleging Tiegs withdrew from the deal in “bad faith” to drive down the sale price.
These creditors claim they’ll be able to recover additional funds that NORPAC can use to repay the money they’re owed.
Oregon Potato Co. is now urging a bankruptcy judge to deny permission for the unsecured creditors to file such a complaint because their accusations are “baseless” and will only result in “expensive and futile” litigation.
Unsecured creditors shouldn’t now be allowed to pursue a lawsuit that would be paid for with NORPAC’s remaining cash since “there will be no upside recovery — only downside in the form of legal bills at New York City rates,” according to OPC in its filings.
To bolster its argument, the company says allegations of bad faith aren’t plausible because Tiegs withdrew from the asset purchase agreement due to valid “due diligence” concerns about problems at NORPAC.
Specifically, Oregon Potato Co. claims it didn’t become aware of transactions between NORPAC and Simplot that “undercut” inventory values until the day before the bid deadline in October 2019.
Due to a “whistleblower” email from a NORPAC executive, Oregon Potato Co. learned the cooperative decided to accelerate deliveries of 8 million pounds of corn to Simplot, according to a court declaration from Steven Schossberger, vice president and general counsel at OPC.
“This was outside the ordinary course of business and was not reflected in the projections that had been delivered to us earlier that same day,” Schossberger said in the declaration.
These accelerated deliveries undermined the economics of the deal for Oregon Potato Co. because it had planned to pay a discounted rate for that corn, with the purchase price for NORPAC’s assets partly based on those anticipated inventory levels, according to the company.
“This was really the ‘last straw’ for OPC,” Schossberger said.
The executive who allegedly sent the “whistleblower” email — Paul Scott, NORPAC’s vice president of operations — has recently claimed the cooperative denied him a $100,000 bonus while other executives received similar payments despite the bankruptcy.
According to emails cited by OPC in the court filing, Scott said he was “compelled” to share the information contrary to instructions from NORPAC’s CEO, Shawn Campbell, and that dealings with Simplot made Scott “very nervous” because he didn’t want “anything to jeopardize the deal with OPC.”
This information increased Oregon Potato Co.’s suspicions that Campbell was “in bed with Simplot” and shouldn’t be trusted, “which had already been aroused by things such as the deleted emails and shredded documents,” Schossberger said in court documents.
Scott, the cooperative’s vice president of operations, had also disclosed that NORPAC shut down a server with the company’s archived emails and destroyed paper files, leading Oregon Potato Co. to worry that Campbell was “attempting to hide his dealings with Simplot to OPC’s detriment,” the declaration said.
Oregon Potato Co. also alleges that Scott revealed NORPAC was potentially liable for improvements to a municipal wastewater facility, which the cooperative “had sought to avoid disclosing,” the document said.
Other problems that prompted the deal’s termination included environmental contamination of property, a lack of safety plans for ammonia refrigeration systems, delayed antitrust approval and an impasse in union negotiations, among other issues, according to OPC’s filings.
After the original deal fell through, Tiegs ended up buying the NORPAC processing facility in Quincy, Wash., while the cooperative’s Oregon facilities were sold to the Lineage Logistics cold storage company.
Lineage Logistics has kept the former NORPAC plant in Salem, Ore., while selling the facilities in Brooks, Ore., and Stayton, Ore., to Tiegs.