May 24, 2016 Practice Points

Delaware Bankruptcy Court Dismisses Adversary Proceeding in Hormel Foods Case

The case is JLL Consultants, Inc. v. Hormel Foods Corporation (In re: AgFeed USA, LLC, et al.).

By Andrew M. Dean

In JLL Consultants, Inc. v. Hormel Foods Corporation (In re: AgFeed USA, LLC, et al.), Case No. 13-11761 (BLS), Adv. Proc. No. 14-50942 (BLS) (Bankr. D. Del. Dec. 15, 2015), the Bankruptcy Court for the District of Delaware dismissed an adversary proceeding upon determining that the debtors had released the asserted claims through an earlier settlement agreement.

Plaintiff JLL Consultants, Inc., the liquidating trustee in the bankruptcy cases of AgFeed Industries, Inc. and its affiliates (AFI), filed a complaint against Hormel Foods Corporation, alleging that Hormel made false representations in connection with the 2010 sale of a weanling-pig-raising company, M2P2, to AFI. The trustee alleged that Hormel fraudulently stated in a letter to AFI provided in connection with the sale that to its knowledge, M2P2 had not violated, breached, or defaulted on certain “Hog Procurement Agreements” and a “Sales Price Adjustment Addendum.”  The liquidating trustee also sought to avoid as fraudulent a $2.84 million pre-bankruptcy promissory note from AFI to Hormel.

Hormel moved to dismiss the amended complaint, arguing that AFI had released all of its claims in a 2013 settlement agreement which provided that AFI “release[d] and discharge[d] . . . Hormel . . . from all actions . . . whether known or unknown.”

Applying Minnesota law, which governed the settlement agreement, the Bankruptcy Court determined that AFI had released its claims against Hormel. It reasoned that the settlement agreement was intentionally broad and intended to achieve a global resolution of all ongoing disputes between the parties, including those relating to the letter, which predated the 2013 settlement agreement. Consequently, the Bankruptcy Court determined that the liquidating trustee’s claims had been released, and granted Hormel’s motion to dismiss.

Andrew M. Dean – May 24, 2016