Trial Opens Over Egg City Ownership : Litigation: The bitterly contested lawsuit took on a muted tone after the judge decided to hear the case without a jury.
A trial got under way last week in U.S. District Court in Los Angeles over a case that will decide who owns the 3 million birds at Egg City in Moorpark, once the world’s largest egg ranch.
Okura & Co. (America), a subsidiary of a large Japanese trading company, owns 40% of Egg City and sued last February to foreclose on the ranch, saying it was owed $31 million. But Richard Carrott, who with his partner owns the remaining 60% of the ranch, has mounted a vigorous legal defense, charging Okura with trying to stage a “hostile, secret takeover” of Egg City. Both Carrott and Okura own their stakes in the ranch through The Careau Group, Egg City’s holding company.
Even before the trial began, the case was marked by bitter charges of deceit, incompetence and conspiracy--and from Carrott’s side, a pervasive distrust of Japanese business practices. But the trial itself took a muted tone, mainly because Judge Stephen V. Wilson decided before testimony began to hear the case without a jury. Carrott’s side originally sought a jury trial.
But while the presentation in court last week was low-key, neither side gave an inch in presenting their diametrically opposed stories. Okura, which put up millions of dollars to bail Egg City out of bankruptcy and keep it running, claimed it was simply foreclosing on loans after it decided Carrott’s side would never repay them.
Carrott’s side, meanwhile, claimed Okura had damaged him and his partner, scheming from the outset to create the conditions that prevented Carrott’s side from paying back what money it owed so that the Japanese group could take over the ranch.
An important legal turning point came when Wilson ruled out testimony by an expert witness that Carrott’s side hoped would spell out its claim for about $37 million in damages from Okura. The witness, an agriculture expert, had not finished analyzing the case. “He doesn’t give a firm opinion on anything,” Wilson complained. “This is certainly a very unsatisfactory declaration of a proposed expert witness.”
Wilson’s move means Carrott’s side won’t be able to make a claim that it deserves damages from Okura, although it can still have the judge set aside the $31 million Okura says it is owed, and effectively force Okura into partnership with Carrott.
Last week’s trial leaves two steps remaining before the case can be decided. Carrott is scheduled to testify Nov. 27; then both sides will present oral arguments summing up the case on Dec. 4.
Ultimately, the case stems from Egg City’s longstanding problems making money. In 1985, before Okura came on the scene, Carrott led a leveraged buyout of Egg City for $19 million.
Carrott didn’t have much luck with the ranch. Egg City started losing about $300,000 a month and filed for bankruptcy protection in 1986. In late 1987, Okura--a major Egg City customer which resold eggs to Japan’s Q.P. Corp.--agreed to lend the business $13 million to pay off creditors and come out of bankruptcy, in return for a 40% stake.
Okura eventually put up more money to help pay for capital improvements at the ranch and even to buy feed to keep hens from starving. With interest, Okura says the amount has reached $31 million.
The two sides came to loggerheads over repayment of the money in late 1989, and Okura soon filed to foreclose on the farm, which was the collateral put up to cover its initial loans to Careau.
The trial’s first week boiled down to a few key points. Among them was a claim by Carrott’s side that Okura made two types of investments in the ranch: loans and long-term investments that were not to be repaid. If so, Carrott’s side argued, it was unfair to essentially change the deal and demand repayment before the long-term investment improved the ranch’s operations. Another important question was who was responsible for Egg City’s continuing losses in 1988 and 1989--Carrott, or Okura’s representatives who worked at the farm.
The thrust of Carrott’s case was to confront Okura executives with documents allegedly showing that the Japanese company did not count on being repaid quickly on its original $13-million loan but in fact expected to provide Egg City with even more cash before such a repayment was possible. Carrott’s attorneys also tried to lay the blame for much of the farm’s losses at the feet of the Okura executives who worked at Egg City.
But Okura’s attorneys discounted the internal documents. Under cross-examination, Hiroshi Toyokawa, former president of Okura’s American subsidiary, insisted that the documents only reflected the “opinion” of some people at Okura that more cash infusions would be needed before the loans could be paid back. And Okura maintained in written testimony that it was Carrott’s allegedly erratic business style was the root of Egg City’s troubles.
