Workers at NORPAC Foods prepare onions for processing. Two farms have sued over payment for crops they grew.

The former NORPAC cooperative is countersuing a food processor owned by farm entrepreneur Frank Tiegs for allegedly breaching a contract to pay $10 million for finished goods.

Last month, National Frozen Foods, a company owned by Tiegs in Albany, Ore., filed a complaint claiming to have bought bulk goods whose value NORPAC had inflated by more than $7 million.

The complaint said that due to food safety or quality problems, about 19.7 million pounds of bulk goods should have been excluded from the sale price of NORPAC’s facility and assets in Quincy, Wash., which Tiegs agreed to buy last year for up to $107 million.

The lawsuit sought to deduct the alleged $7 million overpayment from the $10 million Tiegs agreed to pay NORPAC for finished goods in another transaction.

The cooperative, which is now called North Pacific Canners & Packers, argues that National Frozen Foods is attempting an “illegal setoff” and claims the complaint is “another example” of the “strategy” used by Tiegs during NORPAC’s bankruptcy proceedings.

Last year, Tiegs initially agreed to buy all of NORPAC’s facilities and other assets in Oregon and Washington for $155 million but later backed out, citing environmental and regulatory concerns. NORPAC’s attorneys claimed those allegations were made in bad faith in an attempt to renegotiate the deal.

In an answer to the National Frozen Foods complaint, the cooperative denies mis-classifying any of the bulk inventory or causing an overpayment.

The cooperative claims its $10 million sale of finished food products is covered under the Perishable Agricultural Commodities Act, or PACA, under which the $7 million price offset sought by Tiegs is impermissible.

Under PACA, the buyer must keep the funds owed to the produce seller in trust.

The cooperative claims these trust assets can’t be used to offset the alleged overpayment amount under an established legal precedent, among other legal reasons.

Under NORPAC’s sale agreement, the amount of damages that can be recovered by Tiegs is capped at $2 million that’s held in an escrow account, the cooperative argues.

The cooperative has also filed several counterclaims, alleging that it’s an unpaid supplier entitled to PACA trust protections and demanding payment of the $10 million for finished goods from National Frozen Foods.

The cooperative is also seeking compensation for litigation costs because it wasn’t timely paid for the finished goods.

Joe VanLeuven, the attorney for Tiegs and his subsidiaries, said that regardless of how the process is handled under PACA, the amount of money owed by Tiegs for the bulk product will be decreased.

“It’s going to come down to a question of finding out the full liability for this hold inventory,” VanLeuven said. “We’re confident the amount to us will reduce or eliminate the amount we’d otherwise be required to pay for the finished goods inventory.”

I've been working at Capital Press since 2006 and I primarily cover legislative, regulatory and legal issues.

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