Meduri Farms is urging a federal judge not to appoint a receiver to seize and liquidate its business, arguing its lender has exaggerated the Oregon fruit producer’s financial turmoil.

KeyBank’s request for a court-appointed receiver to wind down the fruit grower and processor “represents a gross overreach” and would be “counterproductive,” according to Meduri Farms of Dallas, Ore.

Transaction common

Despite KeyBank’s claims of “massive fraud,” the company’s transactions with members of the Meduri family were “commonplace” and never hidden from the lender, according to court documents filed by Meduri Farms.

The company claims its fruit drying business is “trending in a positive direction” and faces “no danger of dissipation,” with its recovery led by a “highly-experienced and well-regarded corporate turnaround specialist.”

Meanwhile, KeyBank’s loans are secured by company assets worth roughly $45 million in collateral value, giving the lender an “equity cushion” of about $25 million beyond the $20 million it has loaned to Meduri Farms, the company said.

“KeyBank is extraordinarily over-secured, such that it has virtually zero risk of not being paid in full,” according to Meduri Farms.

The lender has asked U.S. Magistrate Judge Jolie Russo in Portland, Ore., to appoint a receiver to take control of Meduri Farms, claiming it’s failed to restructure or sell the business, which is in “imminent danger of insolvency.”

KeyBank alleged that CEO Joe Meduri took out $2 million in shareholder loans with his wife and paid family members “bloated salaries,” even as the company struggled financially and experienced an $11 million operating loss in 2022.

A receiver is needed to “mitigate further losses” with an “orderly wind down and liquidation” because “other remedies are either not available or are inadequate,” according to KeyBank.

Pandemic woes

However, Meduri Farms argues that it had a “mutually beneficial business relationship” with the lender for 18 years until it ran into trouble due to the “unprecedented market conditions” of the COVID pandemic.

Founded in 1984, the company employs 260 full-time workers and sells its specialty dried fruit products to major global retailers and food manufacturers, “including Costco, Kraft Foods, and KIND Bar,” according to its court documents.

In 2020, the coronavirus outbreak caused “work stoppages, rising raw fruit prices, above average maintenance capital expenditures, customer instability, and supply chain disruptions,” the company said.

The supply of blueberries, its primary crop, became “uncharacteristically short” between late 2021 and mid-2022, forcing Meduri Farms “to buy product on the spot market at substantially increased prices” and import more fruit from South America and California at higher freight costs, the company said.

The company said it “locked in pricing and volume” with customers before inflation increased to “a near historic high” last year, though it’s since been able to “renegotiate the majority of its customer contracts.”

The market forces that caused Meduri Farms to default on loan terms with KeyBank are now improving, with blueberry prices and other inputs stabilizing, the company said. “Furthermore, several competitors exited or significantly scaled back their blueberry business since 2020, which is expected to yield a broader market share for Meduri Farms.”

Meduri Farms is on track to earn $75.8 million in revenues and a 20% gross profit margin in its 2023 fiscal year, after falling short of a 10% gross profit margin the previous year, according to its court documents.

As for the “insider transactions” complained about by KeyBank, the company claims to have implemented controls “to prevent corporate funds from being used for personal purposes.”

In 2023, the company has paid less than $70,000 in personal expenses for Meduri family members and the amount of money they owe for such transactions has been decreasing, the company said.

Such payments were disclosed to KeyBank in every year they occurred, the company said. “And in any case, in a family-owned business like Meduri Farms, such related-party transactions are common, and are not indicative of fraud.”

Contrary to KeyBank’s allegations, the company said it’s not undoing management changes implemented by a previous turnaround expert.

Rather, the processor said it’s switched to a different chief restructuring officer, Philip Kaestle of Sierra Constellation Partners, due to his experience with corporate restructuring and refinancing.

“Mr. Kaestle is evaluating even further cost savings opportunities, such as the elimination of a non-strategic warehouse, additional headcount reductions and potential changes to production shift schedules to reduce payroll,” the company said.

Bank seeks to liquidate Meduri Farms over $20 million in unpaid loans