Maxwell's lawsuit with Smithfield can proceed to trial

A North Carolina Business Court has granted Maxwell Foods permission to proceed to trial with some of its breach of contract claims against Smithfield Foods. A hog supplier to Smithfield for more than 25 years, Maxwell filed the lawsuit in 2021, citing the firm failed to provide Maxwell with most favored nation pricing and gave other “major swine suppliers” better pricing. Maxwell also claimed Smithfield breached the Production Sales Agreement’s output provision by buying less than Maxwell’s entire output during the COVID-19 pandemic and underpaid based on live weight instead of carcass weight.

Maxwell contends these actions all harmed the company greatly and moreover ran it out of the hog business.

In a decision released earlier this month, Judge Adam M. Conrad ruled, “The court enters summary judgment in Maxwell’s favor as to Smithfield’s counterclaims and affirmative defenses of force majeure and anticipatory breach. The counterclaims and these affirmative defenses are dismissed with prejudice. The court also enters summary judgment in Maxwell’s favor as to Smithfield’s liability on the claim for breach of the PSA’s output provision. This claim shall proceed to trial for a determination of Maxwell’s damages.”

With regards to the MFN clause, Maxwell alleged that Smithfield breached it by offering more beneficial pricing terms— primarily index or cutout pricing— to six other suppliers. Judge Conrad declared the phrase “major swine suppliers” should only refer to those suppliers in existence at the time the contract was executed. Thus, Smithfield was granted partial summary judgment on the claim as to four of the six suppliers.

“Had Maxwell wanted the right to be offered the pricing that Smithfield gave to new suppliers during the PSA’s term, it could have negotiated for a more comprehensive most-favored-nation clause. But it didn’t. In simple terms, Maxwell bargained for an assurance that Smithfield was treating it as well as existing major suppliers and a promise that Smithfield would continue to treat it as well as those suppliers, and only those suppliers, in the future,” Judge Conrad wrote.

As for the fifth and sixth major swine supplier, the court noted the statute of limitations comes into play regarding Maxwell’s claim to Murphy-Brown’s MFN pricing. Judge Conrad ruled Smithfield is entitled to summary judgment as to those alleged breaches but not to the claim that it breached the clause by failing to offer Maxwell changes in pricing given to Prestage Farms. That claim shall proceed to trial.