Sriracha partnership flames into Ventura County court battle; $20-plus million at stake

The marriage over Sriracha was spicy. The divorce is bitter. And public.

Huy Fong Foods, the hot sauce giant built by Vietnamese refugee David Tran, has accused a Ventura County jalapeño farmer of terminating a nearly 30-year partnership without so much as a “Dear John” note.

In accusations on social media and a lawsuit moving to trial as soon as May in Ventura County Superior Court, it said the grower seized $7 million worth of equipment that is now being returned more than two years later.  

Underwood Ranches, the Camarillo business that grew peppers for Tran since 1988, has fired back with accusations the Sriracha maker reneged on a contract, attempted to drastically cut pepper payments and left its partner no options except divorce. The ranch company’s leaders also charge Tran with unsuccessfully trying to lure away a longtime Underwood manager as part of a plot to use new growers and push out Underwood.

“In late 2016, David Tran, Huy Fong’s founder and chief executive officer, started to behave unpredictably and in a bizarre manner,” lawyers argued in a March court submission that is part of five volumes of documents for a case filed in August 2017. “... Mr. Tran tried to lure Underwood’s long-serving chief operating officer, James Roberts, to work for Mr. Tran’s sham entity — Chilico.”

The onetime partners did come to an agreement in which the seized farm equipment is being released but continue to battle over other aspects of the breakup.

Huy Fong Foods is suing for $1.46 million in alleged debt owed by Underwood, 10% interest and punitive damages.

In a cross-complaint, Underwood Ranches is suing for more than $20 million in alleged losses and costs blamed on Huy Fong. The ranch company also wants punitive damages.

The trial, once set for February and then late April, has been moved to May 20. Neither side has said much publicly, except for Huy Fong Food’s forays on Twitter, Instagram and Facebook.

In a tweet, the food company cited Underwood’s eight-figure claim for damages.

“Underwood expects HF to pay back the ‘golden goose’ that they themselves killed,” the tweet said.

The good old days

The partnership was once a source of pride for both entities. It fed into a success story propelling plastic bottles branded with a rooster logo and a lime green cap into a phenomenon.

David Tran’s first commercial sortie into hot sauce came when he lived in his native Vietnam in the mid-1970s, according to a company bio. He poured his creation, called Pepper Sa-Te, into repurposed baby food jars that family members delivered on bicycles.

After South Vietnam was taken over by communism, Tran fled on a freighter named Huy Fong. He ended up in Los Angeles’ Chinatown, according to the company website that labels its founder as an “unsurpassable genius.”

Sriracha was his ticket to success. A 2014 article in The Atlantic suggests he may have sold it at first in buckets to area restaurants. He later made deliveries via a blue Chevy van bearing a logo Tran painted himself, according to the company website.

Craig Underwood entered the picture with a letter. The Camarillo resident’s family has farmed in Ventura County since the 1860s and Underwood started growing crops with his father in 1968, cultivating what would become Underwood Ranches. In 1988, Underwood offered in writing to grow jalapeños for Tran.

The partnership started modestly with 50 acres of peppers grown in the first year. The acreage grew as the business boomed.

Huy Fong Foods moved from Chinatown to Rosemead to a 650,000-square-foot factory in Irwindale that is open to tours. Tran’s hot Sriracha sauce became a thing, invigorating legions of fans who not only consumed the product but wrote essays about it and crafted Halloween costumes featuring red bottle-shaped torsos and green head gear.

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Assessing the company’s worth is difficult, although a Huy Fong representative suggested revenues may reside in the $80-million neighborhood. Tran, in a deposition, declined to disclose the company’s profits.

“Since the beginning, I don’t want anybody to find out how much profit my company has earned,” he said.

The company has at times been pushed into the spotlight for reasons other than its Sriracha successes, including a 2013 suit by the city of Irwindale triggered by complaints about odor from the plant. The litigation was dropped.

Hitting a rough patch

Underwood’s farms boomed in the pepper marriage with the Huy Fong Foods website once labeling it as the largest red pepper farm in the nation. Craig Underwood and his wife, Sara Jane, grow other crops too, operating more than 3,000 acres of farm land in Kern and Ventura counties.

Aside from the ranches, their Underwood Family Farms business runs farm stands in Somis and Moorpark with goats, a playground and elaborate Halloween season festivals.

Tran and Underwood remained partners for nearly 30 years. Theirs was an exclusive relationship. Huy Fong Foods used only Underwood peppers, grown to the company’s specifications. Underwood grew jalapeños only for Huy Fong.

