EXHIBIT B
`
`EXHIBIT B
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 1 of 49
`Case 5:20-cv-00479—M Document 1-2 Filed 09/11/20 Page 1 of 49
`
`
`
`EXHIBIT B
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 1 of 49
`Case 5:20-cv-00479—M Document 1-2 Filed 09/11/20 Page 1 of 49
`
`
`
`NORTH CAROLINA
`
`WAYNE COUNTY
`
`MAXWELL FOODS, LLC,
`
`Plaintiff,
`
`; .! ?
`y p,j ]^HE GENERAL COURT OF JUSTICE
`"
`SUPERIOR COURTJDIVISION
`■ im AU8 13 P 2^ 0!
`20 CVS
`V/AYNECQIJNTY.C.S.C;
`'St
`'.BY.
`
`i
`
`V.
`
`SMITHFIELD FOODS, INC.
`
`Defendant.
`
`COMPLAINT
`
`Plaintiff Maxwell Foods, LLC, complaining of the acts of Defendant Smithfield
`
`Foods, Inc., alleges as follows:
`
`PARTIES
`
`1.
`
`Plaintiff MaxweU Foods, LLC (“Maxwell”) is a limited liability company
`
`organized and existing under the laws of North Carolina and in good standing with
`
`the North Carolina Secretary of State, and it has the capacity to sue in its name.
`
`Maxwell’s principal office is located in Wayne County, North Carolina.
`
`2.
`
`3.
`
`Maxwell Foods, LLC is the successor-in-interest to Maxwell Foods, Inc.
`
`Defendant Smithfield Foods, Inc. (“Smithfield”) is a corporation
`
`organized and existing under the laws of Delaware and Virginia. Smithfield’s
`
`principal office is located in Smithfield, Virginia.
`
`JURISDICTION AND VENUE
`
`4.
`
`Smithfield expressly agreed with Maxwell in writing that any action
`
`relating to the parties’ agreement “shall be instituted and prosecuted in the Courts
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 2 of 49
`
`
`
`of the State of North Carolina” and that Smithfield “hereby consents to the
`
`jurisdiction of said Courts and waives any right or defense relating to such
`
`jurisdiction and venue.”
`
`5.
`
`In addition, this Court has jurisdiction over the parties to this action.
`
`pursuant to N.C. Gen. Stat. § 1-75.4, because, among other reasons and as further
`
`alleged below, Smithfield maintains substantial business operations in North
`
`Carolina and, upon information and behef, owns property in North Carolina such that
`
`the exercise of personal jurisdiction over Smithfield by a North Carolina court is
`
`consistent with due process.
`
`6.
`
`Venue is proper in Wayne County, pursuant to N.C. Gen. Stat. § l-79(a).
`
`1.
`
`The Parties
`
`FACTS
`
`7.
`
`Maxwell is a major producer in the U.S. hog industry. In 2019, it owned
`
`over 54,000 sows in North Carolina and produced over 1,100,000 swine for slaughter.
`
`8.
`
`Maxwell has breeding operations in six North Carolina counties and
`
`growing operations in twelve North Carolina counties.
`
`9.
`
`Maxwell contracts with approximately 120 family farmers in North
`
`Carolina.
`
`10.
`
`Smithfield, together with its subsidiaries, is the largest producer of pork
`
`in the world. It was at one time a Fortune 500 company (prior to being acquired in
`
`2013 by Shuanghui Group) with annual revenue in 2019 of $16 billion. Smithfield
`
`produces over six biUion pounds of pork per year.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 3 of 49
`2
`
`
`
`11.
`
`Smithfield owns three pork processing plants on the East Coast (its
`
`“East Coast Plants”)- These are located in Smithfield, Virginia; Clinton, North
`
`Carolina; and Tar Heel, North Carolina.
`
`12.
`
`Smithfield’s largest pork processing plant is in Tar Heel, North
`
`Carolina. The Tar Heel Plant is the largest pork processing facility in the world, at
`
`over 973,000 square feet and a processing capacity of approximately 34,500 hogs per
`
`day. The other two East Coast Plants located in Smithfield, Virginia and Clinton,
`
`North Carolina have an additional combined capacity of 21,000 hogs per day, bringing
`
`the total capacity of the East Coast Plants to over 55,000 hogs per day.
`
`13.
`
`Upon information and belief, Smithfield has approximately 10,000
`
`employees in North Carolina.
`
`14.
