Industrial Hemp Manufacturing Seeks Additional Relief from American Hemp Seed Genetics in Seed Deal Gone Bad

Industrial Hemp Manufacturing adds two new claims to its ongoing lawsuit for fraud against American Hemp Seed Genetics. In turn, the defendant seeks to remove these two claims and dismiss the overall suit.

October 5, 2020

Recent and ongoing court cases involving hemp industry businesses show that while some companies are eager to form partnerships, reality doesn’t always meet executives’ expectations. Lawsuits are an option for buyers who feel they were shortchanged, for instance, though suits can be messy. A case progressing in North Carolina depicts how a distressed buyer first took legal action against a seed seller in 2018, and two years later, the question of a possible contract violation remains.

In the latest round of legal action, now before the North Carolina Wake County Superior Court, Hemp, Inc. subsidiary Industrial Hemp Manufacturing’s (IHM) is attempting to tack on new claims in its lawsuit against American Hemp Seed Genetics. IHM bases its new claims for special damages and fraud on the defendant allegedly selling hemp seeds with a much lower germination rate than allegedly promised.

RELATED: After Judge Denies American Seed Genetic’s Appeal, Industrial Hemp Manufacturing Moves Forward with Lawsuit

Regarding alleged special damages, IHM states that it has had lost more than $25,000 in profits because of its inability to “grow, harvest and process” the many seeds it purchased but would not germinate. The company says the failure to do so is due to an actual germination rate of 24% versus the 97% rate that it alleges American Hemp Seed Genetics promised.

IHM also seeks an additional $25,000 for alleged fraud in the inducement. The company says American Hemp Seed Genetics (erroneously referred to in court records as “American Hemp Seed Genetic”) falsely represented “and/or” concealed facts, which rendered IHM unable to use their land for its intended purpose.

These two causes of action follow nine others in IHM’s original complaint, ranging from breach of contract and breach of an express warranty to intentional misrepresentation. American Seed Genetics has requested a motion to dismiss IHM’s entire case.

American Hemp Seed Genetics, arguing against the special damages claim, quoted a section of the 2018 Bill of Sale between the two companies. It states, “In no event shall either party be liable for incidental, consequential, indirect or special damages of any kind, including but not limited to loss of profit,” and bolded the phrases “special damages of any kind” and “loss of profit.”

Addressing the claim of fraud in the inducement, American Hemp Seed Genetics alleged that the 2018 Seed and Biomass Agreement did not provide a warranty or guarantee for seed quality, germination rate or yield. The company quoted the agreement, which states, “This agreement constitutes the entire agreement between the parties.”

American Hemp Seed Genetics does acknowledge there may be some truth to a discussion IHM alleges its executives had, where the seller purported that the germination rates were much higher than they turned out to be. However, American Hemp Seed Genetics states, “… any alleged representations made by Defendant regarding the quality or characteristics of the seeds, their yield or their germination rate, as alleged by Plaintiff, must have been made orally and made prior to or outside the Seed Agreement.”

Thus, the defendant argues, because any statement it may have made about higher germination rates wasn’t in writing, and because the Bill of Sale said “[t]he Property is being sold on an ‘AS IS’ basis,” the defendant didn’t commit fraud in the inducement.

A trial in the case is scheduled to begin May 10, 2021. The two parties could still mediate for a settlement 60 days prior to the trial date.