By P.J. Huffstutter
CHICAGO (Reuters) - Where did all the turkeys go?
That's the question attorneys for the buyer of bankrupt Zacky Farms LLC is asking, amid claims that one of the nation's largest turkey and chicken processors has been rushing to dump the bulk of its inventory of frozen turkeys - and speed up getting paid for it - prior to a rival completing its purchase of the nearly 100-year-old California family business.
Zacky Farms filed for Chapter 11 bankruptcy protection last October, blaming its economic woes in part on high feed costs following the worst drought in half a century.
Attorneys for Pitman Family Farms filed papers on Tuesday with the U.S. District Bankruptcy Court in Sacramento in which they claimed Zacky Farms has sped up the sale and delivery of more than $1 million worth of whole turkey inventory to Stater Bros. Markets, a private grocery retailer based in Southern California.
The sale of the inventory had been originally scheduled from January 30 through March 8. Instead, according to Pitman's attorneys, "Zacky revised the delivery schedules to deliver five or six loads a day" so all of the meat would be delivered to the retailer weeks before the bankruptcy court's expected approval of the sale of Zacky Farms.
The agreement to buy Zacky Farms out of Chapter 11 bankruptcy was based on Pitman having access to that inventory of frozen birds "to help offset losses that will be incurred after the approved sale," according to the court papers.
Zacky Farms now is losing approximately $3 million to $5 million each month.
An attorney for Zacky Farms told Pitman and its lawyers that such sales were typical of a poultry company in Chapter 11 bankruptcy, according to a copy of an email filed with the court.
Pitman's attorneys are asking the court that it escrow the proceeds from the "objectionable sale of these assets" for the time being, according to the court filings.
Attorneys for Zacky Farms could not be reached for comment. Jan T. Perkins, an attorney for Pitman Farms, declined to comment on the court filing.
"We have not changed our turkey purchasing patterns one bit," Stater Bros. chief executive Jack H. Brown told Reuters. "The timing is the same as we've always done."
Zacky Farms also recently sold 21 loads of "odd-sized" turkey breast meat to another company, Bird-in-Hand Farms Inc, at deeply discounted rates, according to the court filings.
The sales began a day after Pitman signed papers in late January to buy Zacky Farms out of bankruptcy, according to court papers. The sales allegedly ranged from $1.11 to $1.30 per pound of turkey breast meat. Current market prices for such meat range from $1.65 to $1.68 per pound, court papers state.
Bird-in-Hand Farms could not be reached for comment.
The legal debate marks the latest twist in the bankruptcy case. Last month, a Zacky Family trust pulled its bid to buy the operation out of bankruptcy. The struggling Fresno-based processor then accepted a $32.1 million back-up bid from Pitman Family Farms.
Pitman is a family-owned poultry farm operation in California, and is known for its free-range line of turkeys and chickens.
Zacky Farms has said in court filings that, as of last fall, it employed about 1,500 people in Fresno, Los Angeles, Tulare, Kings and San Joaquin counties. It had listed between $50 million to $100 million in assets, with debts in the same range, according to court filings at the time.
Company officials said in a statement last fall that the entire poultry industry has been strained by historically high feed prices which led Zacky Farms to incur "significant operating losses that have depleted its liquidity and working capital position" in its chicken and turkey businesses.
At the time of its bankruptcy filing, Zacky Farms was the eighth poultry firm to either be sold, enter into Chapter 11 bankruptcy or shut down altogether since 2011, according to data from the trade group National Chicken Council.
The case is Zacky Farms, LLC, U.S. Bankruptcy Court for the Eastern District of California, 12-37961.
(Reporting by P.J. Huffstutter; Editing by Phil Berlowitz and Bob Burgdorfer)