J.R. Simplot turns to court to seek control of troubled affiliates

Agribusiness giant J. R. Simplot is seeking receivership over two of its vegetable suppliers, claiming mismanagement of the $400-million-grossing companies threatens 2,000 jobs and could end in bankruptcy without court intervention.

Simplot sued Washington Potato Company, Oregon Potato Company and their principal Frank Tiegs in the Western District of Washington, claiming breach of fiduciary duty and unjust enrichment, and asking the court to appoint a receiver to oversee the businesses.

Simplot is a non-controlling owner of both businesses.

Tiegs and Washington Potato Company (WPC) and Oregon Potato Company (OPC) control several smaller processing and distribution companies integral to Simplot’s business, including Pasco Processing, Gem State Processing and National Frozen Foods Corporation (NFF).

“WPC, OPC, and Tiegs, through gross negligence, recklessness, and intentional misconduct, including self-dealing, have mismanaged Pasco and Gem State to the point where these companies are failing financially and otherwise. Tiegs has stated on more than one occasion, and as recently as late November 2016, that NFF will be out of money and bankrupt within a year,” the 36-page complaint, filed on Dec. 2, states.

“In addition, defendants have caused significant supply chain disruptions, poor employee morale, poor employee retention, and the enhanced concern for serious quality, worker safety, and food safety issues. Simplot is only recently learning the magnitude of defendants’ safety and quality issues, both in the context of defendants’ management of Pasco and Gem State, as well as in defendants’ other ventures,” the complaint adds.

National Frozen Foods recently overdrew its checking account by $3 million and may not be able to meet its next payroll, jeopardizing more than 2,000 jobs in Washington, Idaho, and Oregon, according to the complaint.

NFF also allegedly issued checks to growers “with the fear that they might be returned for insufficient funds, thereby threatening the companies’ supply of raw materials. A company that cannot meet the fundamental functions of paying employees and purchasing raw materials is unsustainable and cannot survive without intervention.”

The complaint also accuses Tiegs of directing Gen State and Pasco to buy produce above market costs and sell at a significant loss and to buy rotten potatoes and peppers so “Tiegs affiliates can sell their product to the shared customers at a greater profit to the Tiegs affiliates.”

Tiegs’s “self-dealing” cost National Frozen Foods approximately $4.4 million, according to the complaint.

Simplot also claims that mismanagement has caused food safety issues, including product recalls.

“Prior to Tiegs’s tenure, NFF did not have a food safety recall in its 104 years of existence. During the past two years, however, under Tiegs’s management, NFF has suffered two product recalls,” the complaint says.

Simplot says it requested records from the affiliated companies, including bank and payroll statements, as allowed under an operating agreement, but Tiegs refused to comply.

“Simplot is genuinely concerned that its knowledge of the issues at Pasco and Gem State is only a small percentage of the actual overall problems at these companies,” the complaint says.

Tiegs said in an email that the claims are “without merit” and “are part of an orchestrated scheme by Simplot to seize control of companies that it could not obtain through negotiations.”

“I look forward to a presentation of the truth in court. It is business as usual for the companies,” he added.

Simplot seeks damages for breach of its operating agreements with Pasco and Gem State, breach of fiduciary duty, and unjust enrichment, along with an order compelling the production of financial records.
 

(Click to access complaint)

The complaint was filed by Jeremy Roller of Yarmuth Wilsdon in Seattle.