A North Carolina hog supplier, Maxwell Foods LLC, has won the right to take some of its breach of contract claims to trial in its lawsuit against Smithfield Foods Inc., accusing the pork giant of unfair pricing practices that led to the downfall of its swine operations.

In a decision released Thursday, Judge Adam M. Conrad of the North Carolina Business Court allowed Maxwell to proceed with claims alleging Smithfield breached their long-standing production sales agreement. The suit centers around an arrangement where Maxwell agreed to supply Smithfield with hogs for processing and packaging.

Judge Conrad ruled that a jury will decide if Smithfield breached the agreement by allegedly offering a better pricing deal to another major swine supplier and by underpaying Maxwell for its hogs. He also found that Smithfield is liable for at least one breach of contract related to its failure to accept all of Maxwell’s hogs during the COVID-19 pandemic, leaving the issue of damages to a jury.

“It is undisputed that Smithfield did not buy all hogs produced by Maxwell in and after April 2020,” Judge Conrad wrote, noting that under the contract, Smithfield was required to purchase all of Maxwell's swine up to a limit of 155,000 per month. Smithfield tried to invoke a force majeure clause to excuse its failure to accept the hogs, citing the pandemic as a reason for its inability to process them.

While Judge Conrad acknowledged that the pandemic hindered Smithfield’s processing capabilities, he pointed out that the company’s capacity far exceeded Maxwell's output, allowing Smithfield to have processed the entire supply.

Smithfield also filed counterclaims against Maxwell, accusing it of acting in bad faith when it decided to halt its hog operations in August 2020 due to severe financial losses. However, Judge Conrad sided with Maxwell, saying that the company’s decision was justified given the significant financial challenges it faced. He noted that Smithfield had accepted the risk of limited hog availability since the contract did not require Maxwell to produce a minimum number of hogs.

Maxwell also accused Smithfield of violating a “most-favored-nation” (MFN) clause in their original 1994 agreement, which ensured Maxwell would receive the same pricing and benefits as Smithfield's other major swine suppliers. Maxwell argued that Smithfield gave better pricing to at least six suppliers without offering Maxwell the same terms. However, Judge Conrad ruled that the MFN clause referred only to the suppliers listed in the 1994 agreement, which did not include these six suppliers.

The court also dismissed Maxwell’s claims regarding pricing disparities with Murphy-Brown (Smithfield's subsidiary), as Maxwell had known about these discrepancies since 2015 but did not file suit until 2020, making the claim time-barred under state law.

Judge Conrad, however, allowed Maxwell's claim of underpayment using the "live-weight formula" to proceed to trial, ruling that if the allegations were true, it would constitute a breach of contract.

Maxwell has expressed its intent to present its case to a jury. The company’s legal team remains optimistic about recovering damages from Smithfield for the losses incurred due to the alleged breaches.

Counsel for Smithfield did not immediately respond to requests for comment.

The case is Maxwell Foods LLC v. Smithfield Foods Inc., case number 2020CVS1430, in the North Carolina Business Court.