GRAND RAPIDS — The company behind a popular West Michigan snack brand must pay up after it failed to chip away at its debts to a key supplier.
Earlier this month, the Kent County 17th Circuit Court ordered Grand Rapids-based Charley’s Food Design Ltd., to pay approximately $461,143 to its supplier, Festida Foods Ltd. of Cedar Springs, after it fell behind on its bills.
The food processor filed a lawsuit against Charley’s Food Design in 2016 after the company neglected to cover its outstanding debts over the three-year period, according to court documents.
“There was a very long period of time where Charley’s Chips was not paying their bills and Festida was being very generous in making it work,” said Kevin Even, a partner at Smith Haughey Rice & Roegge PC, a Grand Rapids-based law firm representing Festida Foods in the case. “It came to a point where that was too much, and we stopped making the chips.”
The company’s issue with supplier Festida Foods began in 2013 after Charley’s Food Design fell behind on its payments. In April of that year, Charley’s Food Design’s owner James Raredon issued a $66,520 promissory note to Festida Foods with a fixed interest rate of 5.25 percent in order for the company to continue manufacturing its chips, according to court records.
After Raredon’s company signed the promissory note, the two parties continued to do business for three years until Charley’s Food Design racked up another $390,292 in unpaid bills. Festida then filed the lawsuit seeking the balance of the 2013 promissory note plus payment of the outstanding account balance.
This month, Judge Christopher Yates ruled that Charley’s Food Design was required to pay back the $58,553 balance on the promissory note, the outstanding $390,292 in unpaid bills, $12,068 in attorney fees and $229 in court fees.
A TALE OF TWO TORTILLA CHIPS
During the course of the litigation, Charley’s Food Design filed a counter suit seeking more than $50,000 in damages from Festida.
The suit alleged Festida had improperly shared its trade secrets with Scott Wellman, a former business partner of Raredon’s.
Raredon claimed Festida colluded with Wellman to manufacture his own tortilla chips, branded Old Florida Tortilla Chips, that were “substantially similar, if not identical to Charley’s Chips,” according to court documents. Charley’s Food Design contended that only Festida would be able to share the recipe with Wellman.
The company also alleged that Festida breached its contract by distributing defective chips that were “in some cases literally dripping with oil,” according to court documents.
However, in a separate ruling, Judge Yates dismissed these claims after conducting a taste test of the two products in the courtroom.
“The parties have entered into evidence bags of Charley’s Chips and Old Florida chips, which has enabled the Court to conduct a comparative taste test,” Judge Yates wrote in his judgment. “Suffice it to say that, in the Court’s opinion, the two brands of tortilla chips taste nothing alike.”
For his part, Even of Smith Haughey believes the countersuit was a stalling tactic aimed at giving Charley’s Food Design time to find a new manufacturer for its product.
“The court concluded that was a bogus claim and there was no merit behind it,” Even said. “They should have just agreed to the debt.”
However, the tactic ended up costing Charley’s Food Design, which was forced to pay court and attorney fees to Festida.
A HISTORY OF LAWSUITS
The Festida lawsuit is not the first time Raredon found himself in a courtroom battle over his chips.
In December 2013, Raredon sued Wellman, a former employer and eventual business partner, who claimed the rights to the name Charley’s Chips. Wellman had hired Raredon to work as a chef at Charley’s Pub and Grill, an establishment he owned near 28th Street.
While working at Charley’s, Raredon developed what was to become his tortilla chip recipe. Media reports at the time suggest the pair worked together for a while, going so far as to open an off-site production space to establish Charley’s Food Design. Eventually, Raredon purchased the rights for Charley’s Food Design from Wellman. However, the two men were soon at odds over the company and spent a year in and out of court arguing over the rights to the tortilla recipe and trademark.
In the end, Judge Yates sided with Raredon’s claims to the chips, while allowing Wellman to also make tortilla chips as long as he avoided using the Charley’s Chips recipe or a variation of the name.
In a 2014 interview with the Grand Rapids Press following Judge Yates’ decision granting Reardon the rights to the chips, the co-founder expressed concern about the effect the lawsuit could have on his business, particularly at a time when the company had aspirations of distributing nationally.
Since the recent Festida Foods lawsuit, consumers have noticed a change in the Charley’s Chips snack product. Yates in his written opinion and customers’ statements on the Charley’s Chips Facebook page noted the products went missing from store shelves around March 2017.
Even, the attorney for Festida Foods, said the company stopped making the chips, forcing Charley’s Food Design to find a new manufacturer.
The snacks appeared to have returned to store shelves this summer, but a number of comments on the company’s Facebook page starting in early June indicated the product had changed. Specifically, customers complained about the different taste, consistency and look of the chips.
In replies to these comments, Charley’s Chips noted the spices had been altered but the company did not mention anything about its legal troubles or that it had moved production to a new manufacturer.
Both Raredon and Robert Carpenter, an attorney at Grand Rapids-based Carpenter & Judd LLP who represented Charley’s Food Designs, did not respond to multiple requests for comment for this report.