Jalapeño farmer wins $23.3 million in heated dispute with Sriracha maker

After the collapse of a nearly 30-year partnership with the maker of the world-famous Sriracha sauce and a multimillion-dollar lawsuit with the company, Craig Underwood is still betting on his farm’s peppers.

A jury recently awarded $23.3 million to Underwood Ranches after a bitter lawsuit with Huy Fong Foods Inc., the manufacturer of the wildly popular Sriracha in the signature green-capped bottle. The family-owned Underwood farm was once the exclusive supplier of the chile peppers at the core of Huy Fong’s rooster-labeled sauces.

The trial, which began in early June, came to a close last week when a civil jury determined that Irwindale-based Huy Fong breached its contract with the chile grower and committed fraud by intentionally misrepresenting and concealing information.

“It certainly isn’t our nature to give up. We felt we had been wronged, so we were hoping we could right that through the court,� said Underwood, who manages the Camarillo farm. “When the verdict came down, there was a lot of celebrating. We celebrated at lunch. We celebrated at dinner. And then we celebrated the next day.�

Underwood said it was an emotional moment because the dissolution of the relationship with Huy Fong had hit the grower’s finances hard.

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In 1968 — when Underwood returned home to work on the farm with his father after studying agriculture at Cornell University and serving three years in the U.S. Navy — Underwood Ranches was farming on 400 acres. At the peak of its production harvesting peppers for Huy Fong Foods in 2014, it had spread out to 4,000 acres.

The business partnership flourished until the fall of 2016, when Huy Fong demanded Underwood Ranches return more than $1 million the manufacturer said was overpaid to the farm for growing costs, according to court documents.

Historically, Huy Fong would prepay Underwood Ranches for the estimated costs associated with growing and harvesting the chiles. The agreement was “partly oral, partly written and partly established by the parties’ practice,� court records show.

By January 2017, the relationship had soured to the point that the parties stopped working together.

The next month, Huy Fong Foods filed a lawsuit in Los Angeles County Superior Court, which later was moved to Ventura County, where Underwood’s business is located. The grower filed a cross-complaint in February 2018, alleging that Huy Fong caused the breach in the partnership and that as a result, Underwood Ranches sustained more than $20 million in losses.

The Underwood farm was once the exclusive supplier of jalepeño peppers for Huy Fong Foods’ Sriracha.

(Mel Melcon / Los Angeles Times)

In ruling in favor of Underwood Ranches, the jury granted $14.8 million for financial losses it sustained in 2017 and 2018. The $1.5 million overpayment sought by Huy Fong was deducted and awarded to the Sriracha maker. Underwood also was awarded $10 million in punitive damages.

Michael Martin, a lawyer representing Huy Fong, said the manufacturer’s legal team plans to fight the decision.

“Obviously, we disagree with the verdict. We’re going to challenge it post-trial in motions and then ultimately on appeal,� Martin said. “As far as the financial impact of the verdict on the client, the company is going to continue to conduct business as usual.�

Underwood said that now that the suit is over, his team just wants to get the farm back to normal.

“The aftermath of the breakup has been really hard. All of a sudden, we had 1,700 acres and nothing to grow on it,� Underwood said, adding that the grower had to lay off 45 people. “We’ve had a lot of support from suppliers, our lender and people who work for us. We wouldn’t have made it otherwise.�

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Looking ahead, Underwood Ranches is still planning for its peppers to sustain the farm.

“When our relationship with Huy Fong fell apart, we didn’t know what we were going to do on the farm. But we’re pepper growers,� Underwood said. “So after a while, we just thought, ‘Why don’t we make our own line of sauces?’�

The sauces — including Underwood’s own version of Sriracha — started selling about a month ago in farmers markets in Ventura County as the farm shifts its focus from creation to distribution.

David Tran, who founded the Sriracha manufacturer after fleeing Vietnam, said Underwood’s new sauces are an attempt to put the company out of business.

“Unfortunately, rulings during the trial prevented Huy Fong from fully advising the jury of these things,� Tran said in a statement.

Underwood Ranches now has its own line of hot sauces, including a Sriracha sauce.

(Mel Melcon / Los Angeles Times)

Meanwhile, Huy Fong Foods is now receiving its chiles from other growers in California, New Mexico and Mexico, said Donna Lam, an executive at the company.

And at Underwood Ranches, onions, cilantro, basil and other crops now fill the plots where the peppers for Huy Fong Foods once grew.

Those peppers will always be what he’s most proud of, said Underwood, whose family has been farming in Ventura County since 1867. They’re what he said he’s fought the most for and what he hopes will carry the farm forward.