`
`Sraithfield began buying hog-farming operations in 1990 as part of its
`
`efforts to vertically integrate the company. This vertical integration now allows
`
`Smithfield to control every stage of pork production, from birth to slaughter.
`
`processing, and packing, a system known as “from squeal to meal” or “from birth to
`
`bacon.”
`
`15.
`
`Upon information and belief, Smithfield owns over 500 hog farms in the
`
`United States, and contracts with approximately 2,000 other independent hog farms
`
`across the country, to grow its hogs.
`
`II. Maxwell and Smithfield Enter Into Long-Term Output Contract for
`Sale and Purchase of Swine
`
`16.
`
`On December 5, 1994, Maxwell and Smithfield entered into a Production
`
`Sales Agreement (the “PSA,” attached as Exhibit 1), pursuant to which Smithfield
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 4 of 49
`' 3
`
`
`
`agreed to purchase, and Maxwell agreed to sell, all Market Swine produced by
`
`Maxwell in Virginia, North Carolina, and South Carolina, up to 155,000 head per
`
`month.
`
`17.
`
`At the time Maxwell and Smithfield entered into the PSA, Smithfield
`
`had a number of major hog producers in North Carolina in addition to Maxwell,
`
`including without limitation Carroll’s Foods, Inc. (“Carroll’s), Murphy Family Farms
`
`Inc. (“Murphy”), and Prestage Farms, Inc. (“Prestage”).
`
`18.
`
`Upon information and belief, Smithfield’s other major hog producers.
`
`including without limitation Carroll’s, Murphy, and Prestage, had entered into
`
`production sales agreements with Smithfield before December 1994, whereas
`
`Maxwell had not.
`
`19.
`
`Under the PSA, Maxwell and Smithfield agreed that Maxwell would
`
`receive “most favored nation” pricing throughout the term of the agreement—that is.
`
`Maxwell would receive pricing terms from Smithfield at least as economically
`
`beneficial as those Smithfield extended or may in the future extend to Smithfield’s
`
`other major swine producers, including without limitation Carroll’s, Murphy, and
`
`Prestage.
`
`20. Under the PSA, Maxwell and Smithfield also agreed that Smithfield
`
`would purchase all of Maxwell’s output at that pricing up to 155,000 head per month.
`
`In particular. Paragraph 3(a) of the PSA provides in relevant part.
`
`Smithfield agrees to purchase and Maxwell agrees to sell and
`deliver during each calendar month during the term of this
`Agreement, all Market Swine actually produced by Maxwell and
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 5 of 49
`4
`
`
`
`any Affiliate of Maxwell up to a maximum of one hundred fifty-
`five thousand (155,000) head of Market Swine per month.
`
`21.
`
`The PSA thus does not provide for a definite number of Market Swine
`
`for Smithfield to purchase from Maxwell, but rather obligates Maxwell to sell to
`
`Smithfield—and Smithfield to buy from Maxwell—“all” of the Market Swine (defined
`
`by the PSA as animals weighing 150 pounds and over) that Maxwell produces in
`
`Virginia, North Carohna, and South Carolina, up to a cap of 155,000 Market Swine
`
`per month.
`
`22.
`
`23.
`
`This kind of agreement is commonly referred to as an “output” contract.
`
`Paragraph 5 of the PSA sets forth the parties’ agreed-to pricing formula
`
`for Market Swine. The purchase price is per pound and is equal to the Market Value
`
`(as defined in the PSA) and subject to the premiums, discounts, and credits set forth
`
`in Subparagraphs 5(b)-5(e).
`
`24.
`
`The PSA’s Market Value is determined in reference to a base price (the
`
`“Average Terminal Price”), which, in turn, is derived from the average daily price of
`
`live hogs on the Iowa-Southern Minnesota spot market. See Ex. 1, Paragraph 1(b).
`
`25.
`
`Paragraph 1(b) defines Average Terminal Price and provides that the
`
`parties shall substitute a new basis for deriving the Average Terminal Price if the
`
`Iowa-Southern Minnesota spot market “ceases to be a viable market:”
`
`The parties hereto agree that the purpose of the “Average
`Terminal Price” is to estabhsh a relatively stable national market
`price for Live Swine on which to base “Market Value” as defined
`in Paragraph 1(f). If the Iowa-Southern Minnesota Market ceases
`to be a viable market, the parties hereto shall designate a
`substitute basis upon which to determine the Average Terminal
`Price by mutual written agreement. [. . . ]
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 6 of 49
`5
`
`
`
`26.
