Click to read the original article for details. Two years ago, a high-profile lawsuit involving millions of dollars brought Hebei Yangyuan Zhihui Beverage Co., Ltd. (hereinafter referred to as 'Yangyuan'), the producer of 'Six Walnuts', into the spotlight. Now, the case, which was filed by Golden State Food Company (hereinafter referred to as 'Golden State') over huge losses caused by Hong Kong Bingo International Trading Co., Ltd. (hereinafter referred to as 'Hong Kong Bingo') unilaterally breaching the contract and refusing to accept walnuts, seems to have come to an end. In April 2018, Yangyuan released its first-quarter report, stating that it would pay $1.65 million in compensation to Golden State on behalf of Hong Kong Bingo, in exchange for Golden State's withdrawal of the lawsuit in a California court. Recently, Golden State confirmed to reporters that Yangyuan has paid the compensation and a settlement agreement has been reached. Yu Haocong, chairman of Golden State, told reporters: 'Accepting the compensation of about $1.65 million is to protect the interests of walnut farmers and the company's reputation. If we continued with legal proceedings, and if it dragged on for another two years, the company and the walnut farmers would not be able to afford it.' Although Golden State and Yangyuan have reached a settlement, the relationship between Yangyuan and Hong Kong Bingo remains a mystery. Yangyuan stated in its response to reporters that its relationship with Hong Kong Bingo is purely a supply relationship. However, according to Yu Haocong, chairman of Golden State, the two are actually highly intertwined, which is why Yangyuan was willing to fund the mediation for Hong Kong Bingo when it was suddenly deregistered. Who breached the contract? As early as 2016, before Yangyuan was listed, multiple media outlets reported that a court in Hengshui had delivered a lawsuit summons from California to Yangyuan. Golden State announced that it was suing Yangyuan, the owner of the Chinese 'Six Walnuts' brand, in a U.S. federal court, claiming that Yangyuan's breach of contract had caused a large backlog of walnuts in warehouses, and demanding $10.29 million in compensation. However, Yangyuan denied this in media interviews, stating that it had no business in the U.S. and no connection with Golden State. After Yangyuan was listed in 2018, the name 'Golden State' appeared for the first time in its financial reports, and it paid $1.65 million in compensation to Golden State in exchange for Golden State's withdrawal of the lawsuit. However, in the announcement, Yangyuan did not explain its relationship with Golden State, only stating that it was paying on behalf of Hong Kong Bingo. Regarding the relationship among the three parties, Yangyuan explained in its announcement as follows: 'The parties to the lawsuit, given that the direct purchaser under the contract with Golden State was Hong Kong Bingo International Trading Co., Ltd., not our company (Yangyuan), and Hong Kong Bingo shipped the walnuts it purchased to our company, resulting in...' According to Yangyuan's logic, Yangyuan's raw materials were purchased from Hong Kong Bingo, so it had no relationship with Golden State. The payment of compensation on behalf of Hong Kong Bingo was because 'both parties intended to resolve the cross-border lawsuit through settlement as soon as possible and focus on their normal business operations.' However, according to Yu Haocong's recollection, as early as 2012, Yu Haocong first met with Yangyuan's representatives in the U.S. to discuss cooperation, and no one from Hong Kong Bingo was present at that time. It was only in April 2013, when the cooperation agreement was signed, that representatives from Hong Kong Bingo appeared for the first time, accompanied by Yangyuan personnel, to sign the initial cooperation agreement. According to business registration records, Hong Kong Bingo was established in March 2013. Since 2013, Golden State has always signed cooperation agreements with Hong Kong Bingo, and there were no conflicts before 2015. Yu Haocong told reporters that legally, Golden State's cooperation agreement was indeed signed with Hong Kong Bingo, but for the contract worth over $10 million signed in 2015, it was Zhao, deputy general manager of Yangyuan, who went to Visalia, California, together with representatives from Hong Kong Bingo, and signed the contract in the name of Hong Kong Bingo. Previously, Golden State also showed reporters correspondence with Hong Kong Bingo, which included personnel from Yangyuan. The reason for tearing up the contract was that in 2015, due to a sharp drop in walnut prices, the contract price was $2.85 per pound, while the market price fell to $1.5 per pound. According to Yu Haocong, when the walnut price dropped to $1.5 per pound, Yangyuan and Hong Kong Bingo began to refuse to accept the goods indefinitely, causing a large backlog of walnuts in the U.S. Due to the high cost of storage and losses borne unilaterally, Golden State and the California Walnut Association lodged a formal protest with Yangyuan and Hong Kong Bingo. From then on, Yangyuan and Hong Kong Bingo unilaterally cut off all communication with Golden State. The contract worth over $10 million signed in 2015 was effectively void, and ultimately Golden State decided to take legal action. Regarding Yangyuan's denial of any form of cooperation with Golden State, Yu Haocong told reporters: 'In fact, the initial