In a May 7 ruling at the Superior Court of California in Los Angeles (‘Hearing on motion for summary adjudication’) Judge Holly J. Fujie said Don Lee Farms was “entitled to summary adjudication” over Beyond Meat’s alleged failure to pay invoices to Don Lee, adding that: “The Court finds that Beyond Meat has not presented sufficient admissible evidence to raise a triable issue of material fact as to whether Don Lee Farms fully performed.”
She added: “Beyond Meat cannot create a triable issue of material fact based on conjecture, speculation, or guesswork.”
However, most key elements of the dispute remained questions for a jury, she said, with a trial scheduled for later this year.
Don Lee Farms: 'It is still just the beginning'
Don Lee Farms, which said it was “thrilled with these victories,” said: “No evidence submitted by Beyond Meat disputed the fact that Don Lee Farms fully performed under their Exclusive Supply Agreement with respect to this claim… The Court also ruled that Beyond Meat had no evidence to support their property claim and that their negligent misrepresentation claim was meritless.”
Donald Goodman, President, Don Lee Farms, added: “It is still just the beginning. Contrary to Beyond Meat's marketing story, we will prove our claim that Beyond Meat misappropriated our trade secrets to manufacture the Beyond Burger and other products. We will prove the breach of the Exclusive Supply Agreement and fraud claim committed by Mr. Nelson [Beyond Meat’s CFO, who left the company on May 5] and others.
“As we continue to trial on additional counts including on trade secrets, the public will be given the opportunity to see what happened at Beyond Meat. There are material facts surrounding the launch and production of the Beyond Burger that could shock a lot of people.”
Beyond Meat: ‘A key victory for Beyond Meat’
Beyond Meat acknowledged that it had been told to pay Don Lee an unspecified sum for product that had been shipped (“the release of a small amount of funds that have been held in escrow for over a year”). This was not a huge surprise, as a judge had previously granted a motion for a writ of attachment, essentially forcing Beyond Meat to hold a certain amount of money to pay Don Lee in escrow on the grounds that Don Lee had “established the probable validity of the claim upon which the attachment is based.”
The sum Beyond Meat must pay has not been made public, but earlier court filings reveal Don Lee's contention that Beyond Meat breached the parties' written exclusive supply agreement by failing to pay for around $431,000 of product shipped by Don Lee Farms, which says it is also owed late fees and interest.
While Beyond Meat argued that Don Lee’s products were defective, Don Lee presented evidence that the goods at issue "were tested for pathogens and passed inspection before shipment”, said the court in early 2020, noting that the agreed-upon protocol for challenging defective goods was to return them and seek a refund in a timely fashion, something Beyond Meat did not do.
‘Don Lee Farms and the Goodmans brazenly defrauded Beyond Meat’
Overall, however, the ruling amounted to “a key victory for Beyond Meat,” a spokesperson told FoodNavigator-USA.
“Don Lee Farms was a former co-packer that was unable to maintain a safe and sanitary manufacturing environment for Beyond Meat’s products. As Beyond Meat has alleged in its lawsuit, Don Lee Farms and the Goodmans brazenly defrauded Beyond Meat in an effort to misappropriate its intellectual property and enter the plant-based meat market.
“Significantly, the Court found that Beyond Meat had offered ample evidence of Don Lee Farms’ and the Goodmans’ fraud. This ruling brings Beyond Meat one step closer to holding Don Lee Farms accountable for its wrongful conduct.”
The spokesman added that the court had made clear that the question of whether Don Lee Farms committed a material breach of the exclusive supply agreement was a question for the jury. “Notably, the Court’s ruling allows Beyond Meat to seek punitive damages for Don Lee Farms’ fraudulent conduct and present to a jury substantial evidence of such conduct. Beyond Meat looks forward to sharing this compelling evidence with the jury."
What is the dispute all about?
The dispute* began in May 2017 - three years after the two parties entered into a 5-year exclusive supply agreement - with Don Lee Farms alleging that Beyond Meat wrongfully terminated the parties’ fixed term contract “under the guise of purported health and safety concerns."
Don Lee went on to accuse Beyond Meat of sharing trade secrets with Don Lee's rivals to help rivals “actively solicit” to replace Don Lee as Beyond Meat’s co-manufacturer “at prices more favorable to Beyond Meat” than those agreed in its supply contract with Don Lee.
Don Lee further alleged that Beyond Meat shared with subsequent co-manufacturers the processes for manufacturing Beyond Meat products (processes which Don Lee claims to have developed… although Beyond Meat says it had come up with the processes itself, years before Don Lee started using them).
Beyond Meat then countersued, alleging that Don Lee breached its supply agreement by failing to address serious food safety concerns.
In March 2019, Don Lee Farms hit back, adding more serious allegations of fraud and negligent misrepresentation against Beyond Meat, which Beyond Meat strongly denied.
'Shock and dismay'
In August 2020, Beyond Meat in turn alleged that it had been forced to terminate its supply agreement with Don Lee Farms owing to the “unsanitary conditions at DLF’s facility, and the inadequate controls and procedures.”
According to its amended complaint, Beyond Meat had agreed to move certain operations to Don Lee Farms’ facility in Mansfield, Texas in 2016, but discovered to its “shock and dismay” that the plant “was not remotely situated for Beyond Meat’s needs” and did not meet “basic food quality standards.”
Instead of compensating Beyond Meat for the "expensive unsaleable product" it manufactured, Don Lee Farms "filed a baseless complaint inexplicably claiming Beyond Meat had somehow wrongfully terminated the Supply Agreement (despite the gross health hazards at DLF’s facilities that DLF failed to remedy) and misappropriated DLF’s trade secrets (despite DLF never having manufactured the products Beyond Meat had developed years before)," said Beyond Meat’s Aug 11, 2020 complaint.
Don Lee Farms later launched a series of products including its 'Better Than Beef Burger,' that "ultimately failed to capture the taste and texture of Beyond Meat’s scientifically designed plant-based meat," but still benefited from Beyond Meat’s "confidential and proprietary information," alleged Beyond Meat.
Don Lee Farms: 'Ask Beyond Meat to publicly release their doctored third party food safety report'
Don Lee Farms responded by telling FoodNavigator-USA: “Ask Beyond Meat to publicly release their doctored third party food safety report, including the omitted portions discussing food safety issues at Beyond Meat’s facility."
Beyond Meat, however, argued that Don Lee had "misrepresented the nature of the report [which it alleges Don Lee leaked to a Bloomberg reporter in April 2019 just before the IPO] to smear Beyond Meat’s reputation, falsely suggesting that Beyond Meat and its employees had improperly altered the report, when nothing could be further from the truth."
*The case is Don Lee Farms vs Savage River Inc (d.b.a. Beyond Meat) Case #: BC662838 in Los Angeles County Superior Court, CA.