`
`The PSA’s term continues from the date of execution “until midnight on
`
`the date that is six years following the date of notice of termination” given by either
`
`Maxwell or Smithfield. See Ex. 1, Paragraph 4.
`
`27.
`
`On December 6, 1994, the parties executed a written Amendment to the
`
`PSA (the “Amendment,” attached as Exhibit 2), as permitted by and in accordance
`
`with Paragraph 14 of the PSA. The Amendment reflected, among other things, the
`
`agreement between Maxwell and Smithfield that Maxwell would receive most-
`
`favored-nation pricing from Smithfield over the term of the PSA. During the parties’
`
`negotiations, MaxweU stated that it must receive pricing under the PSA at least as
`
`favorable as Smithfield’s other major swine suppliers, and Smithfield agreed that it
`
`would do so.
`
`28.
`
`Smithfield drafted both the PSA and the Amendment. A Smithfield
`
`representative wrote in handwriting the additional language (“Major swine suppliers
`
`include Carroll’s Foods, Inc., Murphy Family Farms, Inc., and Prestage Farms, Inc.”)
`
`that appears in Paragraph 1 of the Amendment, the paragraph that sets out
`
`Smithfield’s MFN obhgations to Maxwell. Jim Maxwell, President of Maxwell, and
`
`Bob Sharpe, Vice President - Corporate Development of Smithfield, each initialed
`
`the handwritten language.
`
`29.
`
`The parties are therefore bound and obligated to one another to comply
`
`with all terms of the PSA and the Amendment. The PSA, as amended by the
`
`Amendment, has not been terminated and remains in full force and effect as of the
`
`date of the fifing of this Complaint.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 7 of 49
`6
`
`
`
`30.
`
`Paragraph 1 of the Amendment contains the most-favored-nation
`
`provision, which provides,
`
`Smithfield Foods represents that the subject contract with
`Maxwell Foods gives Maxwell Foods the same economic
`incentives (including any Grade and Yield Matrix) as given all of
`Smithfield Foods’ other major swine suppliers and Maxwell Foods
`will also be offered the benefit of future changes in economic
`benefits given said major swine suppliers during the term of this
`contract. Major swine suppliers include Carroll’s Foods, Inc.,
`Murphy Family Farms, Inc., and Prestage Farms, Inc.
`
`See Ex. 2, Paragraph 1.
`
`31.
`
`Paragraph 6 of the Amendment adopts a Grade and Yield Matrix
`
`modifying the premiums, discounts, and credits to Market Value that would
`
`otherwise apply in determining the pricing Smithfield paid to Maxwell for Market
`
`Swine under the PSA.
`
`32.
`
`When the PSA and Amendment were executed. Maxwell had
`
`approximately 30,000 sows, producing approximately 500,000 swine for slaughter per
`
`year. Consistent with the output terms of the PSA, as Maxwell’s production volume
`
`increased over time thereafter (including at Smithfield’s request), Smithfield
`
`increased its purchases from Maxwell accordingly.
`
`33.
`
`Up until earlier this year, as required by the PSA, Smithfield purchased
`
`nearly 100% of the hogs Maxwell produces. Maxwell supplies an average of 4,800 of
`
`the 55,000 pigs that Smithfield purchases per harvest day, or less than 10% of
`
`Smithfield’s total daily purchases.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 8 of 49
`7
`
`
`
`III.
`
`Smithfield’s Pricing Impacts Maxwell’s Business and Profitability
`
`34.
`
`In recent decades, the hog industry in the United States has experienced
`
`substantial consolidation and major changes to market structure. Smithfield has
`
`been a leader of that effort.
`
`35.
`
`In the early 1990s, including at the time the parties entered into the
`
`PSA, spot market transactions (“negotiated sales”) dominated the U.S. hog trade.
`
`36.
`
`From the 1990s to early 2000s, the U.S. hog industry saw a major decline
`
`in negotiated sales and a corresponding increase in both contractual marketing
`
`agreements between producers and packers, and in packer-owned swine production
`
`via industry consolidation.
`
`37.
`
`In 1994, negotiated sales comprised approximately 60% of all U.S. hog
`
`sales. By 2004, that number was down to 12%. By 2014, less than 4% of hog sales
`
`were negotiated sales.^
`
`38.
