Perfect Day Faces $134M Lawsuit by Manufacturing Partner for Breach of Contract & Unpaid Bills

Californian precision fermentation pioneer Perfect Day has been sued for $134M by its Italian manufacturing partner Olon for breach of contract, fraudulent inducement, and fraudulent concealment.

A leader in the precision-fermented dairy category, Perfect Day was the subject of a lawsuit filed by Italian contract manufacturer Olon, which is claiming $112M in unpaid bills and a further $22M in damages, according to a case filed at the New York Supreme Court, as reported by AgFunderNews.

Olon has spent six years producing animal-free whey beta-lactoglobulin – the precision-fermented whey protein commercialised by Perfect Day. Alleging breach of contract, fraudulent inducement and fraudulent concealment, it has accused the Californian company of stringing it along as it “secretly planned” to move the production of the protein to cheaper plants in India (the company already has a manufacturing business in the country, acquired in 2022).

‘Not how contracts work’

The Italian contract manufacturer had injected €81M ($86M) into “expanding and tailoring its manufacturing capabilities to Perfect Day’s unique specifications”, which would have enabled it to “earn substantial revenues by producing the vast quantities of beta-lactoglobulin needed to meet Perfect Day’s anticipated global supply chain needs”.

Olon notes that, in 2022, Perfect Day had “explicitly stated that the India plants would not be used to replace Olon’s facilities”, prompting the manufacturer to continue investing in the collaboration. It was expecting “at least five years of continuous manufacturing activity and revenues going forward”.

However, the working relationship between the two companies “came to a screeching halt in August 2023”, when Perfect Day allegedly stopped paying its bills to Olon. A month later, the latter claims it was “flabbergasted” to learn that Perfect Day was “secretly planning to pull back from Olon and end their relationship, and in fact had already begun that process at the end of 2022, an awful discovery that Olon would not make until September of 2023″.

“Perfect Day said the India plants would be cheaper, so Perfect Day wanted to switch its production there” the court filing reads. “That is not how contracts work. Nor is it lawful to lie to a business partner to induce it to enter into contractual agreements.”

Olon says it’s owed $112M in unpaid manufacturing fees, unreimbursed capital expenditure, raw material costs, and other costs, alongside $32M in damages from the Californian animal-free dairy player’s alleged fraud. It argues that this has curtailed its ability to build alternative revenue streams with other clients.

A challenging year for the industry leader

The lawsuit comes on the back of a rocky year for Perfect Day. In July, it laid off 15% of its workforce (134 employees) as it shifted focus to B2B and its tech-led offshoot Nth Bio. In light of that, it sold its D2C subsidiary The Urgent Company – which comprised Coolhaus, Brave Robot, Modern Kitchen and California Performance Co. – to the newly formed food tech company Superlatus in September on a promissory note of $3.15M, according to SEC filings.

In January, it raised $90M in a Series E round, taking total funding to $840M since its inception in 2014, but the financing came alongside the exit of its founders Ryan Pandya and Peramul Gandhi. The company is currently led by interim CEO TM Narayan.

And a month later, Iowa-based HRI Labs conducted a study claiming there were 92 unknown molecules – plus fungicide residue – in a Bored Cow product, the flavoured animal-free milk brand born out of a collaboration between Perfect Day and New York’s Tomorrow Farms. It alleged that Bored Cow is using the term ‘microflora’ to avoid calling its product ‘GMOs’, although the product website states that “there are no GMOs in the final product, because the microflora are carefully filtered out”. 

Perfect Day, which was the first precision fermentation dairy company to receive the FDA’s Generally Recognized as Safe (GRAS) certification, questioned the study’s methodology and told Green Queen the data hadn’t been made publicly available. They added that HRI Labs’s study contained “inaccurate information” on the GRAS process, which is “detailed on safety, nutrition, and quality”. “And, there are no fungicides used anywhere in our process for making whey protein from fermentation and, furthermore, no fungicide could be created as a result of our process,” the company said.

While the Olon case is ongoing, Perfect Day will hope to find success with its latest launch, born out of a collaboration with Unilever. The CPG giant incorporated Perfect Day’s animal-free whey into a lactose-free chocolate ice cream for Breyers, rolled out in February.

It came two weeks after Nestlé introduced an animal-free Better Whey protein powder under its Orgain brand. It’s unclear whether the whey was produced in-house or via a third party like Perfect Day (which Nestlé has partnered with before on the Cowabunga animal-free milk line). Green Queen had reached out to Perfect Day for confirmation after one of its employees appeared to confirm it was Perfect Day’s whey during an industry conference, but the company declined to comment.

As the most established company in the sector, Perfect Day’s lawsuit will be watched closely by its industry counterparts, at a time when regulatory approvals, investment and innovation breakthroughs are all ramping up.