CATCH THE BUZZ
Lawsuit Filed Against Groeb Farms and Honey Solutions
Spells Out Blatant Fraud Involved In Honey Case
When Groeb Farms Inc. of Onsted, MI, and Honey Holding (aka Honey Solutions) of Baytown, TX, agreed to federal fines totaling $3 million, they could have been excused for thinking they got out of the multi-million-dollar Chinese honey-smuggling scandal lightly.
Not any more.
A class action lawsuit filed in Chicago against the huge industrial honey suppliers seeks millions in damages on behalf of all commercial beekeeping operations with 300 or more hives that produced and sold honey in the U.S. since 2001.
The suit was lodged by three iconic domestic honey producers – Adee Honey Farms, Bill Rhodes Honey Co. and Hackenberg Apiaries – in the U.S. District Court for the Northern District of Illinois.
It has its roots in the agreement with the federal government that saw the importers admit to facilitating the importation and sale of mislabeled Chinese-origin honey to avoid U.S. antidumping duties.
The aim is to get compensation for all commercial domestic honey producers injured as a result of Groeb's and Honey Solutions' conduct.
“The domestic honey industry, critically important to agriculture, has suffered losses at the hands of these fraudulent shippers for far too long,” attorney James J. Pizzirusso of the Washington, D.C. law firm Hausfeld LLP says in a statement.
“Through this class action, our clients seek to hold these entities responsible for the financial harm they have caused.”
The suit follows a near five-year investigation code-named Operation Honeygate and led by the U.S. Immigration and Customs Enforcement investigative arm of the U.S. Department of Homeland Security as well as an investigation by the honey producers' own lawyers.
This focused on a massive conspiracy in which participants transshipped Chinese honey through third countries to disguise the honey's origin and then illegally imported it honey into the U.S. to avoid paying U.S. antidumping duties.
The U.S. Department of Commerce began imposing the duties against Chinese honey after it had determined the honey was being sold at less than fair market value and was injuring the domestic honey industry.
The lawsuit asserts Groeb Farms and Honey Solutions intentionally purchased, packaged, distributed, and sold falsely labeled honey and, in doing so, deceived consumers and purchasers while subjecting consumers to potential health risks.
It alleges the Chinese honey was heavily adulterated, containing inexpensive sweeteners and sometimes blended with high fructose corn syrup and other additives, despite the fact that importers claimed it was pure honey.
The lawyers handling the case are among the most successful class action lawyers in the U.S., with wins and settlements in excess of $1 billion in the past two years alone.
The suit cites violations of the Lanham Act, involving false advertising and unfair competition, as well as violations of the Racketeer Influenced and Corrupt Organizations Act, (RICO Act) arising from defendants’ involvement in an international scheme to purchase illegally imported and fraudulently labeled honey from China to avoid paying U.S. antidumping duties.
“This illegal behavior has suppressed domestic prices of honey, caused plaintiffs and the other class members to lose significant amounts of sales, deprived plaintiffs and the other class members of the benefits that they are entitled to receive from duties imposed on Chinese honey, and otherwise caused economic loss and financial harm to plaintiffs and the other class members,” the suit states.
It says the three plaintiffs have suffered declining sales, lost profits, loss of goodwill, lost custom duties, and other injuries as a result of the defendants’ scheme to purchase, package, distribute, and sell illegally imported and mislabeled honey.
“Defendant Groeb Farms ... until very recently, continued to engage in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the U.S.,” the suit says.
Groeb, the world’s largest industrial and foodservice processor of honey, packing about 85 million pounds of honey annually, was bought in 2007 by Horizon Partners Ltd., a Wisconsin private investment holding company.
“Groeb was under constant pressure by Horizon and its executives to produce more profits,” the suit says. “Since its purchase of Groeb in 2007, Horizon has exercised actual and implied control over Groeb and the illegal scheme.
“Horizon used its control to commit the fraud and other illegal behavior … that caused plaintiff’s injuries. The transshipping activities to which Groeb pleaded guilty all occurred after Horizon purchased and began to control Groeb.”
As part of a deferred prosecution agreement, Groeb admitted the senior executives responsible for the fraudulent honey transshipping “served as management’s primary point of contact to the board of directors and communicated directly to the board . . . regarding Groeb Farms’ polices, positions, and practices on food safety and illegally transshipped and illegally misdeclared honey.”
The court papers state Robert M. Feerick is the chairman of Horizon and is also a member of Groeb’s board of directors.
“Horizon exercised its control over Groeb in such a manner as to commit fraud by knowingly, intentionally, and/or recklessly directing Groeb to purchase, package, distribute, and sell falsely labeled honey in order to increase profits for Horizon and its investors,” the suit states.
The papers assert Groeb claimed to be completing audits of all foreign and domestic companies that provide honey to Groeb and formalizing standards with each source.
“Those audits would have revealed to Horizon and the board of directors that Groeb was purchasing honey from China,” the suit says.
“The cost and volume at which Groeb was able to procure honey from foreign sources (including countries that had virtually no commercial beekeeping operations) would also have informed Horizon that the honey Groeb was packing was transshipped.
“As Groeb expanded and profits rose, Horizon either knew or deliberately chose not to inquire further to determine that Groeb was breaking the law and fraudulently importing, packing, and re-selling illegal Chinese honey.”
While honey prices in the U.S. typically range from $1.40 to $1.80 a pound because of high production costs, prices for honey produced in China are significantly lower, as little as 22 cents a pound.
Find the rest of this $78,000,000 theft story in the June issue of Bee Culture, The Magazine Of American Beekeeping.