Family Business Claims Starbucks Killed It

VISTA, Calif. (CN) - Starbucks kicked a now-defunct snack company to the curb for supplying inferior product, which the FDA later concluded was probably spoiled by the coffee giant itself, former shareholders of the firm claim in court.

Eleven former shareholders of Carlsbad-based Mellace Family Brands claim in Superior Court that Starbucks terminated the contract of the family-run business after customers complained about Mellace's roasted cashews, effectively causing it to close shop.

Lead plaintiff Donald Diehl claims a U.S. Food and Drug Administration investigation concluded that Mellace's products probably had been contaminated by gas at a Starbucks facility, and that there was nothing wrong with Mellace's product.

"The FDA investigation demonstrated that Starbuck's failure to honor the then outstanding and promised future BPA's [blanket purchase agreements] was unjustified," the complaint states. "Due to Starbucks' improper product withdrawal, and failure to fulfill its promised future BPA's and then-outstanding BPA's, MFB [Mellace Family Brands] suffered extreme financial difficulty and was forced to close its business."

Mike Mellace (not a party) started the snacks and treats company in the early 2000s, selling freshly roasted nuts from shopping center kiosks. By 2007, the firm was bringing in revenue of more than $10 million a year, and was approached by Starbucks to become an approved vendor, the shareholders say.

They claim Starbucks entered into a series of blanket purchase agreements with Mellace then abruptly terminated the contract in May 2010.

The plaintiffs say that Starbucks customers had complained about Mellace's almond products in the past, but that the firm responded by improving the quality and turnover of its snacks and treats.

The shareholders say Mellace, whose assets are owned by Insolvency Services Group, is owed roughly $2.3 million for outstanding purchase orders, and unpaid money under its final blanket purchase agreement from April 2010.

They also claim that after Mellace lost Starbucks' business, a supplier backed out of an agreement to ship the snack company cashews.

"MFB suffered damages as a result because the price of cashews under contract were approximately $3.25 per pound at the time of ordering, but had gone up to approximately $4.50 per pound at the time Starbucks breached. Had Starbucks not breached, plaintiffs allege that MFB would have been able to realize approximately $1 million profit on the cashew contract," the complaint states.

The shareholders say Mellace's liquidity was frozen after the firm's bank canceled its line of credit, and it was forced out of business.

They estimate that Starbucks' alleged breaches cost the company roughly $20 million.

Starbucks spokesman Zack Hutson told Courthouse News that Starbucks was reviewing the lawsuit and did "not have specific details to share at this time."

"Starbucks discontinued business with Mellace Family Brands due to ongoing quality issues," Hutson wrote in an email. "As a company, Starbucks sourcing philosophy is to work with our suppliers whenever possible to identify and address areas for continuous improvement in order to meet and exceed the high expectations of our customers. However, in all of our sourcing opportunities, Starbucks awards business to the right supplier, based on quality, service and value."

Represented by Terry Hellenkemp in San Diego, the plaintiffs seek compensatory, consequential, general, and special damages for breach of contract, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, intentional misrepresentation, negligent interference with contractual relations, intentional interference with prospective economic advantage, and unfair business practices.

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