Sunland trustee requests court OK to destroy refused peanut butter

By Kali Hays

New York, March 21 - Sunland, Inc.'s trustee Clarke C. Coll was given court authorization to destroy $2.8 million in estate assets comprised of 950,000 jars of peanut butter processed for Costco Wholesale Corp., according to a Friday order on an emergency motion filed with the U.S. Bankruptcy Court for the District of New Mexico.

Costco agreed to purchase the peanut butter Jan. 29, but after delivery of eight loads of product, Costco sent a letter to Coll "rejecting the Costco peanut butter complaining for the first time that it was 'not merchantable,'" the filing stated.

Costco filed a proof of claim against Sunland Feb. 18 in the amount of $7.42 million claiming that the peanut butter was "worthless" and "leaking peanut oil."

Unable to sell the product with the Costco label, Coll claims to have made several suggestions to Costco on how best to dispose of the unwanted peanut butter, such as donation to a food bank or prison, but "Costco summarily rejected those ideas," the filing stated.

During a March 19 status conference before the court, Costco said that the only disposal of the peanut butter they would agree to was destruction.

Coll has arranged for the peanut butter to be taken from company premises to the Curry County Dump and requested immediate authorization from the court to assure the removal is complete by March 28.

The company's lenders have approved the use of $60,000 of cash collateral for the removal.

Coll claimed that "it is in the best interest of the estate to proceed with destruction of the Costco peanut butter immediately" as Hampton Farms of New Mexico LLC recently purchased Sunland subsidiary Ready Roast Nut Co. for $2.05 million and expressed concern over its liability in the matter, according to the motion.

The Hampton Farms sale is set to close March 28.

Sunland, a Portales, N.M., peanut butter producer, filed for bankruptcy on Oct. 9. The Chapter 7 case number is 13-13301.

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