negotiations and the final receipt of goods were all participated in by Mr. Zhao from Yangyuan, so the breach of contract by Hong Kong Bingo was actually Yangyuan's will.' Hong Kong Bingo suddenly disappeared Because Hong Kong Bingo and Yangyuan tore up the contract, the U.S. walnut farmers and Golden State unilaterally bore the losses caused by the breach, so Golden State filed a lawsuit against Hong Kong Bingo and Yangyuan in the U.S. District Court for the Eastern District of California. A lawsuit was also filed against Hong Kong Bingo in the Hong Kong High Court. But by the time the summons reached the Hong Kong High Court, Hong Kong Bingo no longer existed. According to Tianyancha, Hong Kong Bingo was officially deregistered in October 2016. According to the Chengdu Business Daily, as early as May 2016, Hong Kong Bingo's email had been deregistered, and it was impossible to contact the company. The report also suggested that Su Xiulin, the registrant of Hong Kong Bingo, was suspected to be from Hengshui, Hebei. Regarding the origin of Hong Kong Bingo, Yu Haocong believes it was merely a shell company specially registered by Yangyuan for this contract. In this regard, Shen Meng, executive director of Chanson Capital, told reporters that mainland companies registering shell companies in Hong Kong generally use Hong Kong's status as an international financial and trade center to conduct international trade, with lower costs and simpler procedures. Regarding the unilateral breach of contract, Shen Meng told reporters: 'Hong Kong has a very rigorous legal system. But from the current situation, Yangyuan's behavior is not just using Hong Kong's convenient business environment; by not acknowledging its relationship with Hong Kong Bingo, it is actually trying to avoid the risks of unilaterally breaching the contract.' But to this day, Yangyuan has not provided a detailed explanation of its relationship with Hong Kong Bingo. In its financial reports, it only states that Hong Kong Bingo purchased and shipped walnuts for Yangyuan. In its response to reporters, Yangyuan still emphasized that 'the company is only a pure commercial partner in the upstream international business of our raw material purchase and sales, and has no affiliation or other interest relationship with our company.' But as Yu Haocong said: 'If Yangyuan really only had a supply relationship with Hong Kong Bingo, why would it pay for it?' Why private mediation? Although Hong Kong Bingo no longer exists, the lawsuit summons from the U.S. was still delivered to the Hengshui Intermediate Court through the Supreme Court, and Yangyuan received the lawsuit from the Hengshui Intermediate Court. At that point, the 2016 lawsuit by Golden State against Yangyuan attracted the attention of domestic media. At that time, Yangyuan was also at a critical stage of its IPO. In 2016, Yangyuan submitted its prospectus to the CSRC for the third time, and this incident also drew the attention of the CSRC. In response, Yangyuan, on the one hand, denied any relationship with Golden State, but on the other hand, it had already sent representatives to the U.S. to respond to the lawsuit and privately negotiated a settlement with Golden State. According to the lawsuit, Golden State, Yangyuan, and Hong Kong Bingo signed a supply contract worth over $10 million in early 2015, and then Yangyuan and Hong Kong Bingo refused to accept the goods, causing huge losses to Golden State and local walnut farmers. According to Yu Haocong of Golden State, Golden State and the walnut farmers suffered a total loss of about $5 million. As for why he eventually agreed to Yangyuan's private mediation in the U.S., Yu Haocong told reporters: 'Mainly because nearly two years had passed since the incident, and the local walnut farmers needed the funds to maintain operations. For the sake of maintaining the company's reputation, we accepted the compensation of about $1.65 million to protect the interests of walnut farmers and the company's reputation. If we continued with legal proceedings, it would likely drag on for another two years, and the company and the walnut farmers would not be able to afford it.' In April 2018, when Yangyuan released its first-quarter financial report, the lawyers for Golden State and Yangyuan reached a 'Confidential Settlement Agreement and General Release'. According to Yu Haocong, apart from the content disclosed in Yangyuan's announcement, the other terms of the agreement are confidential and not for public disclosure. As a listed company, Yangyuan is required to disclose financial details, which is why part of the settlement compensation was disclosed. News Review: Breach of Contract? 