Facts

On Jan. 28, 2010, in settlement of a prior dispute, AMVAC and TIDE entered into a written Data Compensation Agreement (the "Agreement"). The Agreement provided, inter alia, that TIDE would pay to AMVAC, according to a schedule and terms, consideration having an aggregate value of $1,912,000, which consisted of cash in the amount of $1.3 million and not later than April 15, 2010, delivery of "72,000 kilograms. . . of technical grade acephate of at least 98.5 percent purity" (called the "Settlement Goods" or "Product").

The Settlement Goods were to be delivered by TIDE to AMVAC in consideration for the non-cash portion of the Agreement, and had an agreed cash value of at least $612,000. Among other things, the Agreement provided that:

"Within 10 business days' prior written notice by AMVAC (or such later date as AMVAC may designate) to TIDE Companies, TIDE Companies shall permit AMVAC and its designees access to and the ability to inspect all TIDE Companies facilities, [and] all other premises in TIDE Companies possession or control where any product is manufactured or stored.'

"TIDE Companies shall comply with all applicable laws and regulations in performing its obligations under this Agreement, including FIFRA"

"TIDE Companies warrants to AMVAC that the product shall be at least 98.5 percent pure active ingredient... will otherwise confirm to the specifications set forth in the attached Appendix 1, and shall be fit for its intended purpose (the 'Product Warranty')"

"AMVAC shall have up to 30 days after delivery to accept or reject any shipment of product for a valid reason, including non-conformity to specification, damage, or inferior condition;" and

"If AMVAC timely makes a claim for any non-conforming product, TIDE Companies will, at AMVAC's option, either promptly (i) issue a credit in favor of AMVAC in an amount equal to the deemed value for such non-conforming product, or (ii) deliver to AMVAC conforming product. Non-conforming product shall be returned to the TIDE Companies at their cost."

On or about March 12, 2010, AMVAC requested to inspect the TIDE manufacturing facility in China, as expressly provided in the Agreement. TIDE agreed to the inspection. However, when AMVAC's representative, Dr. Wang, met with TIDE's representatives in Hangzhou, China on March 29, 2010, as previously arranged, TIDE refused to allow him to inspect their plant, alleging that AMVAC had no right to do so. Repeated efforts by AMVAC to secure inspection of the plant were rebuffed by TIDE. TIDE's key witness admitted in her deposition that she had no intention of honoring the Agreement by permitting AMVAC representatives to inspect the plant.

In addition, on multiple occasions, AMVAC sought from TIDE evidence that it had obtained the proper authorization from Chinese authorities to synthesize acephate technical at 97 percent or above active ingredient at the TIDE plant in China. Such permits are issued by the Chinese Ministry of Agriculture ("MOA"). Further, those permits are posted on the MOA website for public viewing. At the time of alleged manufacture of these goods, TIDE was unable to produce a MOA permit relating to the synthesis of acephate. Further, no such permit appeared on the MOA website at the time it produced the product, in January 2010. TIDE produced no evidence that it held a permit for 97 percent technical grade acephate in early 2010 when the product was allegedly manufactured.

On April 12, 2010, AMVAC gave formal written notice to TIDE of its breach of the Agreement based on TIDE's failure to permit inspection of TIDE's manufacturing facility as expressly required in the Agreement. As provided in the Agreement, TIDE had 30 days in which to cure the breaches identified in the letter. TIDE failed to do so within 30 days of April 12, 2010 or at any time.

On April 12, 2010 and April 20, 2010, shipments totaling four containers having an aggregate weight of 72,000 kg of acephate technical grade material arrived at the Port of Long Beach. Although the Agreement required that the shipment documentation would refer to ChemStarr's EPA registration, the shipments did not include labeling for any product registered under FIFRA. Using the test methodology prescribed by TIDE, AMVAC assayed the goods and found that eight of the 16 lots tested were below the 98.5 percent specification set forth in the Agreement. Following discussions with TIDE, AMVAC also re-tested all 26 lots and found that only 11 lots yielded consistent results in both rounds of testing. Subsequent testing by third-party experts confirmed this failure and the lack of homogeneity of the product. Subsequent testing by experts in a third-party laboratory also confirmed a similar rate of failure and showed a lack of homogeneity within the material which made it unfit for its intended purpose.

Amvac sought damages of $612,000, which was the agreed upon value of the product.

PLAINTIFF'S CONTENTIONS:
AMVAC contended that Chemstarr breached the Agreement by failing to permit inspection of its plant; by failing to provide evidence that it was legally authorized to manufacture the product; and by failing to deliver product which met the specification of a consistent 98.5 percent active ingredient.

DEFENDANT'S CONTENTIONS:
Chemstarr contended that it did not prevent inspection of its plant, but that unlimited inspection was not permitted by the Agreement; that it was legally authorized to manufacture the product; and that the product did meet specification, as shown in defendant's pre-shipment testing.

Result

The case settled for $575,000. The settlement also requires Chemstarr to remove all of the product delivered to Amvac from Amvac's premises at Chemstarr's expense.

Other Information

FILING DATE: Nov. 16, 2010.