New Jersey business owners may not be aware that Hormel Foods Corp. is facing a lawsuit after AgFeed Industries filed a complaint in U.S. Bankruptcy Court, the same court where the company filed for bankruptcy in July 2013. The suit is seeking an unknown amount in damages. AgFeed’s complaint against Hormel stems from allegations that Hormel knew of contract violations being executed by M2P2 LLC, a company whose operations AgFeed had purchased.
The lawsuit alleges that AgFeed was assured by individuals at Hormel that M2P2 was in compliance with its contract to raise livestock for the company. Based on this information, AgFeed purchased M2P2’s operations in 2010. In August 2012, however, Hormel demanded arbitration in relation to M2P2 artificially inflating the cost to Hormel for raising their pigs. This resulted in an arbitration award of $8 million being granted to Hormel.
Shareholders of AgFeed claim that it was this finding that sent the company into Chapter 11 bankruptcy. The current business litigation, however, stems from the fact that it was allegedly revealed during arbitration that Hormel had known about M2P2’s violations since 2003. Had these issues been disclosed, shareholders insist that AgFeed would have never purchased the company. Less than a year after Hormel’s demand for arbitration, AgFeed was forced to sell its operations for approximately $130 million.
Going blindly into a contract is rarely a good idea, but when this occurs due to important information being withheld, a company may be in danger of going out of business. With legal representation, though, those affected might be able to recover fair compensation for their company’s losses.
Source: Nasdaq, “AgFeed Industries Shareholders Sue Hormel Foods“, October 30, 2014