At up to $69 a pound, the organic Kona coffee produced by Mountain Thunder Coffee Plantation is worth guarding. But a security team outside the Hawaii farm being paid $2,000 a day isn’t stationed there by farm owners Trent and Lisa Bateman.
The Batemans are caught up in a bitter dispute over a high-interest loan that has a California lender trying to protect the assets of the coffee farm so they can be sold at auction.
Trent Bateman, however, claims the lender is trying to hijack his family business in federal Bankruptcy Court after disagreeing with proceedings in a pending state court foreclosure case in which a judge has given Mountain Thunder time to refinance its loans from GemCap Lending I LLC.
With an estimated $2 million in coffee inventory alone, it is a high-stakes fight over the future of a company that claims to be the biggest organic Kona coffee farm in the state.
Mountain Thunder, which has won awards and been featured in national TV shows, was incorporated about 20 years ago and grew with the help of Malibu, Calif.-based GemCap, a lender that makes high-risk loans and likes to say it finances all kinds of “stuff,” including machinery, inventories and commodities.
The lender claims in court filings that it has provided Mountain Thunder with about $16 million over the last three years that helped the farm, a major coffee processor, purchase $7.5 million worth of coffee from other farmers. The lender also said Mountain Thunder has earned about $33 million since 2011, with $19 million being paid to farmers and $2 million going to GemCap along with nearly $2 million going to the Batemans.
But last year, the farm appeared to be in dire financial straits. “We are in debt to you for over $4 million, accruing interest at 18 percent,” Bateman said in a September 2015 email to GemCap filed in court. “The business cannot survive much longer.”
In December, GemCap filed a foreclosure lawsuit in state court against Mountain Thunder and an affiliated Bateman company called Naturescape Holding Group International Inc., alleging that the companies defaulted on roughly $4 million in loans secured by all of the farm’s assets including land, equipment and coffee inventory.
Circuit Judge Ronald Ibarra appointed an independent receiver in January to oversee operation of the farm, including day-to-day management by Bateman. But GemCap has objected to moves by the receiver, Honolulu attorney George Van Buren, including his proposal to share proceeds of Mountain Thunder sales with other farmers due payments by Mountain Thunder.
Van Buren proposed that GemCap receive 70 percent of proceeds. But GemCap argued that it has first priority to be repaid fully before anyone else benefits from sales of Mountain Thunder coffee or other assets that were pledged as security for its loans.
“GemCap cannot legally be forced to release 30 percent of its assets every month to junior unsecured creditors,” the company said in court documents. “The proposed plan is not only unfair, it is unlawful. In addition, the receiver has presented no reasoned analysis based in law or equity for his allocations.”
Judge Ibarra has not ruled on Van Buren’s proposal, but in August gave Mountain Thunder time to reach a refinancing agreement with Minnesota-based lender Unity Bank, which indicated it could approve a loan of at least $4.6 million by Oct. 31 if a review is favorable to the loan.
Ibarra also said in August that he would rule on GemCap’s request to repossess all of Mountain Thunder’s assets on or before Nov. 14.
GemCap on Sept. 9 complained to Ibarra in a letter that Mountain Thunder failed to update the court about its refinancing effort and urged the judge to allow foreclosure. Then a week later GemCap took steps to effectively have a federal judge take over the case.
On Sept. 16, the lender, with backing from a few Mountain Thunder vendors, petitioned U.S. Bankruptcy Court to force the two Bateman businesses into bankruptcy.
The two “involuntary” Chapter 11 petitions claim that the companies haven’t paid about $350,000 in debts owed to GemCap, a coffee broker, four coffee suppliers and an advertising firm.
GemCap also complained in a Bankruptcy Court filing that the Circuit Court receiver is allowing Bateman to be paid to run the farm and that Bateman and other family members are living on the farm without paying an adequate share of rent for residential use of a GemCap asset. The lender also questions whether money is being wasted on other employees and alleges that valuable beans have been moved and concealed.
“GemCap is concerned that the receiver is not properly managing the assets of the business in a way that would maximize payments to creditors,” the lender said in a filing in its bankruptcy petition. “GemCap is being harmed irreparably while the receiver is letting the business be run ‘as usual.’”
The lender noted that it has paid nearly $300,000 for security guards to monitor the farm from outside since Bateman won’t allow the guards onto the property.
An involuntary bankruptcy petition doesn’t automatically place the coffee farm into bankruptcy. That will be up to a Bankruptcy Court judge. GemCap has requested that a new independent overseer be appointed to control Mountain Thunder and Naturescape for an interim period until an auction can be arranged to sell all assets of the company in Bankruptcy Court.
Bateman said the bankruptcy petitions are frivolous and were made because GemCap is unhappy with Ibarra’s decisions and Van Buren’s oversight.
“They’re a predatory rogue lender,” he said. “They’re trying to hijack the company.”
Bateman also said that GemCap, which objects to farmers getting a share of gross proceeds from Mountain Thunder, is the reason farmers and other vendors haven’t been paid.
“You can see how nasty and dirty these guys are,” he said, referring to GemCap.
Kristin Holland, a local attorney representing GemCap, said the company was not going to comment on the pending litigation.
David Ellis, who runs GemCap as co-president with his brother, said in a court filing last week that his company is a family business that needs to collect from Mountain Thunder rather quickly or face its own financial trouble.
“If GemCap is not repaid promptly on its loans to (Mountain Thunder and Naturescape), GemCap’s own lines of credit, revenue streams and business model are jeopardized,” he said. “If it is not repaid for another 20 months or two years, as has been proposed by the (Circuit Court) receiver, GemCap will be put out of business.”
Bateman said he’s confident he can replace GemCap as a lender so they can be repaid along with all other creditors while the farm continues in business. “We’re trying to do the right thing,” he said.
