How Sriracha Turned on the Farmer Who Built Its Empire – and Paid a $23.3M Price

A handshake helped build one of America's best-known hot sauces. Nearly three decades later, that same business relationship ended with a jury finding Huy Fong Foods liable for breach of contract and fraud, resulting in a $23.3M award to its former pepper supplier.

The dispute involved David Tran, founder of Huy Fong Foods, and farmer Craig Underwood, whose ranch supplied the red jalapeños used in Sriracha for about 28 years. What began as a close commercial relationship became a legal battle over future crops, investment, and whether Huy Fong concealed its plans to end the arrangement.

From Friendship to Business

Huy Fong began working with Underwood Ranches in 1988. The companies initially used written agreements, but their dealings later became less formal. The California Court of Appeal said the relationship continued for 28 years and that the parties eventually relied on oral agreements and established business practices. By 2016, Huy Fong represented about 80% of Underwood's revenue.

Underwood expanded his farming operations as the relationship grew. Court evidence showed that Huy Fong encouraged him to acquire additional land and assured him it would continue buying his peppers. That dependence became important when the relationship broke down.

The Relationship Collapses

In 2016, Huy Fong sought the return of about $1.4M that it said it had overpaid Underwood for growing costs. Underwood disputed the claim and later alleged that Huy Fong had breached its agreements and left the farm with significant costs after the partnership ended.

Underwood had planted about 1,700 acres of peppers for Huy Fong during the 2016 season. The two sides could not reach an agreement for the following year's harvest. The disagreement moved into court. Huy Fong sued first, while Underwood later filed a counterclaim seeking more than $20M.

At trial, the dispute centred on whether Huy Fong had continued assuring Underwood that it would purchase his peppers while already planning to end the relationship.

Jury Finds Fraud

In 2019, a jury ruled in Underwood's favour on breach of contract and fraud. The jury awarded $13.3M in compensatory damages and $10M in punitive damages. The total came to about $23.3M. The California Court of Appeal later unanimously affirmed the judgment.

The appeals court said there was ample evidence supporting fraud based on concealment and affirmative misrepresentation. It found that Huy Fong had decided to terminate the relationship before the end of the 2016 harvest while Underwood was still being assured that the relationship would continue.

The court also noted the unusually close nature of the business relationship. The companies had worked together for decades, shared financial information, and conducted substantial transactions without formal written contracts during the later years. The ruling did not find David Tran personally liable for the judgment. The affirmed judgment was against Huy Fong Foods.

The Farmer Becomes a Competitor

After the partnership ended, Huy Fong began sourcing peppers from other growers in California, New Mexico, and Mexico. Underwood Ranches also moved into the hot sauce market, launching its own Sriracha-style product.

The legal dispute also exposed how heavily both businesses had become tied to the relationship. Underwood had built significant farming capacity around Huy Fong's requirements, while Huy Fong had relied for years on a dedicated supplier of red jalapeños. That dependence became more visible when Huy Fong later experienced supply problems.

In 2022, Huy Fong halted Sriracha production temporarily because of raw-material shortages. The company subsequently faced further supply difficulties and sourced peppers from multiple suppliers. Reports have linked later shortages to weather and drought conditions, making it inaccurate to claim that the legal dispute alone caused the shortages.

The Sriracha dispute therefore became more than a fight over an unpaid bill. It was a breakdown of a business relationship that had lasted almost three decades, with a court ultimately finding that Huy Fong's conduct amounted to both breach of contract and fraud.