Thursday 23 May 2019

Aryzta in battle to limit US customer's damages claim

Aryzta CEO Kevin Toland
Aryzta CEO Kevin Toland
John Mulligan

John Mulligan

Tennessee-based McKee Foods has lashed out at efforts by Swiss-Irish baked goods group Aryzta to try to limit potential damages sought by the US firm after it terminated a manufacturing agreement with the embattled group.

McKee has claimed in court that it has lost millions of dollars in profits because of manufacturing difficulties experienced at a now former Aryzta factory in the US.

McKee has told a Tennessee court that Aryzta's motion to time-limit McKee's damages claim should not be permitted, and that it lost profits because of Aryzta's alleged failings "continue to increase".

Aryzta has stated in court that the contract between the pair allowed either party to terminate it with 90 days' notice.

"Because the contract was terminable by either party without cause on 90-days' notice, as a matter of law, plaintiff's lost profit damages are limited to the 90-day period after which it terminated the contract," Aryzta has claimed. It has sought a partial judgment on that basis.

The Cuisine de France owner - where management, including CEO Kevin Toland, are grappling with efforts to turn the business around - has also claimed in court that McKee Foods is not entitled to "consequential damages" in the form of damage to reputation and that any such claims should be dismissed.

But family-owned McKee Foods, whose well-known US brands include Little Debbie, has railed against Aryzta's efforts to secure the partial judgment and the dismissal of consequential damages claims.

It has insisted in court that it was entitled to terminate the contract without notice in August last year because of Aryzta's alleged "breaches in failing to supply snack foods, failing to permit food quality and food safety inspections, and failing to comply with applicable laws in manufacturing the snack foods".

"McKee has lost a significant amount of sales, the consequences of which have already resulted in millions of dollars of lost net profits and other consequential damages, which only continue to increase," the company told the court this week. "McKee anticipates that significant disruption of its business and supply of the snack foods will continue until it is able to fully restore production of all snack foods to pre-breach levels."

The US firm has argued in court that it should also be entitled to seek damages for alleged harm to McKee's business reputation and goodwill "because such damages are allowable under Tennessee law".

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