Trustee: Costco owes Sunland about $4 million

By Robin Fornoff


A court-appointed trustee says Costco Wholesale owes Sunland Inc. about $4 million after abruptly canceling its contract five days before the defunct Portales peanut processor filed for Chapter 7 bankruptcy protection.

Costco’s cancellation of the contract now appears to be the catalyst for Sunland’s Chapter 7 filing, forcing the plant to shut its doors owing millions to creditors.

Other documents filed earlier in the case indicate Sunland was moving forward with plans to ask for a Chapter 11 bankruptcy approved by its board last April.

A Chapter 11 filing would have allowed Sunland to reorganize its debts and continue operating. Under Chapter 7, all of Sunland’s assets are sold or liquidated with proceeds distributed to its creditors to satisfy debts.

Costco — one of Sunland’s largest creditors and also Sunland’s largest customer — has asked the bankruptcy court to lift a stay and let it reclaim what’s left of peanuts it fronted Sunland $20 million to purchase and process.

If granted, the peanuts wouldn’t be included in the Sunland inventory to be liquidated.

Albuquerque attorney Thomas Walker, however, filed objections Nov. 21 to Costco’s request on behalf of bankruptcy Trustee Clarke Coll.

Walker said Costco owes Sunland $1.4 million for shelled and bagged peanuts and another $2.6 million for finished peanut butter, all still sitting in storage.

Walker said it is all part of a Dec. 4, 2012, deal in which Costco agreed to front the $20 million to cash-strapped Sunland, then under a federally ordered recall and shutdown over a nationwide salmonella outbreak.

Walker said the products were produced by Sunland as part of a contract that “On or around October 4, 2013, Costco unilaterally terminated…” Sunland, once the nation’s largest producer of organic Valencia peanuts, filed for Chapter 7 bankruptcy Oct. 9.

Others joining Walker and filing objections to Costco’s request are CoBank and Production Credit Association, Sunland’s other largest secured creditors. Sunland owes the three combined an estimated $16 million.

Attorney Tim Newsom of Amarillo also filed an objection of behalf of Kelly Green Commodities Inc. in Farwell. Newsom said Sunland owed Kelly Green $243,654 for storing the Costco peanuts when the peanut processor filed bankruptcy and now owes that amount in addition to unspecified monthly fees accrued since the filing.

Federal Judge David Thuma has set a final hearing Dec. 23 to settle the issue.