Hog Producer Claims Smithfield Breached Purchasing Contract

A case stemming from an August complaint alleging Smithfield Foods, Inc. broke a 1994 contract was removed on Friday from the General Court of Justice, Superior Division, in Wayne County, North Carolina to the Eastern District of North Carolina; the plaintiff, U.S. hog producer Maxwell Foods LLC, alleged that Smithfield, the largest pork producer in the world according to the complaint, has breached its contract to purchase hogs monthly at a premium price.

Defendant Smithfield said it is moving the case because it is headquartered in Smithfield, Va. and the amount in controversy meets the requirements for removal. The plaintiff may not agree with the removal, but it said in the complaint that the parties agreed in writing that any legal action related to the agreement will be “prosecuted in the Courts of the State of North Carolina,” and that Smithfiled “waives any right or defense relating to such jurisdiction and venue.” The defendant operates at least two plants in North Carolina.

The plaintiff accused Smithfield of breaching a written agreement (the PSA) entered into on December 5, 1994, where it agreed to purchase up to 155,000 head of hogs from the plaintiff per month at “most favored nation” pricing, which would be at least as favorable as the companies price paid to other hog suppliers. The contract was set to end six years after the date of a Notice of Termination given by either party.

The complaint claimed that until earlier in 2020, Smithfield “purchased nearly 100% of the hogs Maxwell produces,” which equated to less than 10 percent of Smithfield’s purchases. In April 2020, Smithfield purchased about half of Maxwell’s hogs, which the plaintiff claimed has required a back up of hogs and “severe adverse effects” including economic losses.

Maxwell also claimed that the price paid to them by Smithfield declined since 2016. The plaintiff explained in the complaint that as the industry has consolidated and changed, the wholesale prices of pork cut, also called the cutout value, has been used to more accurately reflect the value of a hog over spot market prices, replacing the system which was used in the contract. The complaint said “as a result, Smithfield’s pricing to Maxwell under the PSA is not and has not for some time been economically sustainable for Maxwell,” and suggests that the pricing in the agreement needs to be altered under the renegotiation provision in the PSA.

The complaint said Smithfeld refused to renegotiate the PSA to provide better pricing in a 2017 meeting and in response to other requests between then and 2020. During a meeting on February 19, Maxwell again told the defendant “it was no longer economically sustainable for Maxwell to continue its business under the pricing structure set forth in the PSA,” and asked to renegotiate to cutout-based pricing. Smithfield said it would respond to the request within 30 days, but did not and when asked later said they were “unwilling to alter the PSA,” according to the complaint.

The plaintiff further alleged it learned that during the same time period, “Smithfield hid from Maxwell the fact that Smithfield was already providing pricing to one or more of its other major swine suppliers that exceeded that provided to Maxwell, in violation of Smithfield’s MFN obligations to Maxwell under the PSA.” The company claimed this constitutes a breach of the contract.

Maxwell, represented by Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., asked for damages and that the defendant perform its obligations under the contract including increasing its hog purchases. Smithfield is represented by Robinson, Bradshaw & Hinson.