Easterday Dairy, LLC v. Fall Line Capital, LLC, 2:22-cv-01000-HL

• Court: United States District Courts. 9th Circuit. United States District Court (Oregon)
• Writing for the Court: ANDREW HALLMAN UNITED STATES MAGISTRATE JUDGE
• Parties: EASTERDAY DAIRY, LLC, a Washington limited liability company; and COLE EASTERDAY, Plaintiffs, v. FALL LINE CAPITAL, LLC, a Delaware limited liability company; CANYON FARM, LLC, a Delaware limited liability company; and CANYON FARM II, LLC, a Delaware limited liability company, Defendants. and CANYON FARM, LLC, a Delaware limited liability company; and CANYON FARM II, LLC, a Delaware limited liability company, Third-Party Plaintiffs, v. 3C FARMS, LLC, an Oregon limited liability company; EASTERDAY FARMS PRODUCE, CO., a Washington corporation; 3E PROPERTIES, a Washington limited partnership; CODY A. EASTERDAY, an individual; CUTTER W. EASTERDAY, an individual; CLAY A. EASTERDAY, an individual; TRIPLE E FARMS LLC, a Washington limited liability company; and DIVERSIFIED FINANCIAL SERVICES, LLC, a Nebraska limited liability company, Third-Party Defendants.
• Docket Number: 2:22-cv-01000-HL
• Decision Date: 22 November 2022

EASTERDAY DAIRY, LLC, a Washington limited liability company; and COLE EASTERDAY, Plaintiffs,
v.
FALL LINE CAPITAL, LLC, a Delaware limited liability company; CANYON FARM, LLC, a Delaware limited liability company; and CANYON FARM II, LLC, a Delaware limited liability company, Defendants.

and

CANYON FARM, LLC, a Delaware limited liability company; and CANYON FARM II, LLC, a Delaware limited liability company, Third-Party Plaintiffs,
v.
3C FARMS, LLC, an Oregon limited liability company; EASTERDAY FARMS PRODUCE, CO., a Washington corporation; 3E PROPERTIES, a Washington limited partnership; CODY A. EASTERDAY, an individual; CUTTER W. EASTERDAY, an individual; CLAY A. EASTERDAY, an individual; TRIPLE E FARMS LLC, a Washington limited liability company; and DIVERSIFIED FINANCIAL SERVICES, LLC, a Nebraska limited liability company, Third-Party Defendants.

No. 2:22-cv-01000-HL

United States District Court, D. Oregon, Pendleton Division

November 22, 2022

Russell D. Garrett Daniel L. Steinberg Christopher K. Dolan Attorneys for Plaintiffs and Third-Party Defendants

Amy Edwards Crystal Chase STOEL RIVES LLP David E. Suchar, admitted Pro Hac Vice Jonathan E. Septer, admitted Pro Hac Vice Evan Nelson, admitted Pro Hac Vice MASLON LLP Attorneys for Defendants and Third-Party Plaintiffs

OPINION & ORDER

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ANDREW HALLMAN UNITED STATES MAGISTRATE JUDGE

INTRODUCTION

Plaintiffs Easterday Dairy, LLC, and Cole Easterday (referred to collectively as the “Easterdays”)^[1] bring this action against Defendants Fall Line Capital, Canyon Farm, and Canyon Farm II (referred to collectively as “Fall Line”). The Easterdays, through a series of businesses, contracted with Fall Line and its related businesses to purchase and salvage an inoperative mega dairy on Lost Valley Farm (also called the “Farm”). Cody Easterday's 230-million-dollar cattle fraud and the Easterdays' related bankruptcies disrupted the deal. The remaining Easterdays tried to salvage the deal with Fall Line through a Forbearance Agreement. But the deal has gone sour, and now the parties are before this Court to determine their rights and responsibilities under several contracts they agreed to throughout their relationship.

The main agreements controlling the parties' dispute are the Amended Easement, Forbearance Agreement, Deed of Trust, and Controlled Animal Feeding Operations and Animal Waste Management Plan (“CAFO Permit”). This matter comes before the Court on the Easterdays' Motion for Preliminary Injunction, which seeks twenty-three forms of preliminary relief based on two claims: (1) declaring the initial easement termination unlawful and (2) breach of good faith and fair dealing. The Court held an evidentiary hearing and heard oral argument on this motion from October 3 to 4, 2022. Tr., ECF 84-85.

The parties' briefing and evidence show that the Easterdays will likely lose their dairy business without court intervention. To sufficiently reduce the risk of this injury, the Court

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would have to grant three forms of relief: (1) reinstate the Amended Easement; (2) provide the Easterdays sufficient time to obtain a live animal permit before the Amended Easement expires on its own terms; and (3) construe the Amended Easement to allow the Easterdays access to all the information and control of farming practices they need to obtain a live animal CAFO permit. The Easterdays have failed to show a likelihood of success on the merits of a claim that will grant them any of these remedies. And they will need all three for a preliminary injunction to fulfill its goal of sufficiently reducing the risk of irreparable harm. Although they have demonstrated serious questions as to the merits of some of their claims, those claims cannot support the relief they need, and neither the balance of equities nor the public interest factors support a preliminary injunction. Thus, the Court DENIES the Easterdays' Motion for Preliminary Injunction.