`
`As of 2016, negotiated sales were just over 2.5% and have likely
`
`decreased further to less than 2% as of today. The number of hog farms has also
`
`decreased markedly. In the state of Minnesota, for example, the number of hog farms
`
`was reduced by over 25% from 2007 to 2017, based on U.S. census data for those
`
`years.
`
`1 Joe Parcell, Ted Schroeder, Development Methodology for Calculating
`Estimated Net Price Information for Negotiated Barrows and Gilts, May 2014, at 14-
`15, available at https://www.ams.usda.gov/sites/default/files/media/Est%20Net%20
`Price%20Calculation%20for%20Negotiated%20Barrows%20and%20Gilts%20FINAL
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 9 of 49
`8
`
`
`
`39.
`
`On or about February 25,1999, Smithfield acquired Carroll’s, which was
`
`at that time the second-largest hog production company in the U.S. with
`
`approximately 180,000 sows.
`
`40.
`
`On or about September 2, 1999, Smithfield acquired Murphy, which was
`
`at that time the nation’s second-largest hog production company in the U.S. with
`
`approximately 325,000 sows. This acquisition nearly doubled Smithfield’s hog
`
`production capacity and increased its level of domestic vertical integration to
`
`approximately 60%.
`
`41.
`
`The. drastic decline in volume of hogs traded in spot markets, as well as
`
`increasing consolidation of the industry, undermined the stability and rehability of
`
`the daily spot market price as a basis for valuing U.S. hogs. Among other deficiencies.
`
`because the negotiated sales market is so thinly traded and the pork processor market
`
`is so concentrated, the daily spot markets are easily manipulated by the processors.
`
`This makes it very easy for the processors to exert undue influence over the entire
`
`negotiated market.
`
`42.
`
`As a result, the industry has seen a shift away from the use of spot
`
`market prices as the base price in contractual marketing arrangements toward the
`
`use of the wholesale price of pork cuts, i.e., the “cutout” value, as the latter is believed
`
`to better reflect the true wholesale value of the hog.^
`
`2 See Joe Parcell, Glynn Tonsor, Ted Schroeder, Baseline Study of Livestock
`and Meat Marketing Trends and Implications for Livestock Mandatory Reporting,
`August 2016, at 21, available at https://www.ams.usda.gov/sites/default/files/media/
`BaselineStudyLivestockMeatMarketingTrendsLMR.PDF.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 10 of 49
`9
`
`
`
`43.
`
`Given these changes in the structure of the U.S. hog market, the PSA’s
`
`pricing formula, which is spot market-based as opposed to cutout-based, no longer
`
`yields pricing that allows Maxwell to operate at a profit.
`
`44.
`
`In addition, consolidation of the industry and Smithfield’s aggressive
`
`vertical integration in recent decades has resulted in Smithfield being, by far, the
`
`dominant pork processor in the Southeast, and the only one with the capacity to
`
`handle Maxwell’s production. Smithfield represents approximately 25% of the total
`
`pork processing market nationwide, which, in turn, has left Maxwell with no
`
`bargaining strength in its deahngs with Smithfield.
`
`45.
`
`Maxwell began to feel the effects of this most acutely in 2016, and
`
`Maxwell’s revenues have trended downward ever since.
`
`46. In 2017 and 2018, the prices paid by Smithfield to Maxwell continued to
`
`decline along with the continued decline in prices in the Iowa-Southern Minnesota
`
`Market.
`
`47.
`
`For these and the other reasons alleged herein, by 2017, the Iowa-
`
`Southern Minnesota Market, which sets the “Average Terminal Price” and therefore
`
`serves as the foundation for Smithfield’s pricing to Maxwell under Paragraph 1(b) of
`
`the PSA, no longer had sufficient volume to be a meaningful gauge of hog pricing.
`
`which in turn caused the pricing under the PSA to cease being a viable market price
`
`for purposes of the PSA’s pricing formula.
`
`48.
`
`As a result, Smithfield’s pricing to Maxwell under the PSA is not and
`
`has not for some time been economically sustainable for Maxwell.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 11 of 49
`10
`
`
`
`IV.
`
`Maxwell Invokes the Renegotiation Provision of the PSA
`
`49. Between 1994 and 2016, Maxwell met annually with Smithfield and
`
`Smithfield’s other major swine suppliers. The participants referred to this group as
`
`“the Circle,” and their meetings initially included Carroll’s, Murphy, and Prestage, in
`
`addition to Maxwell and Smithfield. In subsequent years, other producers attended
`
`as well.
`
`50.
`
`Smithfield distributed production and sales information to Maxwell and
`
`the other attendees at the meetings of the Circle.
