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California-based hot sauce company files breach of contract suit

The hot sauce Sriracha has certainly seen an increase in popularity among foodies nationwide. However, the California-based business is currently pursuing a lawsuit against its chili pepper supplier, alleging that a contract between the two parties was breached.

According to Huy Fong Foods, the maker of Sriracha, the chili pepper supplier Underwood Ranches did not return millions worth of equipment and would not issue Sriracha a refund for almost $1.5 million in an overpayment made. According to court filings, after the chili peppers were harvested in 2016, the two parties were unable to reach a production agreement for the following year.

According to the complaint, yearly production agreements between the parties are partially established by past dealings, partially written down and partially oral contracts. The contracts included provisions that Huy Fong Foods will pay production expenses. The contract would also contain an estimate of what Underwood Ranches' costs would be. The contracts would also contain provisions regarding Underwood Ranches' purchasing and maintaining the equipment used for chili production. Finally, the contract would prohibit the equipment being used to harvest peppers from being used for anything else.

Huy Fong Foods claims that when contract negotiations failed Underwood Ranches refused to return equipment, which had a severe impact on Huy Fong Food's ability to harvest the peppers in 2017, and in turn meant that harvest expenses went up. Huy Fong Foods claims that Underwood Ranches did so in order to punish the company for ending their business relationship, which goes back 30 years. Huy Fong Foods also claims that Underwood Ranches held on to Huy Fong Food's equipment in order to have the upper hand in negotiations.

From 2008 to 2016, Huy Fong Food paid Underwood Ranches over $190 million. Also, if costs were higher than anticipated, Huy Fong Foods would remit the balance. However, with regards to the 2016 harvest of chili peppers, Huy Fong Foods claimed it overpaid Underwood Ranches more than $1.45 million. According to the lawsuit, Underwood Ranches did not reimburse the excess payment and held on to $7 million worth of Huy Fong Foods' equipment.

It remains to be seen what the outcome of this case will be, but any California business dealing with business litigation can understand just how complicated such matters can be. Therefore, if a California business wishes to pursue a lawsuit or whether they were served with one, they may need to seek legal advice before proceeding.

Source: NBC News, "Siracha Sauce Maker Huy Fong Foods Sues Its Chili Pepper Supplier," Chris Fuchs, Sept. 1, 2017

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