Dinn, Hochman & Potter, LLC

Hormel Foods sued in court over dishonest business practices

Some Ohio business owners may be interested in a lawsuit that was filed on Oct. 29 in a U.S. Bankruptcy Court; the suit alleges that Hormel Foods Corp. engaged in dishonest business practices, leading AgFeed Industries Inc. to file bankruptcy. The suit, filed by shareholders of the now defunct AgFeed Industries, also claims that Hormel Foods withheld information related to livestock raising company M2P2's business practices. The lawsuit is seeking an unspecified amount of damages.

The complaint filed against Hormel states that the company knew about contract violations being committed by M2P2 long before AgFeed decided to purchase the company's operations. Once the operations were owned by AgFeed, Hormel filed for arbitration in August 2012, claiming that M2P2 was inflating the prices that were to be reimbursed by Hormel. This arbitration ended in an award of $8 million for Hormel.

Shareholders claim that this contract dispute and subsequent arbitration award are what led to AgFeed having to file for bankruptcy in July 2013. The company subsequently sold its operations for around $130 million after filing for Chapter 11. The question in dispute reportedly arose when Hormel employees stated that the contract violations of M2P2 had been known since 2003. Shareholders claim that AgFeed would have never made the purchase had they known about these issues, but Hormel assured them that no such issues existed prior to the purchase.

There are no guarantees in business, but when agreements are entered into without full disclosure of the truth, serious contract violations may have occurred. When information is withheld, such as is the claim in the aforementioned lawsuit, it can lead to complications that eventually result in bankruptcy or the failure of a business. With legal assistance, those facing financial losses may be able to recover appropriate compensation.

Source: Nasdaq, "AgFeed Industries Shareholders Sue Hormel Foods", October 30, 2014

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