Huy Fong Foods, Inc. v. Underwood Ranches, LP

David Tran founded Huy Fong Foods, Inc. (Huy Fong) (plaintiff), which made Sriracha sauce. For 28 years, Huy Fong bought peppers from Underwood Ranches, LP (Underwood) (defendant). During this time, Tran and Underwood’s principal also formed a personal relationship. Although the entities initially used written contracts, they later relied on informal agreements even though the deals involved millions of dollars. Tran pressured Underwood to expand its operations, promising to buy all the peppers it could grow. In response, Underwood invested millions on expansion, including entering expensive long-term leases for additional land. By 2016, Huy Fong’s business provided 80 percent of Underwood’s revenue. However, for years, Huy Fong had been secretly planning to replace Underwood with its own supply company and other growers. Huy Fong also misused confidential information obtained from Underwood to teach other farmers Underwood’s growing methods. Not long after promising to buy Underwood’s 2017 crop, Huy Fong abruptly demanded a price below Underwood’s production cost and refused to provide its usual financing. Underwood was unable to grow its 2017 crop or avoid its leases, losing millions and laying off 40 employees. Underwood later testified that those losses could have been avoided if Huy Fong had given reasonable notice. Huy Fong sued to recover $1.4 million in prepayments it had made for the 2017 crop. Underwood counterclaimed for breach of contract and the tort of fraud. The jury found for Underwood, awarding it $13.32 million in compensatory damages and $10 million in punitive damages. Huy Fong appealed. Among other claims, Huy Fong argued that the punitive-damages award was (1) unavailable in a contract case and (2) excessive.