Ben & Jerry’s v Unilever: legal challenge based on the acquisition agreement after disagreement on Israel

Ben & Jerry's v Unilever

The post-acquisition honeymoon phase is definitely over, between Ben & Jerry’s and its parent company Unilever. The ineluctable fallout had been bubbling below the surface for some time. This is a clear message that ‟status quo” positions, on very serious political issues such as human rights’ and international law breaches by Israel in Palestine, are no longer acceptable, both to companies’ boards of directors, brand fans and customers. While the old guard and conservative lobbies try to deny this fact, the Ben & Jerry’s v Unilever legal cases will hold bullies and merely profit-driven management accountable, and force them to change. In the long-run.

1. What is Ben & Jerry’s and why is it a peculiar company?

Ben & Jerry’s Homemade Holdings Inc., trading and commonly known as Ben & Jerry’s, is an American company that manufactures ice cream, frozen yogurt and sorbet.

It’s one of the top premium ice cream brands, on a par with Häagen-Dazs, another famous American ice cream maker.

Ben & Jerry’s was founded in 1978 by two Jewish American friends, Ben Cohen and Jerry Greenfield, in Burlington, Vermont, United States (‟US”).

In addition to making awesome ice cream with chunky bits (that’s to accommodate Ben Cohen, who suffers from anosmia), Ben & Jerry’s is known the world over for taking clear and frank stances on current social, environmental and political issues, even when such views have nothing to do with ice cream or dairy products.

So, not only did, and still does, Ben & Jerry’s sign onto environmentalist, political and LGBTQ external campaigns, managed by non-profit and lobbying organisations, but it also launched to market many products with politically progressive messages, such as the ‟I Dough, I Dough” chocolate chip cookie dough ice cream, to celebrate the US supreme court’s ruling in support of same-sex marriage, or the ‟Yes, Pecan!” flavor, in reference to Barack Obama’s victory in the 2008 US presidential election.

Also, Ben & Jerry’s sources from regional organic dairy farms, uses only milk that does not contain artificial growth hormones, developed chemical-free containers, and makes fair-trade and organic ingredients priorities. It even went to court to win the right to label its ice cream hormone-free.

This is the result of the three-part mission statement devised by Ben Cohen and Jerry Greenfield, from inception, for their business:

  • to make the world’s best ice cream;
  • to run a financially successful company, and
  • to ‟make the world a better place”.

As of 2019, Ben & Jerry’s has production facilities in Saint Albans, Vermont, Waterbury, Vermont, Hellendoorn, Netherlands and Be’er Tuvia, Israel.

2. Why are Ben & Jerry’s and Unilever connected?

In April 2000, Ben & Jerry’s sold itself to food and consumer goods conglomerate Unilever plc (‟Unilever”), headquartered in London, United Kingdom (‟UK”), for USD326 million, as the latter was looking to add a premium ice cream brand in its portfolio, which would rival Häagen-Dazs.

In the acquisition agreement, entered into between Ben & Jerry’s and Unilever, it is set out that the ‟power (is given) to (Ben & Jerry’s) board (of directors), (who will) oversee the social mission of (Ben & Jerry’s) and the ‟essential integrity of the Ben & Jerry’s brand”” (the ‟Agreement”).

Therefore, while the day-to-day running, and strategic commercial choices, at Ben & Jerry’s, are under Unilever’s control and supervision, the ice cream company retained an independent board of directors, which has full authority over the social mission of Ben & Jerry’s, pursuant to the terms of the Agreement.

Ben & Jerry’s retained independent board of directors described itself as having a responsibility to protect the company’s essential brand integrity and to pursue its social mission.

This peculiar division of power and governance at Unilever’s wholly-owned subsidiary has not been an easy task to implement and maintain, since lots of tension arose between the commercially-driven mindset of Unilever’s management, and the social mission-driven focus of Ben & Jerry’s staff and independent board, over the years.

For example, shortly after the acquisition, Unilever reportedly prevented employees from emblazoning the Ben & Jerry’s logo on a bus driving them to a protest.

