Articles Tagged with Breach of Contract

photo-suing-supplier-300x199No business is an island. Without trusted suppliers businesses would close shop. What happens when that trust is breached and you’re left holding the bag? If disagreements can’t be worked out and your company is facing or may face a serious loss as a result you may want to consider legal action against a supplier or former supplier.

Huy Fong Foods Inc., based in Irwindale, makes the Sriracha brand hot sauce from chiles (which are peppers). Without chiles there is no Sriracha but that hasn’t stopped the company from suing its chile supplier, Underwood Ranches, based in Camarillo, according to NBC4. Underwood’s website describes the company’s history and its current business including, “Today the farm grows red jalapeños for Huy Fong Foods…”The two companies have had a relationship for thirty years.

Underwood is being sued for breach of production agreement, breach of contract and civil theft. The complaint alleges, of us running businesses have a supporting cast, whether they’re contractors, suppliers, funders, banks, attorneys or employees. If a trusted cast member disappears at a critical time what do you do? Susan Jeske found herself in that situation in September. Like most of us she made due with what she had and went forward.

Jeske owns the Ms. America® Pageant. She purchased it in 1999 after winning the competition in 1997. Ms. America contestants are often well into their careers, sometimes are married and often range from 26 to 40 years old. The 2017 event was scheduled for September 3 in Brea. At the last minute Jeske got some bad news.

She learned on August 30 that Costa Mesa based BTB Event Productions, the company hired to produce the pageant, was shutting down and their equipment was being sold off. As a result Jeske was left scrambling to find a stage, runway and proper lighting. “I have 43 contestants flying in from across the country that are coming in tomorrow and I don’t have anything,” Jeske told the Orange County Register on August 31.

photo - Haggen v. AlbertsonsSupermarkets Haggen and Albertsons are involved in multiple lawsuits that could be worth a billion dollars. The two have filed lawsuits against each other after Haggen purchased 146 stores from Albertsons, 83 of them in California.

In August Haggen, based in Bellingham, Washington, sued Albertsons in federal court in Delaware because of its alleged “systematic efforts” to eliminate Haggen as a competitor in five states, including California, according to the Los Angeles Times. The lawsuit’s allegations include,

  • Albertsons engaged in its efforts after it sold the stores to Haggen. The sale was forced by the Federal Trade Commission as part of an agreement to a merger by Albertsons and Safeway.
  • Albertsons made “false representations” about its commitment to help transform the stores sold to Haggen into competitors.
  • These representations influenced Haggen’s decision to purchase the stores and its strategies going forward.
  • Albertsons alleged actions include premeditated acts of unfair and anti-competitive conduct that were done to avoid Albertsons’ obligations under federal antitrust laws, Federal Trade Commission orders and contractual commitments to Haggen.
  • Such actions include illegally accessing Haggen’s confidential data and providing “false, misleading and incomplete” pricing data which has caused Haggen to inflate its prices.
  • Due to Albertsons’ actions, Haggen claims it was forced to close 26 of the newly acquired stores and more may close in the future.

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photo - buyers and sellersSelling your business, or buying another, can be a major event for you, your professional future and the future of your business. You may have spent weeks, if not months, finding the right buyer or seller, then came the process of reaching an agreement on the price and terms of the sale. After the parties signed on the dotted lines you celebrated. All that work finally paid off! Maybe not.

As two supermarket giants are finding out, the fact a sales/purchase agreement was reached hasn’t resulted in the ‘happily ever after’ both parties hoped for. In fact, one is suing the other for breach of contract, according to the Los Angeles Times.

Supermarket giant Albertsons is suing Haggen, claiming it engaged in fraud due to its failure to pay more than $41 million as part of an agreement to sell 146 grocery stores. Haggen, based in Bellingham, Washingtom, bought Albertsons, Vons, Pavilions and Safeway stores from Albertsons and Safeway.

They sold them because the Federal Trade Commission (FTC) required the sale as a condition of the agency’s approval of a merger between Albertsons and Safeway. The stores include 83 in the state, mostly the southern California, eleven of them in Orange County, according to the Orange County Register.

Albertson’s complaint alleges Haggen,

  • Refused to pay for $41 million for inventory at 32 stores it acquired.
  • Waited until deals closed on the sale of all 146 stores before informing Albertsons that it would not pay for the inventory.
  • Provided “baseless” (though unspecified) reasons for its failure to pay and “Haggen’s acts were fraudulent in nature and done with malice and a willful disregard for Albertsons’ rights.”

