The Peanut-Butter-Filled Pretzels Monopoly
LOS ANGELES (CN) - ConAgra Foods conspired with Trader Joe's to monopolize the peanut-butter-filled pretzel market, and did it by swiping confidential information, a snack company claims in a $60 million lawsuit.
Maxim Marketing, of Aliso Viejo, claims in Superior Court that it supplied Trader Joe's with the pocket pretzels for more than 25 years before the store dumped it in October 2013.
Since then, Trader Joe's has been buying the snack directly from co-defendant ConAgra Foods, of Omaha, which made the pretzel snack for Maxim before it too cut the small business loose, the 24-page lawsuit claims.
ConAgra gained a "virtual monopoly" of peanut-butter-filled pocket pretzels when in 2011 it acquired National Pretzels, the owner of Anderson Bakery, California Pretzel and Shultz, Maxim claims.
Maxim says it had done business with Anderson and then National before ConAgra bought the companies for an undisclosed amount.
At first, ConAgra continued to work with Maxim, which has sold the snacks directly to Trader Joe's since 1988, using contract manufacturers to make the pretzels.
As its business grew, Maxim says, it contracted with several such manufacturers until 1995, when Anderson Bakery won a contract with the snack distributor. Maxim then entered into a binding confidentiality agreement which it says still applied when ConAgra took Anderson three years ago.
But ConAgra terminated the contract with Maxim in June 2013.
Before it pulled the plug, ConAgra had encouraged Maxim to foster new business opportunities and contracts, Maxim says. It claims that ConAgra never explained why it terminated the contract.
"Shortly thereafter, defendant ConAgra began selling the peanut butter-filled pocket pretzels and other pretzel products - what ConAgra had been manufacturing for Maxim - directly to defendant Trader Joe's," the complaint states. "The products sold by ConAgra to Trader Joe's are identical to the peanut butter filled pocket pretzels and other pretzel products that Maxim was selling to defendant Trader Joe's, down to the exact same packaging."
Maxim claims ConAgra knew that Maxim had to supply its pocket pretzels to other retailers and customers besides Trader Joe's.
"By cutting off Maxim, ConAgra has rendered Maxim unable to fulfill those contracts or realize those business opportunities," the lawsuit states.
Decades ago, when Maxim began selling pocket pretzels to Trader Joe's, the retailer agreed not to undercut Maxim by buying directly from a contract manufacturer such as ConAgra, Maxim says in the complaint.
Calling ConAgra's pretzel pocket a "copycat," Maxim claims both defendants have increased their profits by leaving it out of the loop.
Maxim CEO Terry Kroll said in statement that ConAgra had "devastated" the small business he founded in 1981.
"I was shocked by Trader Joe's taking part in this plan to destroy a small business," Kroll said. "I've worked with Trader Joe's for over 25 years. It made me quite sad because Trader Joe's used to be a small family-owned business too."
ConAgra spokeswoman Becky Niiya called the lawsuit "without merit" and said the company would "vigorously defend this litigation."
Maxim seeks damages and punitive damages for breach of written contract, breach of implied-in-fact contract, breach of faith, intentional interference with contractual relations and prospective economic relations, violation of the California Cartwright (antitrust) act, and other charges.
Maxim is represented by Harvey Saferstein with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo.
Trader Joe's declined to comment.