However, all in all, and up to now, a balance between profit and social mission seemed to have been successfully struck, in this new iteration of Ben & Jerry’s. Unilever’s management even claimed that its premium ice cream subsidiary was having a bigger social impact than before, because of its increased size (since the acquisition, Unilever has tripled Ben & Jerry’s revenue and added hundreds of jobs). The Unilever’s acquisition of Ben & Jerry’s even became a classic post-merger integration case study, in business schools around the world.

But things are changing and getting messy. The honeymoon period of this marriage has ended, and the spouses are going to court.

3. Ben & Jerry’s v Unilever: legal challenges resulting from a deadlock on Israel

As mentioned in paragraph 1, Ben & Jerry’s mission statement is to ‟make the world a better place”.

As part of this mission, Ben Cohen, Jerry Greenfield and the CEO of Ben & Jerry’s were contacted in 2012, by fellow Vermont neighbours, Vermonters for a Just Peace in Palestine/Israel (‟VTJP”), after learning that ice cream produced by Ben & Jerry’s franchise in Israel – run by local franchisee, Avi Zinger, from Israeli company American Quality Products (‟AQP), since 1987 – was being sold in Israeli settlements in the West Bank and East Jerusalem. The United Nations security council has repeatedly deemed those Israeli settlements a ‟fragrant violation under international law”. As of November 2014, 232 organisations across the US and in seventeen countries worldwide have signed a letter written by VTJP calling on Ben & Jerry’s to end its commercial ties to such Israeli settlements.

By 2015, Ben & Jerry’s had decided to donate its licensing fees from Israel to organisations supporting Palestinians. Its Israeli franchisee began sourcing almonds from a Palestinian farmer co-operative. Other than that, Ben & Jerry’s held back from further action.

But, on 19 July 2021, Ben & Jerry’s announced its plans to end sales in ‟Occupied Palestinian Territory” (‟OPT”), within which Israeli settlements are considered illegal under international law. The company statement notes that it was responding to ‟the concerns shared with us by our fans and trusted partners”, while confirming that sales operations would continue in Israel beyond 2022 ‟through a different arrangement”.

Due to the refusal of Ben & Jerry’s Israel, the local franchisee operating under AQP, to comply with this policy, the company statement initially said that it did not plan to renew the franchise in 2022. It appears that the independent board’s intention was to stop doing business in Israel altogether.

However, when the backlash came, with Jewish lobbies and powermen flexing their muscles, the heat became too much for Unilever.

Indeed, after suggestions that Ben & Jerry’s decision may run ‟foul of anti-boycott laws in a number of US states” (sic), Florida governor Ron DeSantis placed parent company Unilever on a list of ‟scrutinised companies that boycott Israel” on 3 August 2021; then the state of Arizona committed to totally divest from Unilever by September 2021; then the state of New Jersey also gave Unilever 90 days’ notice of divestment action and, ‟in fine”, the states of New York, New Jersey, Arizona, Florida, Illinois and Texas may have divested a combined USD1 billion in pension fund investments from Unilever, concluding Ben & Jerry’s action ‟violated their anti-boycott laws” (sic).

Unilever stopped the ‟bloodbath” by bending to the conservatives:

  • it amended Ben & Jerry’s statement, confirming that its subsidiary would keep on operating in Israel beyond 2022 (against the independent board’s rumoured intention to withdraw from Israel), and

Ben & Jerry’s reaction was swift, as they tweeted: ‟We continue to believe it is inconsistent with Ben & Jerry’s values for our ice cream to be sold in the OPT” and ‟ We are aware of Unilever announcement” and ‟While our parent company has taken this decision, we do not agree with it. They continued with ‟Unilever’s arrangement means Ben & Jerry’s in Israel will be owned and operated by AQP. Our company will no longer profit from Ben & Jerry’s in Israel‟.

And then, Ben & Jerry’s did the inconceivable: they filed a lawsuit against Unilever in Federal court in Manhattan, New York, US, on 5 July 2022, alleging that their parent company is in violation with the provisions of the Agreement, over the Sale, and that such Sale should be stopped. This Sale, Ben & Jerry’s contends, is in breach of the the social mission decision and statement made by Ben & Jerry’s independent board of directors, in violation with the governance structure set up by the Agreement in 2000.

