Sriracha maker, jalapeño farmer's relationship went down in flames, lawyers say

The split-up over Sriracha sauce was presented to a Ventura County Superior Court jury in opening statements Wednesday as a he-said, she-said affair like many bitter divorces.

Huy Fong Foods, the Irwindale-based hot sauce giant built by Vietnamese refugee David Tran, is suing its longtime exclusive jalapeño supplier, Underwood Ranches of Camarillo. Huy Fong alleges the farms owe him $1.46 million because of an overpayment.

Tran and Huy Fong’s lawer, Daniel Carobini, said in court Underwood suddenly ended a 28-year relationship by deciding not to grow peppers for Huy Fong in 2017.

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“You can imagine my client was shocked,” said Carobini in the opening statement of a trial that could stretch into July. “What he had to do was scramble.”

Underwood, in return, is counter-suing Huy Fong Foods for more than $20 million in losses incurred by the end of the partnership. The farm operations lawyers argue Tran tried to dramatically change the terms of their long relationship and severely cut his payments, leaving Underwood no choice but to stop growing the Sriracha maker’s peppers.

“It was clear (Huy Fong Foods) didn’t want a deal to happen,” said Underwood lawyer Jim McDermott, adding the end of the partnership caused the farm operation to lose 80% of its business and lay off half of its employees. “They doubled down, and they’re digging their way back.”

Craig Underwood, co-owner of Underwood Ranches, listens to opening statements on Wednesday in the civil trial between Huy Fong Foods and Camarillo grower Underwood Ranches.

The lawsuit has attracted national attention because of the popularity of Huy Fong’s sauce with its rooster logo and lime-green cap.

Carobini told jurors how Tran fled Communist Vietnam in 1978 on a freighter named Huey Fong. He brought his hot sauce with him and grew what started as a door-to-door business into an empire.

The growth and the need for more peppers brought Tran in touch with Underwood, whose family has been growing in Ventura County since the 1800s and also runs farm stands in Somis and Moorpark.

Their partnership began in 1988 with Underwood growing about 50 acres of red peppers for Huy Fong. By the time it ended, Underwood was growing 1,700 acres and the total amount paid out a year by Huy Fong was about $30 million.

“The parties worked well together,” Carobini told the jurors before an audience that included Tran in a suit on one side of the room and the farm operation's co-owner Craig Underwood on the other, writing notes. “They actually became friends.”

Attorney Daniel Carobini gives his opening statement on behalf of Huy Fong Foods on Wednesday in the civil trial between the company that makes Sriracha chili sauce and the Camarillo grower Underwood Ranches.

McDermott also said the relationship was strong, telling of how Huy Fong Chief Operations Officer Donna Lam took the news of a Kern County wind storm that destroyed more than 20 million pounds of peppers by assuring Underwood executive Jim Roberts that there was no blame.

But while Carobini emphasized the partnership was always on a year-to-year basis, in part because of massive pre-payments provided by Huy Fong to offset Underwood’s always rising costs, McDermott said the relationship was a long-term commitment for both.

“The growth was getting so significant,” McDermott said of pressure to provide enough peppers to meet the explosive demand for Huy Fong’s Sriracha. “There’s no way you could do this on a year-to-year basis.”

Carobini said the relationship changed in 2016 with the $1.45 million overpayment to the farm operation and Underwood’s rising expenses causing Tran to ask questions.

“What he found was the answers weren’t really satisfactory,” he said, asserting that the Sriracha makers agreed to continue working with Underwood for 2017. Then came an email from Underwood after the growing season had begun announcing changes in contract terms meant there would be no peppers.

Huy Fong leaders had to scramble to find other growers, Carobini said.

“(Tran) was concerned he would go out of business at that time,” he said.

McDermott presented a different version of the end. He noted the overpayment was reported to Huy Fong by Underwood and has been consumed by what Huy Fong owes the farm operation.

Attorney Jim McDermott gives an opening statement Wednesday on behalf of Underwood Ranches on Wednesday in the civil trial between Sriracha maker Huy Fong Foods and the Camarillo grower Underwood.

The more significant divisions were planted when Tran tried to lure away Underwood’s right-hand man, Roberts, McDermott said. When that failed, Tran told Roberts Underwood would no longer sell directly to Huy Fong but would go through a new go-between company to be run by Lam, Chilico.

McDermott alleged Chilico’s creation was linked to divisions in Tran’s family and was given price guarantees that assured it of huge profits. Carobini said Chilico was created simply to be a pepper broker, meaning it would deal with farmers directly.

McDermott said Tran also hinted he would replace Underwood’s peppers with overseas product, what he called China mash. Huy Fong representatives said in April their peppers come from various suppliers.    

The price paid to Underwood in the Chilico arrangement would have been dramatically reduced, McDermott said. Underwood would be paid by the pound for its peppers rather than by the acre, greatly increasing the farm operation's risk.

There was no way Underwood could accept the deal, he said.

 “That’s it, and David knows that,” McDermott said. “He pulled the rug.”

Tran began testifying Wednesday and will continue Thursday.