`
`51.
`
`However, the Circle’s meetings stopped in or around 2016. The
`
`producers were unhappy with the prices they were receiving from Smithfield and the
`
`continued use of a base price tied to the Iowa-Southern Minnesota spot market.
`
`Eventually, Smithfield stopped calling the meetings, and they ceased altogether.
`
`Thereafter, Smithfield curtailed the production and sales information it provided to
`
`Maxwell.
`
`52.
`
`Throughout the period these meetings were taking place and in the
`
`years that followed. Maxwell believed that Smithfield was complying with its MEN
`
`obligations to Maxwell under the PSA. Maxwell therefore believed that it was
`
`receiving pricing at least as favorable as that received by Smithfield’s other major
`
`swine suppliers, including the other producers who attended the Circle’s meetings.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 12 of 49
`11
`
`
`
`V.
`
`Smithfield Breaches its Most-Favored-Nation Pricing Obligation and
`its Price Renegotiation Obligation under the PSA
`
`53.
`
`On May 31, 2017, Bob Ivey, Jim Maxwell, and John Pike of Maxwell met
`
`with Smithfield representatives, including its CEO Ken Sullivan, at Smithfield’s
`
`headquarters in Smithfield, Virginia (the “May 31, 2017 Meeting”).
`
`54.
`
`During the May 31, 2017 Meeting, Maxwell asked to renegotiate the
`
`PSA in order to receive better pricing. Smithfield was non-committal.
`
`55.
`
`Later in 2017, as a response to the May 31, 2017 meeting, several
`
`Smithfield representatives, again including Ken Sullivan, met with Maxwell in
`
`Goldsboro to discuss price considerations, including an alternative basis for
`
`determining price that Maxwell proposed. However, Smithfield rejected the proposal
`
`and offered no price adjustments.
`
`56.
`
`Maxwell’s losses from its sales to Smithfield continued in 2017, 2018,
`
`and 2019. During these years. Maxwell continued to request better pricing from
`
`Smithfield.
`
`57.
`
`On February 19, 2020, Maxwell representatives met with Ken Sulhvan
`
`and Smithfield’s President of Live Hog Operations, Brady Stewart, along with other
`
`management team members, at Smithfield’s headquarters (the “February 19, 2020
`
`Meeting”).
`
`58. During the February 19, 2020 Meeting, Maxwell again told Smithfield
`
`that because the Iowa-Southern Minnesota Market had ceased to be a viable market.
`
`it was no longer economically sustainable for Maxwell to continue its business under
`
`the pricing structure set forth in the PSA. Maxwell again asked to renegotiate the
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 13 of 49
`12
`
`
`
`PSA to provide for cutout-based pricing rather than spot market-based pricing.
`
`Smithfield promised Maxwell it would “look into other options” and schedule a follow
`
`up response within 30 days.
`
`59.
`
`Smithfield did not respond to Maxwell’s request within 30 days. Instead,
`
`Maxwell followed up with Smithfield via a phone call on March 19, 2020 (the
`
`“March 19, 2020 Call”). During the March 19, 2020 Call, Maxwell asked if
`
`Smithfield’s lack of communication meant that Smithfield was unwilling to consider
`
`any alternative pricing mechanisms. In response, Ken Sullivan confirmed that
`
`Smithfield was indeed unwilhng to alter the PSA.
`
`60. During the March 19, 2020 Call, Maxwell reiterated that Smithfield’s
`
`refusal to provide better pricing meant that Maxwell could no longer continue its
`
`operations.
`
`61.
`
`As of the date of this Complaint, Smithfield has failed and refused to
`
`discuss a substitute basis for deriving the Average Terminal Price or the Market
`
`Value under the PSA and otherwise to provide Maxwell with pricing consistent with
`
`the express terms of the PSA as to Maxwell’s Market Swine;
`
`62.
`
`Moreover, Maxwell recently learned that during this time period when
`
`Maxwell was asking Smithfield to improve Maxwell’s pricing, 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.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 14 of 49
`13
`
`
`
`63.
`
`As a result of Smithfield failure to meet its obligations to provide
`
`Maxwell most-favored-nation pricing and to renegotiate the pricing terms of the PSA
`
`once the Iowa-Southern Minnesota market ceased to be viable, Maxwell has been
`
`forced to curtail its production and eventually will be forced out of the hog business
`
`by Smithfield.
`
`VI.
