Beyond Meat gears up for Sept 26 showdown in L.A. with former co-packer Don Lee Farms

05-Aug-2022 - Last updated on 08-Aug-2022 at 17:07 GMT

Beyond Meat 'has determined that the amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable...' Image credit: Beyond Meat

Beyond Meat – which has just posted another grim set of quarterly figures driving its share price down to new lows – is gearing up for a showdown with former co-packer Don Lee Farms at a court in Los Angeles with a trial date scheduled for September 26.

Beyond Meat and Don Lee have been engaged in an ugly legal dispute since early 2017, triggered by the early termination of an exclusive five-year supply agreement between the two parties.

Under the deal, struck in December 2014, Beyond Meat provided Don Lee with its pea protein base and other ingredients and Don Lee processed them into Beyond Burgers at its facilities before returning the packaged products to Beyond Meat.

What is the dispute about?

According to a joint statement on the case* filed with Los Angeles Superior Court on August 4 ahead of a final status conference on August 9, the relationship came to an abrupt end in May 23, 2017, after Beyond Meat terminated the supply agreement two years into the five-year deal, citing ongoing concerns with Don Lee’s food safety practices leading to listeria and salmonella outbreaks.

Don Lee, in turn, insisted its facility was safe, and claimed Beyond Meat was in fact responsible for the food safety issues, and claimed that Beyond Meat terminated their agreement early because it thought it could secure better terms with another co-packer.

Don Lee went on to accuse Beyond Meat of negligent misrepresentation and fraud, accusing executives of fraudulently deleting information from a third-party report assessing food safety at a Beyond Meat manufacturing facility.

Beyond Meat, in turn, argued that Don Lee’s facilities were “grossly unsafe," and accused Don Lee of stealing trade secrets and infringing trademarks to create its own line of copycat products. It also claimed Don Lee had breached NDAs by disclosing Beyond Meat’s confidential food safety assessment report to a Bloomberg News reporter days before Beyond Meat’s IPO in spring 2019.

Beyond Meat: ‘DLF’s Mansfield facility was grossly unsafe’

In a trial brief filed with the court on August 4, Beyond Meat said it intended to prove at trial “that DLF’s Mansfield facility was grossly unsafe and inadequate for several reasons, including that it lacked basic safety infrastructure to manufacture plant-based products on a scale Beyond Meat required.”

By Spring 2017, it claimed, “Beyond Meat discovered a pervasive and persistent pattern of sanitation issues at the Mansfield facility [in Texas]. DLF’s poor infrastructure and inexperienced personnel led to several instances of foreign-object contamination.

“Beyond Meat later discovered dangerous pathogens in several lots of finished product that DLF manufactured, and in environmental samples taken at DLF’s Mansfield facility. Beyond Meat had no choice but to terminate the Supply Agreement on May 23, 2017. Days later, DLF retaliated by filing this action.”

However, in earlier filings in the case, Don Lee has said that the goods at issue "were tested for pathogens and passed inspection before shipment,” 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 - which has separately accused Beyond Meat of overstating the protein content in its products in a recent lawsuit – also noted that a judge had already established the “probable validity” of its claim that Beyond Meat owed it money for a small batch of unpaid invoices.

Beyond Meat: ‘The amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable’

So what happens if Beyond Meat fails to persuade a jury that it is in the right?

In a 10-K filing with the SEC in May 2022, Beyond Meat explained: “If Don Lee Farms succeeds in the lawsuit, the Company could be required to pay damages, including but not limited to contract damages reasonably calculated at what the Company would have paid Don Lee Farms to produce the Company’s products through 2019, the end of the contract term.

“Based on the Company’s current knowledge, the Company has determined that the amount of any material loss or range of any losses that is reasonably possible to result from this lawsuit is not estimable.”

*The case is Don Lee Farms vs Savage River Inc (d.b.a. Beyond Meat) Case #: BC662838 in Los Angeles County Superior Court, CA.