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On the Origin of Facts


Far Away From Wall Street, a Herd Gets Gored

In the Lehman Bankruptcy, Goats R Us Feels It Was Left High and Dry in the California Hills 

Some of the world's biggest banks and law firms are fighting over what's left of Lehman Brothers Holdings. And so are the owners of 1,000 goats.

A Lehman-financed venture owes a company called Goats R Us about $53,000. The goats performed fire-prevention by munching shrubs and grass on a property the venture owns in Oakland, Calif.

There's little hope now that the bill will be paid, and that makes Terri Oyarzun, the founder of Goats R Us, bleating mad. She says she has had to put off buying a new truck to transport the goats, and she can't hire new herders. "This is not how I operate my business," she says.

Lehman's collapse and bankruptcy filing in September left an eclectic group of businesses and individuals clamoring for what they're owed. About $43 billion of Lehman's $639 billion in assets was from the firm's far-flung real-estate operations, which included housing projects, resorts, office buildings and other properties all over the world.

Goats R Us

Cookie outside his private shed at the Goats R Us ranch.

Those hurt include hydrologists near San Francisco and chambermaids in Palm Springs. Also left in the lurch were Chinese laborers who were flown into the Turks and Caicos Islands in the West Indies to help build a Ritz-Carlton resort. The workers stopped getting paychecks abruptly after the Chapter 11 bankruptcy filing. About 60 of them followed managers of the project around the property until they finally got paid.

Many vendors didn't know that their fates were tied to the high-flying investment bank. "For Lehman Brothers, we are a speck, a drop," says Ms. Oyarzun. Lehman declined to comment for this story.

A World Away

The hills of East Oakland where the goats grazed couldn't have been further removed from the frenetic world of derivatives, swaps and forward contracts. The animals were hired by Lehman's partner, SunCal Cos., California's largest land developer, which planned a housing development on the 167-acre property.

Twice a year, Goats R Us transported about 1,000 Angora and Spanish goats to the site and let them roam to nibble on coyote brush and other shrubs, which can pose wildfire dangers in the dry season.

The herders, who were recruited from ranches in Peru and Chile, slept in a travel trailer, eating their meals on the site and looking after the goats with the help of two border collies.

The goats had worked at the property, called Oak Knoll, for the Navy, which operated a hospital on the site for decades. Lehman and SunCal bought the land at a government auction, conducted on the Internet, for $100 million in late 2005, near the height of the property boom. The venture envisioned about 900 homes, walking trails and public parks.

Big land owners use goats for fire control because they are dependable and hard-working. They clear brush and poison oak, which two-legged landscapers try to avoid. The goats also are often preferable to herbicides, especially in residential areas, such as Oak Knoll.

"They were doing a good job at vegetation management,'' says Al Auletta, who was overseeing the project for the Oakland Redevelopment Agency. "The goats were pretty effective at that."

For many years the goats were happy, Ms. Oyarzun says. The sprawling hospital campus was a favorite of the herd. Some goats liked to sun themselves on the porches of the empty Navy buildings. One goat preferred to sit by the former officers' club, near the tennis courts. His nickname is Admiral.

Honoring Cookie

Another prominent goat at the site was Cookie, who has the distinction of being one of the few animals that Ms. Oyarzun considers an honorary union worker. In the late 1990s, Local 70 of the International Brotherhood of Teamsters sent a lighthearted letter of protest to a college in Oakland that had hired the goats without first informing the union. After the parties settled their dispute, Cookie was outfitted with a Teamsters jacket.

But the global financial meltdown finally caught up with the goats of Oak Knoll. Last spring, Ms. Oyarzun submitted a bill to SunCal for the goats' work at the property. She says she repeatedly dunned the developer but went unpaid.

What Ms. Oyarzun didn't know was that behind the scenes, Lehman had taken financial control of many of SunCal's huge development projects across California, including Oak Knoll, according to a lawsuit that SunCal filed against Lehman two weeks ago in federal court in Santa Ana, Calif. As concern on Wall Street mounted over Lehman's property holdings amid the housing bust, Lehman restructured its Suncal investments, which it valued at $2 billion. Lehman also promised to continue funding the projects, according to SunCal's lawsuit, which demands money for its creditors. "But Lehman's funding never materialized anywhere close to what was promised or needed," according to the lawsuit.

As a result, Suncal says, it can't pay about 450 creditors, including Goats R Us. "SunCal was assured by Lehman that these people would be paid," says SunCal's lawyer, Skip Miller, of the Los Angeles firm Miller Barondess, LLP. Alvarez & Marsal, which is handling the restructuring of Lehman, has declined to comment, citing the ongoing litigation between Lehman and SunCal. Lehman has offered short-term financing to the projects, but a deal hasn't materialized.

Pawns in the Game

The goats are caught in the fight between SunCal and Lehman. The Lehman estate wants to foreclose on SunCal's properties. SunCal wants to keep many of them afloat.

Shortly before Christmas, and eight months without a payment, Ms. Oyarzun got fed up and called up demanding to talk to SunCal's owner.

She finally got through to an executive who gave her the bad news: The SunCal unit, a limited liability company that hired Goats R Us, had filed for bankruptcy protection and couldn't pay her.

She later learned that Lehman was being blamed for the project's problems. Ms. Oyarzun was stunned that an investment bank she had barely heard of could cause such damage to her business. Her unpaid bill nearly equals her annual alfalfa budget.

Business Model

"I don't create limited liability companies," she says. "I have one company that hires people to herd goats and take care of the dogs, and then I pay them."

Lehman and SunCal have taken off the gloves. SunCal has accused Lehman of fraud in its court papers and points out that it, too, has suffered. SunCal has closed four offices, laid off a number of employees, and put up one of its two jets for sale. People familiar with Lehman's position say that the lawsuit is a diversion and many of Suncal projects aren't viable.

No matter how bad things get, though, Ms. Oyarzun says the goats will be cared for and will never be sold for meat. After they become too old to travel, they "retire" with medical care to the family ranch. Cookie, now the oldest goat in the herd at age 17, sleeps in a private garden shed. "We won't cut back on the animals' welfare," she says.

Write to Michael Corkery at and Alex Frangos at

Printed in The Wall Street Journal, page A1

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

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