`
`Smithfield Breaches its Obligation to Purchase Maxwell’s Output
`Under the PSA
`64.
`
`Starting in April 2020, Smithfield refused to purchase all of Maxwell’s
`
`production as required by the PSA.
`
`65.
`
`66.
`
`Smithfield did not invoke the force majeure provision of the PSA.
`
`In particular, since April 2020, Smithfield has purchased approximately
`
`half of Maxwell’s output of market swine.
`
`67.
`
`Smithfield’s failure to purchase all of Maxwell’s output of hogs, in
`
`violation of the PSA, has caused, and continues to cause. Maxwell to suffer
`
`substantial economic harm.
`
`68.
`
`Upon information and belief, between April 2020 and August 2020^
`
`Smithfield has had the ability to, and has in fact, continued to operate its three East
`
`Coast plants. At all relevant times, Smithfield has had sufficient capacity to perform
`
`its obligations under the PSA.
`
`69.
`
`Smithfield’s failure to purchase all of Maxwell’s output as required by
`
`the PSA has caused Maxwell to have hogs “backed up,” causing severe adverse effects.
`
`resulting in substantial additional economic losses to Maxwell.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 15 of 49
`14
`
`
`
`70. Maxwell notified Smithfield about the problems relating to Smithfield’s
`
`failure to perform and the resulting hog “back up” at least as early as June 29, 2020.
`
`71.
`
`The adverse effects suffered by Maxwell as a result of Smithfield’s
`
`refusal to purchase all of Maxwell’s output were foreseeable to Smithfield.
`
`72. In addition, upon information and behef, Smithfield has significantly
`
`and wrongfully reduced its purchases from Maxwell, in breach of its obhgations to
`
`Maxwell under the PSA, while maintaining a disproportionally higher level of
`
`purchases of hogs firom Smithfield-owned companies. Smithfield is therefore acting
`
`in bad faith by saddling Maxwell with a disproportionate percentage of Smithfield’s
`
`overall reduction in swine purchases.
`
`73.
`
`Upon information and belief, Smithfield has engaged in its course of
`
`conduct, as alleged herein, for the express purpose of harming Maxwell’s business
`
`and with the objective of driving Maxwell out of hog production altogether so as to
`
`benefit Smithfield-owned competitors of Maxwell.
`
`VII. Maxwell Discovers Smithfield’s Ongoing and Intentional Breaches of
`its Most-Favored-Nation-Pricing Obligation under the PSA
`
`74.
`
`As alleged above. Maxwell discovered that Smithfield has been engaged
`
`in wrongful and discriminatory pricing practices in contravention of the PSA, as
`
`amended by the Amendment, and in violation of its duty of good faith and fair dealing.
`
`75.
`
`Specifically, Maxwell is informed and believes that Smithfield has
`
`renegotiated its contract with at least one other major swine supplier to give that
`
`supplier better economic benefits, including more favorable pricing terms, than in its
`
`original contract. These changes to the other major swine supplier’s contract provided
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 16 of 49
`15
`
`
`
`that supplier with more favorable pricing terms and better economic benefits than
`
`Maxwell receives and has received under the PSA in violation of the express terms of
`
`the Amendment.
`
`76.
`
`Upon information and belief, Smithfield is offering or has entered into
`
`contracts with one or more of its major swine suppliers that are based in whole or in
`
`part on “cut out” pricing, which is more economically beneficial for that supplier or
`
`those suppliers than is the pricing Smithfield has provided to Maxwell.
`
`77.
`
`On July 8, 2020, John Pike sent a letter to Smithfield President, Ken
`
`Sullivan, communicating Maxwell’s “behe[f| [that] there are other major producers
`
`within Smithfield’s system that have agreements with you that are substantially
`
`better than what Maxwell has.” See July 8, 2020 Letter from John Pike to Ken
`
`Sullivan (the “July 8, 2020 Letter,” attached as Exhibit 3).
`
`78.
`
`Smithfield has not denied that it has agreements with other major swine
`
`suppliers that are on economic terms better than what it has offered Maxwell, thus
`
`breaching the PSA as amended by the Amendment.
`
`VIII. Smithfield’s Misconduct Has Caused Maxwell to Suffer Substantial
`Harm
`
`79.
`
`It is not economical for Maxwell to contract with a different packer than
`
`Smithfield. Smithfield is the only packer in the Southeast with the capacity to take
`
`Maxwell’s output. The nearest non-Smithfield plant is in Pennsylvania—over 400
`
`miles away.