'Six Walnuts' Sued by U.S. Company One day in May 2016, Golden State sued, claiming that the breach of contract caused a backlog of walnuts and losses of millions of dollars, while Yangyuan responded that there had never been a cooperative relationship. Complaint by Golden State: The other party refused to accept goods Yangyuan's deputy general manager, accompanied by a representative from Bingo, signed a purchase contract with Golden State in the name of Hong Kong Bingo. Received an email: 'Due to recent significant fluctuations in the offshore RMB exchange rate, the company finds it difficult to accept the previous arrival price.' The founder of Golden State said: Various signs indicate that Yangyuan had prepared in advance. Once the price changed unfavorably, it could cleverly shift the responsibility to the Hong Kong company and escape. Feedback from Bingo: 'Email' deregistered A reporter from Chengdu Business Daily sent an interview letter to the email that had previously been used to send emails in the name of Bingo, but found that the email's automatic reply showed that the mailbox had been deregistered. Yangyuan: No such thing! It has never had any cooperative relationship with 'Hong Kong Bingo' or 'Golden State'; Nor has it signed any form of cooperation agreement; There is no such thing as our company refusing to accept the other party's walnut kernels due to price issues. In recent years, thanks to the advertising slogan 'Use your brain often, drink more Six Walnuts' endorsed by Chen Luyu, and the sponsorship of the TV show 'The Brain', 'Six Walnuts' has become a household name in China. However, its parent company, Hebei Yangyuan Zhihui Beverage Co., Ltd. (hereinafter referred to as 'Yangyuan'), has been sued in a U.S. court. The plaintiff is Golden State Food Company (hereinafter referred to as 'Golden State'), a U.S. walnut and nut company. Chengdu Business Daily reporter Wang Yalin, reporting from Hengshui, Hebei. On April 8, 2016, Golden State sued Yangyuan in the U.S. District Court in Hanford, California, claiming that Yangyuan breached the contract, causing a large backlog of walnuts in warehouses and losses of up to $10 million. Also sued was Hong Kong Bingo International Trading Co., Ltd. (hereinafter referred to as 'Bingo'), which had signed the contract with Golden State. On May 17, local time, Golden State held a press conference in Los Angeles to publicly announce Yangyuan's 'breach of contract'. What is the truth? A reporter from Chengdu Business Daily recently investigated the matter. In a response to the reporter, Yangyuan stated that it takes the lawsuit seriously and conducted an internal investigation, finding that the company has never had any cooperative relationship with Hong Kong Bingo or Golden State, nor has it signed any form of cooperation agreement. Dispute: 'Previous arrival price no longer acceptable' - Did a contract worth over $10 million fail due to price? The dispute dates back to April 2015. Yu Haocong, the Chinese-American founder of Golden State, told Chengdu Business Daily that in April last year, Yangyuan contacted Golden State. Its deputy general manager Zhao Qingxun, accompanied by Bingo representative Su Xiulin, went to Visalia, California, and signed a contract to purchase over $10 million worth of walnut kernels in the name of Hong Kong Bingo. 'All terms of the contract, including price, quantity, delivery schedule, quality, and transportation conditions, were decided by Zhao Qingxun and signed strictly according to his requirements.' In September 2015, Golden State began delivering goods to Bingo as per the contract, but problems arose. According to email screenshots provided by Yu Haocong, on September 8, 2015, an email sent to him from binguowalnut@hotmail.com said: 'Due to recent significant fluctuations in the offshore RMB exchange rate, the company finds it difficult to accept the previous arrival price. For the 11 containers not yet shipped, the company has discussed and will execute according to the new season's price. I hope President Yu can understand and cooperate. Thank you! Thank you!' The email was signed 'Su'. According to Yu Haocong, the sender was Su Yajing, the daughter of Bingo representative Su Xiulin. 'She was responsible for contacting all U.S. walnut suppliers and could speak English.' Yu Haocong further asked when the goods could be shipped. The email screenshots show that on November 26, 2015, the sender signed 'Su' replied again: 'I asked about this, and they said we need to wait for Mr. Zhao's notice. I'll let you know as soon as there's news.' Yu Haocong claimed that the 'Mr. Zhao' mentioned in the email was Zhao Qingxun, deputy general manager of Yangyuan. However, this claim was not confirmed by Yangyuan. As a result, a large amount of walnuts were backlogged in U.S. warehouses. 'The reason the other party refused to accept the goods was purely due to the price of walnuts,' Yu Haocong said. He said they followed up with Yangyuan multiple times but were always rejected with similar reasons. To ensure timely shipment, Golden State said it repeatedly lowered the price, but the other party never responded. In April this year, Golden State went to China to try to renegotiate the contract with Yangyuan, but no effective progress was made. Self-evidence: 'Walnut price fell to nearly half the contract price' - Claims this was not the first cooperation: no problems before According to Yu Haocong, last year's bumper walnut harvest directly led to a drop in walnut market prices. 'Chinese companies reduced their imports of U.S. walnuts, and walnut prices in the European and American markets, and even globally, fell.' Yu Haocong said that in the contract signed between Golden State and Bingo, the agreed price for walnuts was $2.85 per pound. However, the current price has fallen to $1.5 per pound, almost half the contract price. Yu Haocong believes that Yangyuan refused to accept the goods because the market price of walnuts kept falling. Yu Haocong said this was not the first time Golden State had cooperated with Yangyuan. 