Sriracha Lawsuit: The $23.3M Verdict Behind the Shortage

The Sriracha lawsuit was a fraud and breach-of-contract fight between Huy Fong Foods, maker of the rooster-branded hot sauce, and Underwood Ranches, the Ventura County farm that had grown its red jalapeños for nearly thirty years. Huy Fong sued first in 2017 over a billing dispute; Underwood countersued; and in July 2019 a Ventura County jury sided with the farm, delivering a net judgment of roughly $23.3 million against Huy Fong. A California appellate court affirmed that judgment in full in 2021. The broken partnership is also the root cause of the recurring Sriracha shortages that have hit store shelves since.

How a Handshake Deal Turned Into a Court Case

David Tran started Huy Fong Foods in Los Angeles in 1980 and connected with Camarillo farmer Craig Underwood by the mid-1980s. The two used written contracts for about a decade, then let the formalities lapse as Huy Fong grew. A court later described the arrangement as “partly oral, partly written, and partly established by the parties’ practice.” Huy Fong prepaid Underwood for the estimated cost of growing and harvesting chilis, and the two settled any gap at the end of the year. Tran encouraged expansion with a line Underwood took to heart: “You grow it, I’ll sell it.”¹

By 2015, Underwood was supplying over 100 million pounds of jalapeños a year, and Huy Fong was roughly 80 percent of the farm’s revenue.²

Around 2014, Tran created a separate sourcing company called Chilico LLC, owned by his sister-in-law, and tried to hire Underwood’s chief operating officer Jim Roberts to run it. Roberts declined. Tran began routing pepper contracts through Chilico and pressed Underwood to accept lower prices. He and Underwood then agreed to an expanded crop for an upcoming season, with Tran promising to fund it. The financing never arrived. In 2016, Huy Fong terminated the relationship without notice. By January 2017, both sides considered it over.¹²

Who Sued Whom

Huy Fong filed first. On August 29, 2017, in California Superior Court in Los Angeles, it accused Underwood of overpaying by roughly $1.46 million on the 2016 harvest and of holding $7 million worth of Huy Fong chili-production equipment “hostage” as leverage.³

Underwood Ranches filed a cross-complaint in February 2018 for breach of contract, promissory estoppel, and fraud, claiming Huy Fong’s abrupt exit had cost the farm more than $20 million.⁴

The 2019 Verdict

The case went to a two-week jury trial before Judge Henry Walsh in Ventura County Superior Court. In July 2019, the jury sided unanimously with Underwood Ranches on the breach-of-contract and fraud claims. It awarded the farm $14.8 million for financial losses in 2017 and 2018, plus $10 million in punitive damages. Huy Fong’s overpayment claim was partially credited at $1.5 million, deducted from the total, leaving a net judgment of roughly $23.3 million.⁴

The jury found that Huy Fong had intentionally misrepresented information and concealed its plans, promising to buy all the peppers Underwood could grow while secretly planning to end the arrangement.¹

Underwood had also brought separate claims against David Tran personally for interference with economic relations. The trial court granted nonsuit on those, throwing them out before the jury weighed in.⁵

The Appeal and What It Settled

Judge Walsh denied Huy Fong’s post-trial motions to reverse the verdict, order a new trial, or reduce the award, issuing his rulings without written explanation.⁶

On July 27, 2021, California’s Second Appellate District affirmed the judgment in full. The opinion, written by Presiding Justice Gilbert with Justices Yegan and Tangeman concurring, rejected each of Huy Fong’s arguments.⁵

The central legal question was whether California fraud law could reach implied promises, not just express written ones. The court held that it can, so long as the implied promise is “certain enough to cause reasonable reliance.” The court also found that decades of business between the two parties, running through tens of millions of dollars without formal contracts, created a confidential relationship that carried a duty of honest disclosure.⁷

What the Verdict Meant for Underwood Ranches

Winning at trial did not immediately fix the farm. Losing 80 percent of its revenue when Huy Fong walked away forced Underwood to lay off half its workforce, take out loans, and sell parcels of land. It had also turned over $7 million worth of harvesting equipment to Huy Fong.⁸⁹