`
`80.
`
`Smithfield’s failure to provide Maxwell with most favored nation pricing
`
`as required by the PSA, its refusal to provide Maxwell a fair price, and its failure to
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 17 of 49
`16
`
`
`
`purchase Maxwell’s output as required by the PSA all have harmed Maxwell greatly
`
`and are intended to run, and are in fact unlawfully running, Maxwell out of the hog
`
`business.
`
`81.
`
`Maxwell has been forced to curtail operations and start the wind down
`
`of its swine production because of the unlawful, unfair, and predatory actions by
`
`Smithfield. Maxwell therefore has notified its contract growers that it will not extend
`
`or renew their contracts and has stopped the breeding of its sows. Maxwell’s decisions
`
`in this regard are good faith, legitimate business decisions forced upon it by
`
`Smithfield’s continued wrongful .conduct, which has cost Maxwell tens of millions of
`
`dollars already and is causing Maxwell to incur additional substantial losses every
`
`day.
`
`FIRST CLAIM FOR RELIEF
`(Breach of Contract—Most-Favored-Nation Provision)
`
`82.
`
`Plaintiff realleges and incorporates herein by reference the allegations
`
`of all prior and subsequent Paragraphs of this Complaint.
`
`83.
`
`The PSA, as amended by the December 6, 1994 Amendment executed by
`
`the parties, is an enforceable agreement between the parties.
`
`84.
`
`Paragraph 1 of the Amendment obligates Smithfield to give to Maxwell
`
`the “same economic incentives (including any Grade and Yield Matrix) as given all of
`
`Smithfield Foods’ other major swine suppliers” and “the benefit of future changes in
`
`economic benefits given said major swine suppliers.”
`
`85.
`
`Maxwell has performed all of its obligations under the PSA and the
`
`Amendment.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 18 of 49
`17
`
`
`
`86.
`
`Smithfield has breached Paragraph 1 of the Araendment because, for
`
`some period of time, Smithfield has offered superior economic incentives and superior
`
`economic benefits to other major swine suppliers than it has offered to Maxwell.
`
`87.
`
`Smithfield has also failed to act in good faith with respect to its
`
`obligations under Paragraph 1 of the Amendment by actively hiding from Maxwell
`
`the fact that Smithfield was not complying with Paragraph 1 of the Amendment or
`
`otherwise preventing Maxwell from learning those facts, despite Maxwell’s
`
`reasonable diligence; and by preventing other suppliers from revealing the economic
`
`benefits of their contracts with Smithfield and by failing to disclose to Maxwell the
`
`material facts concerning those contracts that would have allowed Maxwell to know
`
`of Smithfield’s failure to meet its obligations to Maxwell.
`
`88.
`
`Upon information and belief, Smithfield has not offered Maxwell the
`
`“benefit of future changes in economic benefits” that Smithfield has given to other
`
`major suppliers.
`
`89.
`
`Smithfield’s ongoing breach of Paragraph 1 of the Amendment to the
`
`PSA, as well as its failure to act in good faith with respect to its obhgations under
`
`Paragraph 1 of the Amendment to the PSA, have caused Maxwell damages totaling
`
`tens of milhons of dollars, with additional breaches and damages accruing every day.
`
`90. Maxwell is entitled to damages for Smithfield’s breach of Paragraph 1
`
`of the Amendment to the PSA in an amount exceeding $25,000, with the total
`
`damages to be proven at trial.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 19 of 49
`18
`
`
`
`SECOND CLAIM FOR RELIEF
`(Breach of Contract—Duty to Negotiate)
`
`91.
`
`Plaintiff realleges and incorporates herein by reference the allegations
`
`of all prior and subsequent Paragraphs of this Complaint.
`
`92.
`
`Under Paragraph 1(b) of the PSA, Market Value is determined in
`
`reference to the Average Terminal Price, which, in turn, is derived from the average
`
`daily price of hve hogs on the Iowa-Southern Minnesota spot market.
`
`93.
`
`Paragraph 1(b) further provides that the parties shall substitute a new
`
`basis for deriving the Average Terminal Price if the Iowa-Southern Minnesota spot
`
`market “ceases to be a viable market.”
`
`94.
`
`In that circumstance, the PSA requires that the parties “designate a
`
`substitute basis upon which to determine the Average Terminal Price by mutual
`
`written agreement.”
`
`95.
