Jim Prevor's Perishable Pundit, May 13, 2010

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We had noted an article in a legal publication that advised that a class action lawsuit had been filed against HerbThyme Farms alleging that the company had committed fraud by selling conventionally grown herbs as organic.

It smelled suspicious to us. Even if this were true, how would a consumer have known this to file a lawsuit? And why a lawsuit at all? It was peculiar that the lawsuit did not follow any announcement from HerbThyme’s organic certifier, nor did it follow any action by the United States Department of Agriculture related to HerbThyme.

Such a lawsuit would be infinitely stronger if it followed an official finding by the certifier that HerbThyme had done what was alleged. Why not file a complaint with the National Organic Program?

Besides what would be the damages to consumers even if they ate a few conventionally grown herbs? How could this merit a lawsuit?

We e-mailed the attorney who filed the class action lawsuit, a Raymond P. Boucher with Kiesel, Boucher & Larson in Beverly Hills, CA, but as of this writing have received no response.

There is a terrible problem today in which minor infractions of federal laws or regulations are jumped upon by lawyers who sue under state business laws. These laws are being used in a way never intended almost as a kind of double-jeopardy, where a company pays any penalty or fine required under federal law and then, for the exact same action, gets sued for violation of state laws.

Then, as the news started to percolate through the industry, we started getting calls. Some were legitimate questions from people in the business. Others were oddly anonymous, as if someone was trying to manipulate our coverage.

In any case, we then received a call from HerbThyme asking for an opportunity to explain itself. We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more.

Ben Ho
Business Director
HerbThyme Farms
Compton, CA

Q: Could you tell us your side of the story regarding this class action lawsuit against your company? Please help us to set the record straight…

A: To give you our context, early in the week of May 3, we came across an article [published April 28] in a very small publication [Courthouse News Service], which later appeared almost verbatim on the website of one of the trade papers, like a cut-and-paste job. We had not been contacted by the newspaper at all. When we first read the Courthouse News piece [on May 3], we assumed it was illegitimate and an erroneous report. We hadn’t been served with any papers, which was odd, and didn’t know how to react. Some time later last week, we were served papers, so we knew the suit was officially filed, although the claims were untrue.

Q: How disconcerting. What steps have you taken?

A: We drafted a letter and sent it out to all of our customers within 24 hours of receiving the formal legal paperwork, knowing it was an actual suit rather than just an unfounded article written by someone. [Editor’s note: You can read the customer letter here].

We basically felt we were in a position to give our side and provide a statement to explain the situation to our customers. The gist of the message is we don’t think the lawsuit is valid and we are gong to fight it vigorously. The accusations are incorrect.

When the first article was circulating, we didn’t want to overreact. The basic facts and positioning of the facts were wrong. There were numbers that were inaccurate, and the information didn’t make sense. The essence of the suit is that we maliciously swapped conventional product for organic product and that’s just not true.

Just the opposite, we have very strict company policies in place to insure that doesn’t happen. Does every employee follow the requirements 100 percent of the time? The answer is probably no, but as a company we have very high standards and the utmost integrity, and our company wouldn’t tolerate anything we’re accused of in this suit. We demand the highest quality and work ethic, and if there is ever a case where we don’t think an individual employee is capable of operating within those parameters, it is dealt with severely.

Q: Have such circumstances occurred, which may have precipitated this suit?

A: I can’t speak in too much detail because of the legal case pending, but yes, it has happened, although it wasn’t a regular thing. But there have been employees in our company’s history that haven’t followed policy, and weren’t able to keep product up to our quality level and it did have to end in termination.

Q: Are you speaking about human error here? The lawsuit presents a case that suggests intentional wrongdoing. It makes it sound like your company at the executive, corporate level deliberately did something unethical…

A: That is why it is so important for us to set the record straight. The way the article is written tarnishes our reputation with falsehoods. We don’t think the case against us is strong. It accuses us as a company of intentionally selling conventional product as organic, which not only goes against the values our company stands by, but makes no sense from a business point of view.

In fact, a good number of our customers are set up to take both conventional and organic product. We work with them closely to accommodate supply-and-demand issues, and if for whatever reason organic is not up to standard, due to natural occurrences, such as growing conditions, bug issues or other variables affecting quality, we are set up in real time to switch over to conventional.

Our customers, probably half of them, are set up this way, so if there are shorts, we’ll call up and let them know and we work in partnership to meet their needs. These are pretty common practices that everyone knows throughout the supply chain. In terms of integrity, we have an employee hotline set up by a third party. We take our integrity and ethics very seriously.

Q: You mention that it wouldn’t make sense from a business standpoint to misrepresent product in the marketplace. Could you elaborate on that?

A: We are the largest national provider of fresh herbs. This is a very small industry and market, but one that is growing, and our word is so important. There is nothing to be gained by doing that. From a financial standpoint, organic product pricing has become more comparable to conventional, so any profit from switching out product would be minimal at best, yet why would we ever risk our entire business for a penny here or there? It would make absolutely no sense from a business perspective.

The way we do our business is based on the demands of our accounts. We have a detailed plan that breaks out needs by conventional and organic. We source products from California and through our partner farms in places like Chicago and Florida and in other regions such as Hawaii, Mexico and other international locations. We follow very rigorous plans down to the SKU.

Q: Could you discuss the organic certification and auditing procedures? Are you required to undergo regular audits to validate your business practices?