Haggen’s side of the story, told in a statement released to the public, is that,

  • It notified Albertsons in June that Albertsons violated the purchase agreement.
  • There are possible violations concerning requirements spelled out by the FTC and various state attorneys general (the alleged violations weren’t disclosed).
  • Albertsons is trying to avoid “addressing its wrongful conduct” by filing the lawsuit.
  • It hopes the two can reach an agreement over the issue but if not, “Haggen will mount a vigorous defense and aggressively prosecute its counterclaims.”

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photo - read the contract (by Martin)Whether oral, implied or written, businesses couldn’t exist without contracts. Whether you want others to be bound by your contract or another party has one for you to sign, you need to fully understand contract language and its possible implications. You don’t want to find out about a clause or a section that’s contrary to your interests when something goes wrong after you’ve signed the contract.

Don’t Guess. Find Out What the Contract Means and How It May Impact You.

If you don’t understand certain language, maybe you fear looking stupid or the cost of having an attorney review it. When it comes to contracts, there is no such thing as a stupid question (only a stupid answer). The cost of reviewing a contract is probably less than you might imagine and A LOT less expensive than having something go very wrong after you’ve signed a contract you don’t fully understand.

Paying for an attorney to review contract language (whether it’s a contract you want to create or the other party’s contract) is like paying for insurance. You have homeowners insurance though in all likelihood your house won’t burn down or be split in half by a falling tree, but it’s a very sensible thing to have in case those events actually happen.

Language in a contract may be very fair and comply with applicable laws, but since you’re not an expert in contract law what you think you know about the contract is actually only a guess. You shouldn’t risk your business based on guesses. You wouldn’t lease property based on what you think will be the monthly payment or your hunch on where you think the property is located. Don’t make the same mistake with contracts.

Once You Sign It, It’s Yours

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photo - contract enforcement
Contract Enforcement in California

Business couldn’t be conducted and businesses couldn’t exist without contracts of one kind or another. A contract is a binding agreement between parties for an exchange of things or services. It can be an exchange of money for a product or service or the payment of money from one party in exchange for another party to do or not do something.

For a legal action to be successful, the person filing the lawsuit would have to prove,

Case Management ConferenceStarbucks’ deviation from its distribution agreement for its brand of bagged coffee has cost the company $2.7 billion. Starbucks and Kraft Foods entered into an agreement to distribute Starbucks coffee in 1998. However, the Seattle based corporation alleged that Kraft had mismanaged the brand and violated the terms of its agreement.

The contract was set to expire in March 2014, but, Starbucks prematurely ended the deal on March 2011. Kraft’s Parent company, Mondelez International, Inc. rejected Starbucks settlement offer of $750 million. The company chose to arbitrate the dispute instead, claiming that they did not mismanage the brand and that they were entitled to the lost profits they expected to receive from the deal.

The arbitrator decided in favor of Kraft’s lost profits measure of recovery. The arbitrator found that these damages totaled $2.23 billion over the time of the breach until the time that the contract was set to expire. Kraft showed that its sales of Starbucks’ bagged coffee netted the company roughly $500 million each year. The arbitrator also awarded Kraft an additional $527 million in interest and legal fees.

Although Starbucks’ representatives have said that they disagree with the outcome of the arbitration, Starbucks’ officials maintain that the decision to end the agreement was the right decision for the company.

Starbucks’ take on the outcome of the case probably would have been different if the dispute were in a trial court, where appeals are always possible. The arbitration rules of this dispute did not include an option to appeal. Nevertheless, Starbucks claimed that it had enough cash to cover the award.

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864516_high_contrast_office_6When I represent a business client in a business transaction where the compensation will be based on a percentage of a certain level of revenue, I always advise the client to make sure that the contract has a provision that gives them the rights to access the company books and records for audit by an independent Certified Public Accountant. Sadly, in today’s business environment, breach of contract is no longer a moral issue, but instead an issue of profitability.

What do I mean by that you ask? Well, the logic is simple. In all my years of experience dealing with business cases, I have often found that when a business will profit or save more by breaching a contract and doing business with someone else, the decision to breach is generally made on that basis. Thus, the consequence of the breach is the determining factor, not the moral value of whether the decision is right or wrong.

For example, Jeremy Stenberg, an Orange County World Champion dirt bike racer was sued for breach of contract in the Orange County Superior Court. His agent, McClellan Nichols Sports Syndicated LLC, sued Stenberg and alleged that Stenberg intentionally had not reported his real income by hiding it under a couple of shell entities created in Wyoming. McClellan claimed that it had a contract with Stenberg for exclusive representation. In return, McClellan was entitled to 20% of Stenberg’s revenue and 10% of Stenberg’s corporate sponsorship. Although, Stenberg terminated McClellan’s contract for representation, McClellan claimed that the breach occurred when their contract was in effect. Thus, due to Stenberg’s breach, McClellan was deprived of compensation in accordance with the agreement.

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