Partner Sues for Control of Egg Farm : Finances: Egg City, which has a history of financial and labor problems, is charged with defaulting on loans from a Japanese trading firm.

The ownership of 3 million hens laying 2 million eggs each day was put at stake Feb. 2 when the Japanese partner in Egg City, once the world’s largest egg ranch, sued to take control of the huge Moorpark farm.

Okura-America, the U.S. arm of Japanese trading company Okura & Co., alleged that Careau Group, the owner of 60% of Egg City, has defaulted on $30 million in loans and wants to foreclose on the ranch.

According to a lawsuit filed by Okura in U.S. District Court in Los Angeles, Careau has failed to meet loan agreements, including payments on the $13 million Okura originally lent Egg City in exchange for a 40% interest in the farm. That loan helped bring Egg City out of bankruptcy proceedings in December, 1987.

But an attorney representing Careau, Michael McCann, claimed that Okura planned all along to take over Egg City. McCann said the Japanese investment should be rescinded because it was structured unfairly, allowing Okura to force Egg City into default and take control of the ranch.

“There has been a hidden agenda, and that will be the focus of our response,” said Richard Carrott, Egg City’s chief executive who owns 90% of Careau, giving him 54% control of the ranch.

Ralph D. Kirwan, Okura’s attorney, denied the charge. “My client tried to help Mr. Carrott, and not hurt him,” Kirwan said.

Okura claims it pumped a total of $30 million in loans into the ailing ranch, but that Egg City continues to show operating losses of $500,000 a month. Careau is currently about $19.8 million behind in principal and interest payments to Okura, according to Kirwan.

McCann claimed, however, that the debt figures are exaggerated because they include cash that Okura invested to improve the farm’s operations and wasn’t intended to be repaid.

Since 1986, Egg City has faced a host of problems, including the bankruptcy filing and a bitter and protracted dispute with the United Farm Workers (UFW) over a $2-per-hour wage cut and a worker vote to end union representation at the ranch.

As recently as 1986, when Egg City sold about $45-million worth of eggs, the Guinness Book of World Records called the egg ranch the biggest in the world, but an Ohio farm has since taken that title. The 29-year old ranch, which mostly makes dried egg products for food companies, was sold in 1979 by its founder, Julius Goldman, to Kroger Co., the Cincinnati-based grocery chain.

The Careau Group, 10% of which is owned by Carrott’s partner Gerald Rosen, bought Egg City from Kroger for an undisclosed sum in 1985. Carrott is a former television actor who had parts in “Love Boat” and “Three’s Company” and played Cadet Capt. Chris Gentry in a Saturday morning children’s show.

The UFW, which began representing about 240 workers at Egg City in 1978, launched a strike against Egg City in 1986, after the ranch filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code. At the time Carrott said the ranch was losing about $300,000 a month.

Carrott blamed the losses on labor costs and asked the bankruptcy court to approve a $2-per-hour cut in wages for workers, most of whom made from $6.07 to $7.69 an hour. But the UFW said Carrott hadn’t negotiated fairly or released enough financial details about Egg City to prove the wage cuts were necessary.

The court upheld the wage cut, but the strike continued, even as Egg City replaced many of the striking workers. During 1986, striking workers organized pickets and boycotts against wholesalers, restaurants and grocery stores that bought eggs from the ranch. In November, 1986, a majority of Egg City employees--including strikers and their replacements--voted to end UFW representation at the ranch.

Last fall, Egg City won a pair of rulings by the state Agricultural Labor Relations Board--one declaring the workers’ vote valid despite UFW objections, and one calling the UFW’s boycott illegal because the union didn’t tell the public that its labor dispute was with the ranch, not the buyers.

Okura decided to help Egg City out of bankruptcy because the ranch was an important supplier of eggs, which the company imported to Japan, said Okura’s attorney, Kirwan. Okura has been one of Egg City’s biggest customers, buying about $5.7-million worth of eggs between April 1, l987, and March 30, 1988, according to Kirwan.

Okura claims it was disappointed that Egg City continued to lose money even after using the $13 million to partially pay off creditors. Okura continued lending money to Careau, including about $10.26 million to buy grain when suppliers demanded payments up front, the suit alleges.

But McCann, Careau’s attorney, claimed that Okura knew its initial $13-million investment wouldn’t end Egg City’s problems. “Nobody with more than a day’s experience in business could have believed” it would be enough, McCann said.