Business Irish

Sunday 22 September 2019

Aryzta wins court battle to limit potential US damages timeframe

Aryzta CEO Kevin Toland is spearheading a turnaround programme. Photo: Steve Humphreys
Aryzta CEO Kevin Toland is spearheading a turnaround programme. Photo: Steve Humphreys
John Mulligan

John Mulligan

Cuisine de France owner Aryzta has secured an important victory in its US legal battle with a former customer.

The court overseeing the case has limited the time period for which the Swiss-Irish firm might be liable for damages in a major contract dispute.

Aryzta was sued by Tennessee-based McKee Foods in 2017 for an alleged breach of contract.

Family-owned McKee has claimed that it has lost "millions of dollars" in revenue because Aryzta was allegedly unable to fulfil its manufacturing orders at a US facility. McKee sells well-known cake snack brands in the United States such as Little Debbie. It has annual sales of about $1.5bn (€1.35bn).

Last year, Aryzta moved to have the amount of damages it would be potentially liable for if it lost the legal fight limited to those potentially incurred before and during a 90-day notice period for the termination of a contract between the two firms.

McKee had argued with the court that the time period for its damages claim should not be limited, insisting that it had continued to lose profits because of Aryzta's alleged failures under the contract. But the court has sided with Aryzta, whose chief executive is Kevin Toland.

"If McKee Foods prevails on its breach of contract claim against Aryzta, McKee Foods' damages, if any, must be limited to damages accrued before and during the 90-day notice period following McKee Foods' termination of the outside manufacturer's agreement," the court ordered.

It also dismissed McKee Foods' motion to have a counter-claim lodged by Aryzta dismissed. In its counter-claim, Aryzta has claimed that none of the alleged breaches committed by it under its contract with McKee Foods qualify as a breach that was immediately terminable, and that the US firm should have given 90 days' notice.

Aryzta claims that the alleged breach of the manufacturing agreement by McKee has resulted in it suffering "substantial damages", which continue.

The legal battle between the two companies emerged following a labour crackdown by US immigration authorities in 2017 that saw almost 800 employees at two manufacturing facilities - collectively known as Cloverhill - then owned by Aryzta, being forced out the door because they did not have proper worker authorisations.

The staff, most of whom had worked at the facilities for years, had been supplied by a third-party employment agency and Aryzta had been unaware of their deficient employment credentials.

The loss of the staff put the manufacturing facilities under severe pressure.

Cloverhill had been manufacturing McKee products since 2010. The plants were acquired by Aryzta in 2014 and the company was engaged to continue making McKee products at the sites.

McKee has claimed that soon after Aryzta warned it of its own labour problems, the Swiss-Irish firm began having difficulties filling orders. It alleged that the problem later intensified.

Mr Toland is spearheading a multi-year turnaround programme at Aryzta that is designed to generate savings of €40m a year.

Two weeks ago, shares in the company tumbled after UBS cut its price target on the stock by 41pc.

A UBS analyst said that delays in cost cuts and deteriorating consumer confidence could impact upon top-line profit growth at Aryzta.

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