Sriracha Maker Has to Shell Out $23 Million After Losing a Huge Lawsuit Over Chiles

Huy Fong Foods and Underwood Ranches began their relationship almost 30 years ago with a handwritten letter—but it essentially ended in a California courtroom, in front of executives from both companies, two determined legal teams, and a jury who spent more than three weeks taking detailed notes of the testimony from both sides.

For almost three decades, Underwood Ranches supplied all of the red jalapeño peppers that were used in Huy Fong Foods' signature product: those green-capped, rooster-logo bottles of Sriracha hot sauce. According to the Ventura County Star, in 1988, Underwood wrote a letter to Huy Fong offering to become the company's jalapeño supplier. The two companies came to an exclusive—if sort of unofficial—agreement and, that first year, Underwood grew 50 acres of peppers for its new-ish neighbor.

As Sriracha became increasingly popular, the amounts of both money and peppers involved grew exponentially. The San Gabriel Valley Tribune reports that during Underwood's final growing seasons for Huy Fong, it produced 100 million pounds of those jalapeños—1,700 acres' worth—and sold them for $13,000 an acre.

The agreement between the two businesses was “partly oral, partly written and partly established by the parties’ practice,” according to court documents obtained by the Los Angeles Times. That meant that before the growing season began, Underwood would send an estimate for the cost of producing all 100 million pounds of peppers. Huy Fong would pre-pay part of it and, after the harvest, it would pay the remaining balance.

Things between the ranch and the saucemaker started to go sideways after the 2016 harvest, when Huy Fong accused Underwood of overcharging the company $1.45 million, and refusing to repay it. Underwood officially terminated its relationship with Huy Fong Foods in January 2017—but it also alleged that Huy Fong had "no intention" of using the ranch's peppers for the 2017 growing season, even before the dispute over the overpayment.

In February of that year, Huy Fong sued for the seven-plus figure overpayment. Underwood countersued for $20 million, for breach of contract and for the losses it had to eat after losing its biggest client. (After the two companies terminated their agreement, Underwood said that it had to lay off 40 workers, too.)

The trial finally began in mid-June. "We were like family. I really trusted him, but I never expected this,” Huy Fong founder and CEO David Tran said during the first day of testimony. “A relationship that lasted 28 years, today, we ended up in court.” On Tuesday, the jury awarded $23.3 million to Underwood Ranches, after deciding that Huy Fong Foods broke its contract, concealed information, and committed fraud in the process.

"They were 80 percent of our business. We lost [money] three years in a row. I can’t say that we’re better off today than we were before the settlement,” Underwood Ranches owner Craig Underwood told the Camarillo Acorn. “But we had a clear-cut victory, and that was very, very gratifying.”

That $23.3 million judgment included $14.8 million in losses that Underwood accrued after Huy Fong ended their relationship—minus the original $1.45 million overpayment that seemingly started this entire thing—as well as $10 million in punitive damages.

Huy Fong Foods plans to appeal the decision. Meanwhile, Underwood Ranches continues to grow five different varieties of peppers, Haas avocados, and a wide variety of row crops for a wide variety of retailers. It also has its own line of hot sauces, including a spicy BBQ, verde, and—for real—sriracha.