`
`In sum. Paragraph 1(b) of the PSA obligates Smithfield to negotiate in
`
`good faith to reach agreement on “a substitute basis upon which to determine the
`
`Average Terminal Price.”
`
`96.
`
`As alleged herein, during the February 19, 2020 Meeting, Maxwell again
`
`informed Smithfield that the Iowa-Southern Minnesota market had ceased to be
`
`viable for purposes of the pricing terms of the PSA.
`
`97.
`
`However, for many months, Smithfield has consistently refused to
`
`engage in any negotiation with Maxwell whatever to reach agreement on a substitute
`
`basis to determine Average Terminal Price and Market Value under the PSA, in
`
`violation of Smithfield’s obligations under Paragraph 1(b) of the PSA.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 20 of 49
`19
`
`
`
`98.
`
`Moreover, Smithfield has also failed to act in good faith with respect to
`
`its obligations under Paragraph 1(b) of the PSA to reach agreement on a substitute
`
`basis to determine Average Terminal Price and Market Value under the PSA.
`
`99.
`
`Smithfield knew, or should reasonably have known, that its refusal to
`
`negotiate with Maxwell to reach agreement on a substitute basis to determine
`
`Average Terminal Price and Market Value under the PSA would cause substantial
`
`financial harm to Maxwell.
`
`100.
`
`Smithfield’s breach of its duty to negotiate a substitute basis to
`
`determine Average Terminal Price and Market Value under the PSA, as well as its
`
`failure to act in good faith with respect to such duty to negotiate, have proximately
`
`caused damage to Maxwell in an amount in excess of $25,000, with the total damages
`
`to be proven at trial.
`
`THIRD CLAIM FOR RELIEF
`(Breach of Contract—Output Provision)
`
`101. Plaintiff realleges and incorporates herein by reference the allegations
`
`of all prior and subsequent Paragraphs of this Complaint.
`
`102. The PSA is an enforceable agreement between the parties for the sale
`
`and purchase of goods, namely hve hogs.
`
`103. Paragraph 3(a) of the PSA obligates Smithfield to purchase “all” of the
`
`Market Swine Maxwell produces up to the cap of 155,000 per month.
`
`104. Maxwell has performed all of its obligations under the PSA.
`
`Case 5:20-cv-00479-M Document 1-2 Filed 09/11/20 Page 21 of 49
`20
`
`
`
`105. Since in or about April 2020, Smithfield has failed to purchase all of the
`
`Market Swine Maxwell has produced. Instead, Smithfield has purchased
`
`approximately 50% of Maxwell’s projected output hogs.
`
`106. Since in or about April 2020, Smithfield has been operating at or above
`
`the capacity required to purchase all of Maxwell’s output of hogs.
`
`107. Smithfield’s breach of the PSA with respect to its obligation to purchase
`
`all of Maxwell’s output up to a cap of 155,000 Market Swine per month has cost
`
`Maxwell in excess of $1 milhon, with additional breaches and damages accruing each
`
`month.
`
`108. Maxwell is entitled to damages for Smithfield’s breach of the PSA in an
`
`amount exceeding $25,000, with
Accessing this document will incur an additional charge of $.
After purchase, you can access this document again without charge.
Accept $ Charge
Still Working On It
This document is taking longer than usual to download. This can happen if we need to contact the court directly to obtain the document and their servers are running slowly.
Give it another minute or two to complete, and then try the refresh button.
A few More Minutes ... Still Working
It can take up to 5 minutes for us to download a document if the court servers are running slowly.
Thank you for your continued patience.
This document could not be displayed.
We could not find this document within its docket. Please go back to the docket page and check the link. If that does not work, go back to the docket and refresh it to pull the newest information.
Your account does not support viewing this document.
You need a Paid Account to view this document. Click here to change your account type.
Your account does not support viewing this document.
Set your membership
status to view this document.
With a Docket Alarm membership, you'll
get a whole lot more, including:
- Up-to-date information for this case.
- Email alerts whenever there is an update.
- Full text search for other cases.
- Get email alerts whenever a new case matches your search.
One Moment Please
The filing “” is large (MB) and is being downloaded.
Please refresh this page in a few minutes to see if the filing has been downloaded. The filing will also be emailed to you when the download completes.
Your document is on its way!
If you do not receive the document in five minutes, contact support at support@docketalarm.com.
Sealed Document
We are unable to display this document, it may be under a court ordered seal.
If you have proper credentials to access the file, you may proceed directly to the court's system using your government issued username and password.
Access Government Site