'I have been cooperating with Six Walnuts since 2013. In 2013, they even invited me to visit their factory. There were no problems in previous cooperations.' To support this, Yu Haocong also provided email screenshots with Bingo and a table labeled 'Yangyuan Quality Inspection Department Deductions (Quality Issues)'. The table listed the specific amounts deducted for various specifications of walnut kernels from June 27 to September 2, as well as details of returns or re-stocking. 'This is what we handled in the 2014 contract with Yangyuan. The issue this time is with the new contract in 2015.' Yu Haocong said that when Yangyuan purchased walnuts in the U.S., it was always accompanied by Bingo's Su Xiulin and other responsible persons, and contracts were always signed with local suppliers in the name of Bingo. Yu said that quality inspections were personally conducted by Zhao Qingxun, who signed the quality inspection reports, and the goods were shipped to Hebei Yangyuan after arriving in China. Investigation: 'Hong Kong company's email suddenly deregistered' - Who is Su Xiulin? Does Bingo exist? What angered Yu Haocong the most was that on April 19, after Golden State went to China for negotiations, the Bingo email that had been in correspondence with him was suddenly deregistered, completely cutting off contact. 'Various signs indicate that Yangyuan had prepared long before signing the contract. Once the market price of the ordered goods changed unfavorably, it could cleverly shift the responsibility to the Hong Kong company and escape.' According to Yu Haocong, Bingo's legal representative Su Xiulin is from Hengshui, Hebei, and also lives in Hengshui. However, the reporter could not verify Yu Haocong's claims. So, who is Su Xiulin? Does Hong Kong Bingo actually exist? A reporter from Chengdu Business Daily recently searched the Companies Registry's Integrated Companies Registry Information System (ICRIS) website and found that Hong Kong Bingo International Trading Limited (English registered name: Hong Kong Bin Guo Int'l Trading Limited) was established on March 13, 2013, with a company status of 'still registered', and the director is Liu Jinzuan. Yu Haocong said that after hiring a Hong Kong lawyer to investigate, he found that Hong Kong Bingo did not have its own office address but rented a secretarial company (name: Excellence Corporate Secretarial Limited) to serve as its registered address and listing. 'The person in charge of the Hong Kong company, Miss Su, does not work at this company but comes to collect documents and letters when there are any.' After searching, the reporter found that this secretarial company was established on May 7, 2009, and is still registered, but its registered address could not be found. When searching for director information 'Su Xiulin' under this company, the result showed 'No records match the input query.' The reporter then searched 'Su Xiulin' separately, and the results were neither Hong Kong Bingo nor the secretarial company. According to the mobile phone number provided by Yu Haocong (with an area code of Hengshui, Hebei), the reporter called and asked if it was Su Xiulin or President Su, a middle-aged man replied 'You have the wrong number' and hung up quickly. The phone number of Su Yajing, Su Xiulin's daughter (also with an area code of Hengshui, Hebei), was also unreachable. Subsequently, the reporter sent an interview letter to the email binguowalnut@hotmail.com, which had previously been used to send emails to Yu Haocong in the name of Bingo, and found that the email's automatic reply indeed showed that the mailbox had been deregistered. Previous media reports indicated that Yangyuan does have a deputy general manager named Zhao Qingxun, but it could not be confirmed that he was the Zhao Qingxun referred to by Yu Haocong. Response: 'Never cooperated with Golden State or Bingo' - Will take legal action against unfounded defamation Recently, a reporter from Chengdu Business Daily sought verification from Yangyuan, headquartered in Hengshui, Hebei, and received a complete denial. Yangyuan stated: 'Regarding the matter you mentioned that a certain U.S. company, Golden State, had a conflict with our company over the supply of walnut kernels and sued us, we take this matter very seriously and have conducted an internal investigation. After investigation, Yangyuan has never had any cooperative relationship with the 'Hong Kong Bingo Company' or 'Golden State Company' you mentioned, nor has it signed any form of cooperation agreement. Therefore, there is no such thing as our company refusing to accept the other party's walnut kernel products due to price issues.' In the response, Yangyuan also stated that in terms of raw material procurement, the company strictly implements relevant standards, has a comprehensive supplier management system, and has long maintained good cooperative relationships with its existing raw material suppliers, 'and has never had such a dispute.' 'Currently, regarding the case where Golden State sued our company over walnut supply issues, we take it very seriously and will take active response measures. As a well-known brand in the plant protein field, Yangyuan attaches great importance to corporate reputation and brand building, actively fulfills social responsibilities, and has always had a good reputation among consumers and society. For some unfounded defamation in society, our company will actively take legal channels to protect its rights and interests, and we believe that relevant departments will make a fair judgment.' Source: China Business Journal and Chengdu Business Daily -END-