A: We’re fully certified, and we get audited regularly in order to maintain our certification. Not everyone in our business goes through such strenuous certifications.

Q: Don’t many of your customers also require additional specifications and customized audit procedures? The same article that highlights the Courthouse News Service report on the lawsuit against your company also juxtaposes a separate news item regarding a March audit of the U.S. Department of Agriculture’s National Organic Program, raising questions on lack of oversight by the California State Organic Program. Does this news relate in any way to the claims against your company?

A: Joining those two pieces of news in the same article created confusion by mixing separate issues out of context, and creating a further cloud over our company’s reputation. In terms of certification, it’s a straightforward program, with very specific things we go through from the farm land to the way we process. We have a quality director and, like any reputable company, we go through the rules and get audits.

Our customers also do regular audits. All customers do a site visit at some point, and the larger ones do visits on a regular basis as part of their audit review. We as a company are continually taking steps to enhance our quality and safety department. And it differentiates us. Our customers come in all the time. They call to say they’ll be coming by x week, and we walk people through our plants.

It’s also common practice for customers to regularly test product themselves. When they’re doing an organic check, if something came up, they’d catch it.

Q: Have you assessed how the lawsuit came about?

A: We don’t know where the suit came from. It’s a class action suit. There is one person named in the complaint, but we don’t know that person. However, if there was insider information related to the case, I don’t know if they would have been identified in the court papers. Sure there could be disgruntled employees. These are accusations and we believe they are false.

Quality is the tenant of our company. There is no way we would ever do this. It doesn’t make sense monetarily; the disparity between conventional and organic isn’t that material. It’s not like we make twice the money by selling organic. The complaint accuses our company of acting fraudulently to become more profitable, but that goes against common sense.

The article did not even entertain the possibility that something may have happened by mistake; it clearly stated that as an organization we did something intentional. We’re coming out proactively to state emphatically that it’s not true. Fortunately, if there is any silver lining in this, the accusations are based on financial gain, and there is no health or safety risk.

Producing a safe, high quality product is something we pride ourselves in. When we do our demand planning, it involves a pretty rigorous effort to determine our customer needs. We generally know what the volumes are going to be and we essentially grow the product and set up sourcing to accommodate.

Mother Nature doesn’t always cooperate. If it results in a short, we communicate that to our customers and work with them to swap out a certain organic herb to conventional in a particular season because it is not growing well. This is an organizational-wide, well planned effort. We take pride in our product and stand by it. We will defend ourselves to the best of our ability.

Q: How have your customers responded? Are they sticking by you through this unfortunate ordeal?

A: Naturally, when an article like this comes out, people have questions. That’s why we sent out a statement right away, and we’ve been talking to customers one-on-one to address any concerns. We have nothing to hide and it benefits us to get the whole story out in the open.

Q: What happens from here? Do you think the case could be dismissed?

A: We have our legal counsel basically reviewing the paperwork, so it is in their hands. Our first reaction when we got word of this suit was that it seemed so off the wall. We knew we needed to act quickly to get the truth out and set the record straight. Fortunately, we had already sent out a letter to our customers and were actively communicating with them before anyone picked up the story other than that small legal publication.

We would have been more than happy to provide information to any of the trade publications as we are providing information to you right now. We can’t understand not being asked. We’ve been around since the early 1980’s. We’re one of the pioneering companies in this industry and we would never do anything to damage the reputation we’ve worked so hard to build.

It is certainly bold and probably prudent for HerbThyme to want to speak out and explain the situation, and it is gratifying to know that company policy did not dictate anything that happened.

We also understand that the issue is being litigated and public communication can be restricted.

Still this cryptic assertion that rogue employees may have done something that led to termination, without more explanation as to the nature and extent of what was done, will not help HerbThyme in the court of public opinion, and the explanation won’t satisfy those trade buyers who have questions or consumers who wonder if they should trust the brand.

In general, companies are responsible for the actions of their employees and, in general, employees don’t all by themselves take actions which both violate company policy and for which they receive no financial benefit.

It is also unclear what actually happened. If a buyer ordered organic herbs and was billed for organic herbs but was shipped conventional product, that can be human error; it can be the warehouse running out and shipping what it has. This virtually happens every day when a customer orders one brand of bananas from a wholesaler but gets shipped a different brand because that is what was in stock or because the wholesaler made a mistake.

That is an entirely different issue than an allegation that a company intentionally packed conventional product as organic. That is a serious fraud. Chief Wenatchee went out of business because it was caught repacking New Zealand apples in Washington boxes. It also takes more than a rogue salesperson to make happen.

This lawsuit sounds like a way for a lawyer to make money. We have no way of knowing why the law firm didn’t get back to us, but we can’t help but feel that if they were interested in corrective action, they would have filed a complaint with the National Organic Program. The lawsuit tells us they want money.

Our recommendation at this time to HerbThyme would be to publicly make clear exactly what happened. Are we talking about two rogue employees on a profit-share plan who did this with 200 boxes and then were discovered and fired, or are we talking about thousands of boxes over several years?

Although mens rea typically is necessary for a crime to have been committed, a civil lawsuit doesn’t require that, and, in any case, the issue is not whether what these employees did was authorized, it is whether management knew or should have known what these folks were doing?

We certainly hope this was a trivial matter. HerbThyme would do itself a favor if it would say so.