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BREAKING: Perfect Day files $200m counterclaim accusing ex-partner of ‘gross negligence’ and ‘willful misconduct’

June 14, 2024

Animal-free dairy pioneer Perfect Day—which was hit with a $144 million lawsuit from Italian contract manufacturing partner Olon in April accusing it of breach of contract—has fired back with a $200 million counterclaim accusing Olon of “gross negligence and willful misconduct.”

In its April 12 complaint, filed in New York, Olon accused Perfect Day of stringing it along while it “secretly planned” to switch production of beta-lactoglobulin (BLG) whey protein made via precision fermentation to cheaper in-house facilities in India.

According to its complaint, Olon spent six years working with Perfect Day on producing BLG via microbial fermentation, signing a contract under which Olon pumped over €81 million ($86 million) into “expanding and tailoring its manufacturing capabilities to Perfect Day’s unique specifications.”

However, the parties’ working relationship “came to a screeching halt in August 2023” when Perfect Day stopped paying its bills, alleged Olon. In September 2023, it claimed, it was “flabbergasted” to learn that Perfect Day planned to move all manufacturing to plants it had recently purchased in India.

According to Olon, it is owed $112 million in unpaid manufacturing fees, unreimbursed capex, raw materials costs and other costs, plus an estimated $32m in damages resulting from Perfect Day’s alleged fraud, which it argues curtailed Olon’s ability to develop alternate revenue streams with other clients.

Counterclaim alleges fraud, breach of contract, misappropriation of trade secrets…

In an 84-page rebuttal filed today (June 14), Perfect Day fired back, accusing Olon of fraud, breach of contract, and misappropriation of trade secrets, among other things.

According to Perfect Day, it had repeatedly made it clear to Olon that its intent was to own and operate its own plants and that it would “eventually” produce BLG at plants in India, but says the facilities in question “were no threat to Olon’s business relationship with Perfect Day” and have not to date manufactured any product.

As Olon knew its own cost of production and the price at which Perfect Day had to sell BLG, “Olon knew that Perfect Day would not be profitable if it exclusively used Olon as a manufacturer,” adds Perfect Day. “For this reason, among others, there was never any discussion that Olon would be the exclusive manufacturer of BLG.”

A three-phase project

In today’s filing, Perfect Day explains that it had started talking to Olon in 2018 about a project (‘the ‘Zebu Project’) to scale up production of its animal-free whey protein in three phases.

Phase one (120t/year) was completed in early 2021 at Olon’s facilities in Capua, near Naples, while phase two (400t/year, also at Capua) was completed in February 2022. Phase three (a 1,000t/year plant in Settimo in the north of Italy dubbed ‘Zebu 1000’) was “scheduled to be complete such that it could start manufacturing no later than October 2022.”

By the fall of 2021, however, execs at Perfect Day became increasingly concerned about progress at the Settimo site, with Olon allegedly providing “inconsistent and incomplete” updates. However, Olon reassured them that everything was proceeding according to plan.

By April 2022, however, photos of the site revealed “that only basic excavation of the grounds had started and that the construction of the new downstream process building – which was supposed to be completed by March 31, 2022 – had not even begun,” alleges Perfect Day.

Perfect Day has ‘always been transparent with Olon about its business plans’

Over a year later in June 2023, with the site still not producing any product, Olon “even went so far as to further its fraud by submitting three invoices for manufacturing fees and one invoice for capital expenditures to Perfect Day even though those amounts would only become due once Zebu 1000 was completed,” claims Perfect Day. “As such, those invoices were disputed by Perfect Day.”

By September 2023, citing the invoicing dispute, Olon “unilaterally and without justification shut down the [smaller] Zebu 400 facility in Capua such that no new batches of beta-lactoglobulin would be manufactured at either facility,” claims Perfect Day.

“Olon’s intentional, fraudulent acts and omissions made reaching the target manufacturing capacity of 1,400 metric tons by the agreed completion date impossible, its acts constitute gross negligence and willful misconduct.

“In fact, Olon’s significant delays in completion of Zebu 1000 beyond Q4 2022 forced Perfect Day to fundamentally alter its business plans and caused Perfect Day to incur significant losses and other damages in an amount to be determined at trial and currently anticipated to exceed $200 million.”

 A turbulent few months

The litigation follows a turbulent few months at Berkeley-based Perfect Day, which is now led by TM Narayan following the departure of founders Ryan Pandya and Perumal Gandhi at the end of last year.

The company has raised almost $900 million from backers including Temasek and Horizons Ventures since it was founded in 2014, and is under intense pressure to deliver.

It recently sold its consumer brands (Brave Robot, Coolhaus, Modern Kitchen, California Performance Co) for an undisclosed sum and laid off 15% of its workforce in a bid to focus on its B2B business as it forges partnerships with large CPG companies.

One such is Unilever, which has just launched a lactose-free chocolate frozen dairy dessert under the Breyers brand, using whey protein made in fermentation tanks by Perfect Day.

The ‘animal-free frozen dairy dessert,’ which is now available nationwide, follows a limited edition launch by Nestlé (‘Better Whey’) under the Orgain brand also featuring whey protein from fermentation.

Their performance is being watched closely as large CPG companies—who have tested the water with niche/custom ‘animal-free dairy’ brands such as CO2COA (Mars), Cowabunga (Nestlé) and Bold Cultr (General Mills) with mixed results—explore how consumers respond to the concept on larger, more familiar brands.

*The case is: Olon S.p.A. v. Perfect Day, Inc.65194/2024 filed at the Supreme Court of the state of New York on April 12, 2024.

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