BACKGROUND

I. Lost Valley Farm

Lost Valley Farm has two parcels. The inoperative dairy is on the Dairy Parcel, and over 6,000 acres of adjacent farmland makes up the Farm Parcel. Tellier Decl. ¶ 2, ECF 53; see infra Attachment. A CAFO Permit regulates the entire Farm. This current permit does not allow dairy animals on the property and has strict remediation and management requirements. Easterday Decl. ¶ 2, ECF 22; Tellier Decl. ¶¶ 5-6; Edmonds Decl. ¶ 8, ECF 55. Fall Line owns the Farm Parcel and sold the Dairy Parcel to the Easterdays. Both parties hoped to work together to comply with the existing CAFO Permit and obtain a new live animal CAFO Permit so the Dairy Parcel could become operational.

The Easterdays bought the Dairy Parcel with 16 million dollars of seller financing from Fall Line in early 2019. Edmonds Decl. ¶¶ 10-14A. The Deed of Trust, Real Estate Contract, and

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Promissory Note govern this seller-financed Dairy Parcel sale from Fall Line to the Easterdays. Exs. 3-5. The Easterdays, through Easterday Farms LLC, also entered a twenty-year lease of the Farm Parcel from Fall Line, and Fall Line granted the Easterdays an Easement over the Farm Parcel. Easterday Decl. ¶ 8; Ex. 6. The Farm Lease and Easement were central to the Easterdays complying with the CAFO Permit and obtaining a live animal CAFO Permit because the permit regulates the whole Farm. Ex. 1; Easterday Decl. ¶ 9.

Cody Easterday was the primary negotiator for the Easterdays before his indictment, and he signed as Easterday Dairy's representative guaranteeing the Promissory Note and Deed of Trust. Ex. 4 at 8; Ex. 5 at 27.

In October 2019, Cole Easterday also entered a Home Site Lease with Fall Line that had extendable terms through 2038. Ex. 10 at 1. The land was undeveloped, and Cole added residential improvements costing around 493 thousand dollars. Easterday Decl. ¶ 14.

II. Forbearance Agreement and Amended Easement

Two years into the relationship, Cody Easterday's 230-million-dollar fraud of Tyson Meats led to bankruptcy of some of the Easterdays' businesses^[2] and a series of defaults under the Deed of Trust, Promissory Note, and Farm Lease. Easterday Decl. ¶ 16; Ex. 14 at 16-17. Rather than end the deal, Cole Easterday and his brothers negotiated a Forbearance Agreement and Amended Easement with Fall Line. Through these documents, Fall Line agreed to forebear from exercising its default rights under the Promissory Note and Deed of Trust in exchange for certain concessions from the Easterdays, including Amending the Easement so that it was less

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permanent. Exs. 17, 18. During the bankruptcy, Easterday Farms terminated the twenty-year farm lease, and Fall Line leased the Farm Parcel to 3C Farms, another Easterday company, for one year. Tellier Decl. ¶ 10. After these agreements, the main documents controlling the parties' current relationship are the Forbearance Agreement, Amended Easement, CAFO Permit, and Deed of Trust. Exs. 1, 5, 17, 18.

III. The Farm Lease Ends

After the one-year farm lease ended in late 2021, the Easterdays started having issues complying with the existing CAFO Permit and trying to obtain a live animal permit. While the Easterdays bid on a new lease, Fall Line chose to lease the Farm Parcel to a different company, Walther Farms. Tellier Decl. ¶ 14. At this point, the Easterdays no longer controlled the Farm Parcel but were still required to comply with the CAFO Permit that covers the entire Farm. Ex. 1 at 1. The permit requires the Easterdays to keep records of every irrigation occurrence's flow volume and total nitrogen and phosphorus content. Ex. 1 § S4.A.3. But Fall Line and Walther Farms only provided weekly bulk totals of this information to the Easterdays. Ex. 103 at 3. Relying on communication from Fall Line also created substantial problems for the Easterdays in complying with other CAFO Permit requirements, including reporting spills or overapplications, changes in irrigation design, and soil moisture probe and lysimeter data. Ex. 103 at 1.

The Easterdays also complained of increased nitrate contamination after the change in Farm Parcel ownership, but the Court cannot find this increase is because of the change in ownership or management.^[3]

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IV. The Amended Easement

Though the Easterdays lost the farm lease, they still had an Amended Easement over the Farm Parcel until June 2022. The Amended Easement states, “the [Farm Parcel] shall be subject to the [CAFO Permit] for the benefit of the [Dairy Parcel]. Accordingly, [Fall Line] grants [the Easterdays] an easement to access and use the [Farm Parcel to] deliver[] and apply[] liquid and solid nutrients generated by the [dairy] and for all other purposes and obligations [under the existing CAFO Permit or a future CAFO Permit].” Ex. 18. During this time, the Oregon Department of Agriculture (“ODA”) did not find Fall Line out of compliance with the CAFO Permit, and Fall Line allowed the Easterdays to access the property. Edmonds Decl. ¶¶ 34-35. But Fall Line was not providing the Easterdays with all the information they needed to comply with the CAFO Permit. Ex. 103 at 1.

V. Amended Easement Revocation

Eight months after the one-year farm lease to 3C Farms ended, Fall Line revoked the Amended Easement, ending the Easterdays chance of revitalizing the dairy as planned. Tr. 298:11-12. Fall Line revoked the Amended Easement under its default provision: “[E]ither party shall have all rights and remedies that may exist at law or in equity, including a right to terminate” the easement after a default. Ex. 18 at 3. A default under the Amended Easement

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includes “[a]n uncured default under the Loan Documents[,]” which are the Forbearance Agreement, Promissory Note, and Deed of Trust. Ex. 18.

The Forbearance Agreement provided the Easterdays with a period to cure the defaults that occurred in the wake of Cody Easterday's fraud and the family's bankruptcies. Ex. 17 at § 3, Ex. A. The cure period...