USA: Cliffstar Corporation Accuses Northland Cranberries of Fraud In $28 Million Sale of Private Label Business.
In the suit, Cliffstar alleges that Northland, during the period of due diligence leading to the sale of the private label business, purposely misled Cliffstar about the financial condition of Northland's business overall and the private label juice business in particular.
Cliffstar said Northland withheld important financial information pertinent to the sale and represented that it did not maintain certain cost or profitability information for its private label business. Cliffstar said that Northland and its senior management misrepresented that it was operating the business as a sound going concern and that it was not selling its products below its costs. Cliffstar stated in the suit that had it not received such representations it would not have entered into the agreement to purchase the private label juice business, said the company's Chief Financial Officer Dean Sallak.
In addition to the sale of the private label juice business, Cliffstar agreed as an integral part of the transaction that it would be the exclusive sales and marketing agent for the sale of Northland-manufactured private label cranberry sauce. The suit alleges that Northland refused to conclude a cranberry sauce agreement.
Cliffstar alleges it was only in position after the closing to discover that Northland's private label juice business was losing money. The suit charges that Northland's misrepresentations about no sales below its costs and its supposed inability to deliver specific financial information about that business allowed Northland to hide the true financial picture from Cliffstar.
In its 8-KA report submitted to the SEC subsequent to closing, Northland published information on the cost and profitability of the private label juice business that it previously had said to Cliffstar was unavailable. The published information showed the private label juice business had significantly deteriorated since the end of Northland's fiscal year in August 1999.
The suit charges that even during the post-closing transition period, Northland continued to provide false and misleading financial information, and only by July 2000, months after completion of the sale, was Cliffstar able to determine it had acquired an unprofitable business for substantially more than it was worth.
Cliffstar also claims Northland misappropriated some of Cliffstar's property and that Northland improperly terminated a co-packing agreement with Cliffstar so that it could avoid a commitment to make certain production capacity available to Cliffstar at Northland's Bridgeton, N.J. facility. Northland has recently stated that it intends to sell or close the Bridgeton facility as part of a massive financial and operational restructuring effort that includes outsourcing the marketing of its branded juice products and seeking new financing.
Cliffstar seeks damages in its suit, including an amount equal to the difference in value between the business Northland represented and what it actually sold Cliffstar, plus punitive damages.
Cliffstar is a privately owned company headquartered in Dunkirk, N.Y., and is the largest private labeled juice processor in the United States. Cliffstar has processing and bottling facilities in Joplin, Mo., Greer, S.C., and Fontana, Cal., as well as in Dunkirk and Fredonia, N.Y.
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