One of the biggest players in Hawaii’s Kona coffee industry is in shambles after a legal battle that has left many small farmers unpaid along with questions about what happened to a business whose coffee retailed for up to $69 a pound.
At one time Mountain Thunder Coffee Plantation was described as the largest organic Kona coffee farm in Hawaii, and the company grew to become one of the biggest wholesale buyers of coffee from small farmers.
Now assets of Mountain Thunder and a sister company are being sold to a California lender through U.S. Bankruptcy Court in Honolulu after a judge’s ruling last month.
The liquidation represents a loss for nearly 350 creditors — mainly small coffee farmers and service vendors — who stand to be repaid hardly any of what they are owed.
“It’s terrible,” said Cecelia Smith, a farmer and director of the Kona Coffee Farmers Association who is not a creditor in the case. “It’s just too bad.”
It’s not clear what was behind the downfall of a business that won acclaim but also tried to prop itself up by investing in a gold mine.
Mountain Thunder was started about 20 years ago by Trent and Lisa Bateman, and received awards and recognition on national TV. The family-run farm included coffee trees on about 10 acres and became a major processor and seller of coffee bought from other growers. The business also hosted tours, ran a gift shop, sold coffee at Costco and operated a cafe at Mauna Lani Resort.
Some farmers who didn’t want to be named for fear of retaliation questioned the origin and quality of coffee that Mountain Thunder had sold. But they also said the company helped push up prices for all Kona coffee farmers.
Records in U.S. District Court show that a special agent with the U.S. Food and Drug Administration executed a search warrant on the Batemans’ businesses and seized records in 2014.
Trent Bateman did not respond to a request for comment last week, but told a meeting of creditors that the debt default that led to bankruptcy was fabricated by the California lender that has taken over.
“They were abusing us,” he said at the meeting. Bateman also said the FDA raid was tied to rumors that his businesses were importing coffee sold at Costco as Kona coffee, and that these rumors were untrue and nothing came of the FDA action.
Trouble with the California lender ties back to 2011 when Mountain Thunder, and sister company Naturescape Holding Group International Inc., owned by the Batemans’ daughter Brooke Decker, attempted to finance coffee purchases through GemCap Lending I LLC, a firm that makes high-risk loans and likes to say it finances all kinds of “stuff,” including machinery, inventories and commodities.
Initially the farm obtained a $440,000 loan and a $1.6 million revolving line of credit secured by its assets, though by 2014 the credit line had grown to $4.6 million, according to court filings.
Trent Bateman in court documents described financial difficulties as emerging in mid-2015 from a coffee market decline and slow sales, which the farm sought to offset by investing in an Oregon gold mine with more financing from GemCap.
Bateman stated that the coffee business borrowed $1.3 million from GemCap for the mine, which then was operated for little more than a month before it proved unsustainable. Equipment acquired in the deal had been appraised, through GemCap, at $1.2 million but ended up being sold by the Batemans for $254,962.
“GemCap’s appraisal was flawed and substantially inflated,” Bateman said in the filing. “We never would have purchased the mine and accepted financing from GemCap had we known the actual value of the mining equipment was less than $500,000.”
Amid the farm’s financial difficulties, GemCap representatives began overseeing operations to curtail spending. Bateman said in the filing that this move further hurt the farm because there were prohibitions on buying fertilizer, combating the coffee borer beetle pest and paying for labor.
“GemCap would not allow the business to spend money to do farm maintenance, and because of this all four farms fell into disrepair,” he said. “GemCap detrimentally interfered with the business.”
In December 2015, GemCap filed a foreclosure lawsuit in state court seeking to repossess land, equipment and coffee inventory after the farm allegedly defaulted on $4 million in debt.
The Batemans claimed that GemCap had improperly inflated its debt and inhibited efforts to improve the business and refinance the debt. A judge gave the Batemans time to refinance, but GemCap wasn’t happy about waiting and in September dragged Mountain Thunder and Naturescape into Bankruptcy Court, where it sought to liquidate assets quicker.
In November, Bankruptcy Judge Robert Faris appointed a trustee to assume control of the operation.
The trustee, Elizabeth Kane, shut down operations Jan. 24 after achieving only a “small marginal operating profit” during the Christmas holiday season that was followed by a decline.
“Debtors and their principals appear to be obligated, and have more or less pledged and mortgaged the entirety of the assets necessary to the business to GemCap,” she said in a filing that also dismissed claims that GemCap fraudulently manipulated the coffee businesses debts. “Hence there is little the debtors, or the trustee, can do to ‘reorganize’ the entirety of the enterprise.”
Mountain Thunder and Naturescape reported having $10.8 million in debts and $2.1 million in assets. Of the debts, $1.9 million is owed to unsecured creditors who are mainly small coffee farmers and service vendors that stand to receive little repayment.
“The most unfortunate aspect of this case is that many of our growers that sold coffee to Mountain Thunder were never paid,” said Suzanne Shriner, president of the Kona Coffee Farmers Association. The association wants the Bankruptcy Court to support repayment to farmers before GemCap, but GemCap has a priority to be repaid.
GemCap agreed to give $100,000 to unsecured creditors, to pay bankruptcy case expenses and to provide an extra $150,000 for unsecured creditors if additional money is extracted from Mountain Thunder or Naturescape assets that could include proceeds from a legal-malpractice claim in a case involving another coffee company.
The lender is acquiring assets valued at about $2 million, including coffee inventory, equipment and land leases.
GemCap established Palani Farms LLC to continue operations but has run into difficulties because the Batemans have claimed some things as personal property not tied to its debt with GemCap.
Last week GemCap filed a complaint in Bankruptcy Court alleging that the Batemans are denying access to sold property and obstructing farm tours and coffee processing. The complaint, which asks Faris to enforce the sale order, also said the Batemans are acting in a “menacing” manner and have cut off the water supply to the farm while continuing their own tours and coffee sales.
“(Trent) Bateman had continued to conduct business operations as Mountain Thunder, including registering a new website in Mountain Thunder’s name and giving tours on premises leased by Mountain Thunder that are included in the purchased assets,” said the complaint, which seeks punitive damages.