Their relationship was based on written terms but also on word, trust and tradition. Each season, Huy Fong would pay installments based on estimated costs and a guaranteed fee beginning in February.

At the end of the harvest, the two sides would go over the actual costs and make up any differences. Huy Fong said in a court record it paid Underwood $30 million in 2016.

In addition to the harvested peppers, Huy Fong paid for equipment developed and used by Underwood, much of it designed and built by Roberts, the farm’s chief operations officer. By 2016, all of the harvesting once done by farmworkers was handled by machines, according to a court record.

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The marriage hit a rough patch in 2016.

Huy Fong Foods said in a lawsuit first filed in Los Angeles and then moved to Ventura County Superior Court that the two sides couldn’t come to terms on a contract for the 2017 season. The Sriracha maker asserted in a March 28 tweet that Underwood decided to stop growing jalapeños for Huy Fong “without any warning.”

Underwood Ranches responded to the lawsuit with its own court complaint against Huy Fong. Company officials alleged there were many reasons no peppers were grown in 2017.

The cross-complaint contends an agreement was reached for the 2017 season with Tran saying he would pay $13,000 an acre for 1,700 acres of peppers.

Eight days after the deal was reached, the cross-complaint said, Tran and Huy Fong’s longtime executive operations officer, Donna Lam, met with Roberts, according to court records. Roberts’ boss for three decades, Craig Underwood, was on vacation in a timing ranch owners say was planned by Huy Fong.

They told Roberts they were forming a new company, Chilico, that would be owned and run by Lam to manage the peppers used by Huy Fong.

They wanted Roberts to leave Underwood and work for Chilico.

“He actually almost told me I was going to do it,” Roberts said in a deposition. “... He said, ‘You’re going to work for Donna.’”

When Roberts rejected the job offer, Tran turned red with anger, according to the deposition. He told Roberts Underwood Ranches would no longer sell directly to Huy Fong Foods but would have to go through Chilico. The price paid for the peppers would be drastically reduced.

Underwood’s court documents contend Huy Fong also refused to guarantee payments promised by Chilico to the ranches.

In court documents, Huy Fong has contested every allegation made in Underwood’s cross-complaint.

Losing profits

Underwood opted not to grow peppers for Huy Fong or Chilico in 2017. The ranches laid off 44 employees and rented or sold 400 acres of land once dedicated to Huy Fong, according to lawsuit records.

“Underwood lost profits in 2017 and continues to do so,” the ranches’ cross-complaint stated, blaming more than $20 million on alleged losses and costs on Huy Fong breaking its contract.

The Sriracha company alleged that in addition to opting not to grow Huy Fong jalapeños, Underwood refused to return more than 70 pieces of machinery or equipment, storing the property in Ventura County. The two sides reached a settlement on return of the machinery with Underwood also agreeing to pay a past bill of $24,938.

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Huy Fong alleges Underwood refused to pay back $1.455 million that was overpaid to the ranches for jalapeños grown in 2016. Underwood disputes the debt.

Underwood alleges Tran is the true owner of Chilico and that the company was created as a way to control Underwood Ranches and to ultimately replace it with other, less expensive sources of peppers.

Huy Fong refutes all of Underwood’s accusations. Underwood refutes all of Huy Fong’s accusations. Both sides have demanded financial information about the other.

“Underwood seeks every shred of information possessed by Huy Fong’s CPA relating to his client and others — including five years of tax returns and every document used to create those tax returns,” Huy Fong’s lawyers alleged in a February filing.

Outside of the court, there are indications they’ve begun to move on. Huy Fong Foods now receives its jalapeños from various suppliers, according to a company representative.

Underwood Ranches grows jalapeños in reduced numbers and started working on its own Sriracha sauce in 2017. The product was placed on shelves but then removed because it had not been licensed by the California Department of Public Health. The required license and registration was approved by the state in March and the product could be back on shelves within weeks.

Huy Fong Foods tweeted about the “golden goose.” Underwood alleges it is the Sriracha company that poisoned it. They said in court documents the partnership made money for both sides and would have continued to if Tran had not introduced Chilico into the picture.

Huy Fong Foods said Underwood Ranches is looking for payback and used first the seized equipment and later the requests for financial and company information to extract it.

“The truth,” Huy Fong leaders said on Twitter, “will come out at the trial.”

Tom Kisken covers general assignment news for the Ventura County Star. Reach him at tom.kisken@vcstar.com or 805-437-0255.