In a televised interview, co-founder Ben Cohen saidthat the Agreement gave authority over the social mission to the independent board of Ben & Jerry’s. Unilever has usurped their authority and reversed the decision that was made and we can’t allow that to happen, we can’t sit idly by”.

In the meantime, Unilever stopped paying directors’ salaries, to the members of the independent board of Ben & Jerry’s.

On 22 August 2022, US district judge Andrew Carter in Manhattan said Ben & Jerry’s did not deserve an immediate injunction against the Sale because Ben & Jerry’s failed to show it would suffer irreparable harm. The judge did not decide the lawsuit’s merits, yet.

By 27 September 2022, Ben & Jerry filed an amended complaint with the federal court in Manhattan, with Unilever’s response due by 1 November 2022.

At the end of September 2022, Ben & Jerry’s expanded its legal action to target Unilever in London, UK, where Unilever is headquartered, as well as its US subsidiary.

4. Prognosis on who will have the last word pursuant to the acquisition agreement

The questions that the judges in the US and the UK will have to answer, during the two lawsuits filed by Ben & Jerry’s against their parent company, Unilever, are as follows:

  • Does Ben & Jerry’s, a wholly-owned subsidiary of Unilever, has the legal capacity of filing a lawsuit against its parent company? In other words, were such lawsuits validly filed by the legal entity Ben & Jerry’s, against Unilever?
  • Is the Sale lawful, under applicable US and/or UK current corporate law?
  • Is the Sale lawful, under the Agreement?
  • If the Sale breaches the terms of the Agreement, are there any contractual provisions, in the Agreement, and/or any applicable US and/or UK current corporate laws, that may allow to set aside the terms of the Agreement, therefore creating an exception to the application of the terms of the Agreement, in relation to the Sale?
  • If the Sale breaches the terms of the Agreement, and there are no exception and/or exceptional circumstances that can be used to justify such contractual breach, should the Sale be terminated, and Ben & Jerry’s Israel returned to Ben & Jerry’s?
  • If the Sale should not be terminated, would the allocation of damages, or other form of material and/or financial compensation, be appropriate, to repair the prejudices suffered by Ben & Jerry’s and its independent board of directors?

Answers to each one of these key issues, in these legal cases, may vary, from judge to judge, in the US and the UK!

Although I have not read the Agreement (which is not, of course, available in the public domain), I am confident that the judges will find that Unilever breached the terms of the Agreement, in relation to respecting the authority over the social mission given to the independent board of Ben & Jerry’s, in the context of the Sale, and its aftermath. While the obvious legal consequence should be to rescind the Sale, which is probably executed under an English-law governed sale agreement entered into between Unilever plc and AQP, I doubt that the US and UK judges will order such termination of the Sale, especially since they do not have jurisdiction over assets located in Israel.

In short, while I think that Ben & Jerry’s is correct, from a legal standpoint, that the Agreement is breached by the Sale, it is likely that the US and UK judges decide, in case they agree with my above-mentioned statement, to prioritise another type of remedy than rescinding the Sale in Israel, such as allocating financial damages to Ben & Jerry’s and its independent board of directors.

One thing which is for sure, is that the misalignment between Ben & Jerry’s, and Unilever’s environmental, social and governance (‟ESG”) priorities, has just exploded out in the open, and is unlikely to recede, in the years to come: Unilever has made a fool of Ben & Jerry’s independent board of directors, castrating their actions and social mission decisions and statements. There will be no way back, and, Unilever being the parent company of its wholly-owned subsidiary Ben & Jerry’s, will probably annihilate the independent board of directors, in the next few years.

However, this strategy will run afoul of the brand’s DNA, and consumers’ expectations that companies have MORE ESG goals and campaigns, rather than less: I therefore predict that, in the long run, Ben & Jerry’s will lose sales and its customer base, because it will have lost its soul. So, in the end, Unilever will be a loser too, and will probably have to either sell out the Ben & Jerry’s business, or take it public (and independent) again.

Crefovi’s live webinar: Ben & Jerry’s v Unilever legal saga – 15 November 2022


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