In February 2020, with the appeal pending, Underwood secured $4 million in nonrecourse financing from Burford Capital, meaning the farm kept the money regardless of the appeal’s outcome. Craig Underwood later said Burford “basically rescued us,” providing cash to pay lawyers and keep operations running through the pandemic. When the appellate court affirmed in July 2021, Underwood received its full recovery the following month. The $23.3 million award was reduced by the $4 million Burford advance and a $4 million funder fee.⁹¹⁰

The farm diversified into tomatoes, potatoes, onions, Brussels sprouts, pumpkins, and herbs, and leaned on a separate family retail farm business operating stands and pick-your-own fields in Somis and Moorpark. It also launched its own hot sauce, Dragon Sriracha, which had reached distribution at 24 Costco locations by early 2024. Craig Underwood has said he would not work with David Tran again, but he would be open to doing business with Huy Fong under different ownership.¹¹⁹

Why the Lawsuit Caused the Sriracha Shortage

The most visible fallout has played out on grocery shelves. After the split, Huy Fong turned to smaller growers in California, New Mexico, and Mexico. The company and industry observers have acknowledged that the replacement peppers have not always been as plentiful, as red, or as hot as needed.¹²

Red jalapeños are water-intensive, and drought has hit the new sourcing regions. El Niño weather in Mexico has produced peppers too green to yield the correct color in the finished bottle.¹³ Some farmers have reportedly avoided Huy Fong because of its litigation history.¹⁴

Huy Fong has halted production in April 2020, April 2022, and again in spring 2024, suspending output each time until after Labor Day. In the 2024 halt, the company told wholesalers its chile supply was “too green to proceed with production as it is affecting the color of the product.”¹⁴ As of early 2025, production still had not reached desired capacity, though bottles were reaching shelves in larger numbers than in prior months.¹⁵

During the worst of the 2022 and 2023 scarcity, third-party sellers on Amazon, eBay, and Walmart listed single 17-ounce bottles for anywhere from $20 to $150, on a product normally under $10.¹⁶ Tabasco’s sriracha-style sauce became the bestselling sriracha brand in the United States for the second half of 2023.¹¹ David Ortega of Michigan State University noted that because jalapeños are seasonal, a company cannot “just switch suppliers from one day to the next,” and Huy Fong’s failure to diversify before the breakup left it exposed.¹⁴

A Separate Case People Sometimes Confuse With This One

Huy Fong was also sued by the City of Irwindale in October 2013, but that case is unrelated to the Underwood dispute. It was a public nuisance action over odors from the factory’s chili-grinding operation. On November 26, 2013, Los Angeles Superior Court Judge Robert H. O’Brien declined to shut the plant down but ordered Huy Fong to stop emitting odors, calling them “extremely annoying, irritating, and offensive to the senses” while finding a “lack of credible evidence” tying them to health problems. The Irwindale City Council voted 4-0 to drop the suit on May 29, 2014, after Huy Fong installed upgraded air filtration.¹⁷

1
University of Miami Law Review. The Spicy Consequences of Breaching Oral Contracts
2
Asianati. Huy Fong Foods and the Case of the Mysterious Vanishing Sriracha Sauce
3
NBC News. Sriracha Sauce Maker Huy Fong Foods Sues Its Chili Pepper Supplier
4
Los Angeles Times. Sriracha Lawsuit Underwood Ranches
5
FindLaw. Huy Fong Foods Inc. v. Underwood Ranches LP
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The National Trial Lawyers. $23.3 Million Sriracha Verdict Survives Challenge
7
AK Law. Ventura Court of Appeal Affirms Sriracha Fraud Verdict
8
Burford Capital. Underwood Ranches Case Study
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Ventura County Star. Camarillo Farmer Says Hot Sauce Shortage Began When Huy Fong Cut Us Off
10
Burford Capital. Case Study: Providing Capital to a Family Business
11
Fortune. Sriracha Shortage Huy Fong Foods Tabasco Underwood Ranches
12
Forbes. Future Sriracha Shortage Shows Need for Trust With Supply Chain Partners
13
Food Institute. Huy Fong’s Sriracha Is Orange and in Short Supply
14
Supply Chain Dive. Huy Fong Foods Sriracha Shortage
15
Reviewed. Sriracha Shortage: Is the Sriracha Shortage Over
16
Saddlebag Notes. Sriracha Shortage Market Impact
17
PBS SoCal. Irwindale Drops Lawsuit Against Sriracha Maker Huy Fong Foods