BY JOHN COX Californian staff writer firstname.lastname@example.org
Lingering pain over a disastrous investment in West Texas cotton just got worse for Bakersfield's Calcot Ltd.
A group of Arizona-based Calcot members sued the cotton marketing co-op Monday, alleging that it had no business getting involved in such investments and, further, that the organization tried to hide the $21 million loss that resulted in 2011.
Calcot's lawyer said in an interview Monday that the partnership's losses, as well as its earlier profits, were disclosed in annual reports. He added that such investments were appropriate for the 85-year-old cotton exporter.
The lawsuit comes as the co-op is trying to recover half the 2011 losses from White Gold Cotton LLC, its Bakersfield-based partner in the ill-fated joint venture. Calcot sued White Gold principal Mark Costa in November, saying he hid personal assets to avoid paying his share of the losses, which his lawyer has denied.
Calcot has also filed lawsuit against five cotton growers in Lubbock County, Texas. The co-op alleges that they failed to deliver all the cotton they promised in what turned out to be an unusually volatile harvest -- and the subject of lawsuits around the country.
"In reviewing records, we believe that there will be additional growers that we will be filing against in West Texas," Calcot's Hanford attorney, Robert Dowd, said Monday.
Observers of West Texas' cotton industry have said many merchants were burned that crop year as deliveries failed to live up to government estimates. The situation was exacerbated by a panic in the international textile industry that caused prices to shoot up from about 70 cents per pound to more than $2. Merchants have since accused farmers of breaking contract commitments and selling to the highest bidder.
In 2008-09, the Bakersfield partnership's first year of operation, court records show it netted $2.8 million. The following year it earned $1.6 million. But in 2010-11 it lost $21.6 million.
Monday's suit was filed in Kern County Superior Court on behalf of 10 farmers and farming partnerships. It claims that the plaintiffs were unaware of the partnership's existence until after it ended, and that Calcot "saddled growers with secret losses" by deducting the $21.6 million from their sales proceeds.
"It's our view that ... it's an improper deduction from the growers," the plaintiffs' Bakersfield attorney, Ralph Wegis, said in an interview.
The suit goes on to say that Calcot is a co-op that with a federal tax status that forbids it from engaging in such risky, for-profit activity.
Dowd challenged the assertion that the co-op tried to obscure its activities in West Texas.
"There was no hiding," he said. "This has been disclosed in each of the audit reports for each year of the joint venture."
Dowd also said Calcot's governing documents "do not prohibit it from participating in such a venture."