US meat processor Smithfield Foods has said it will fight a claim by Pennexx Foods that accuses Smithfield of fraud related to its takeover of Pennexx’s operations.

“We have not been served and have not yet even seen the complaint described in Pennexx’s press release. However, we believe the Pennexx suit is completely without merit and we intend to vigorously defend it,” Smithfield was quoted by Reuters as saying.

Pennexx, which ceased operations in June 2003 after Smithfield foreclosed on its assets and took over its operations, announced this week that it is seeking damages of US$226m from Smithfield, which Pennexx accuses of fraud and breach of contract.

The cross-claim, filed by Pennexx, alleges that in early 2001, Pennexx rejected an inquiry to purchase the company by Smithfield. In June 2001, Smithfield acquired 50% of the common stock of Pennexx and provided the company a credit facility to fund the expansion of its operations. According to the claim, Pennexx and Smithfield were to work together through a joint venture and Pennexx also agreed to assist Smithfield by supplying Smithfield’s branded pork to the New York market.  

Pennexx said that to meet increased demand and accommodate future growth under its joint venture with Smithfield, it purchased a 145,000 square foot building in Philadelphia in April 2002. As part of the joint venture, Smithfield agreed to renovate the building into a state-of-the-art, automated plant for producing case-ready meats.

The cross-claim alleges that Smithfield was responsible for design problems with the new plant, which then allegedly caused Pennexx to suffer financial losses that triggered a default under the company’s credit facility with Smithfield. Smithfield then foreclosed upon Pennexx, seized its assets and took over its operations, Pennexx said.