CLEBURNE, Texas (FNS) -- Pounded by new civil lawsuits and threats of others, Fleming Cos., Oklahoma City, this week will talk about settling damage claims with David's Supermarkets after a judge here ordered mediation in their fraud and breach-of-contract case.
State court Judge C.C. "Kit" Cooke last week delayed his final judgment until the nation's largest wholesaler and the 23-unit Grandview, Texas-based chain made another attempt to reach a settlement in the case, which carries a jury award of more than $200 million.
Cooke said he would sign a final judgment by 5 p.m. April 12 if an impasse results in the
mediation with former appellate Judge David Keltner, a partner at the Fort Worth, Texas, law firm of Haynes & Boone. Cooke said he would not be pressured into an immediate decision, preferring to exercise caution in a case that would "have a big impact on Fleming nationwide."
In mid-March, a Texas jury found Fleming and retired Fleming executive Jim Stuard guilty of fraud, breach of contract and deceptive trade practices, and ordered the company to pay damages to David's.
David's attorneys requested a judgment of more than $250 million last week because they feared Fleming's ability to pay the damages would be jeopardized by several other lawsuit filings and the potential for more litigation.
"We are in peril of losing our verdict," said Bill Sims, one of David's attorneys and a partner at Vinson & Elkins, a Dallas law firm. "We are in peril of Fleming going into bankruptcy." Fleming spokeswoman Nancy Del Regno dismissed concerns of possible bankruptcy. "While this is a serious matter, Fleming is a profitable company," she said. Industry analysts also said Fleming was not in danger of imminent bankruptcy but could be in trouble if many additional lawsuits are filed.
Sims told the court that shareholder lawsuits and another grocery retail lawsuit had been filed and his office had been contacted by 33 retail grocers or their attorneys about pressing similar lawsuits. In the David's suit, Fleming was accused of selling wholesale groceries to David's based on inflated manufacturer's prices.
Mike Baggett, an attorney with the law firm of Winstead, Sechrest & Minick, Dallas, representing Fleming, called the remarks on possible bankruptcy "pure and unadulterated speculation" and argued that insufficient evidence existed to support the enormous Texas jury verdict.
Nevertheless, both sides agreed to a third attempt at mediation. The two other mediations took place before the case went to trial. In a prepared statement, Robert E. Stauth, Fleming's chairman and chief executive officer, said, "Fleming intends to participate actively in the mediation process but will proceed with the appeals process if that's what it ultimately takes to protect our business interests."
Sims said he hoped that Fleming would "take a more serious approach" to the settlement now that it was faced with posting a bond exceeding $200 million to appeal the case. In court, he said Fleming had only been willing to offer a $3 million settlement during mediation talks held before the February trial.
In recent weeks, pressure from creditors and investors has been mounting to settle the case for a much smaller sum than the jury verdict. "The right thing to do is settle . . . even if it is in the $40 million range," said Frederick Taylor, director of corporate bond research for Salomon Bros., New York.
Bankers have expressed concern about putting up credit for the bond, considering Fleming's already-stretched finances. The company earned $42 million last year, about 20% of the jury verdict, and had about $1.3 billion in long-term debt and $4.4 million in cash and cash equivalents as of Dec. 31, 1995. About 10 days ago, Fleming's board reduced the company's quarterly dividend to 2 cents from 30 cents to help meet bond requirements.
So far, investors have filed two class-action lawsuits against Fleming, which they accuse of failing to disclose the David's lawsuit and breaching federal securities laws. One was filed in U.S. District Court in Oklahoma City March 28 by stockholders Kenneth Steiner and Charles Miller, and another was filed March 29 by stockholder Lawrence B. Hollin.
The suits seek damages for the thousands of shareholders who purchased Fleming stock between March 17, 1995, and March 15, 1996, when the jury verdict against the wholesaler was announced. In the weeks after the jury decision, the stock price plunged from about $20 to less than $13 a share.
In the suits, the company is accused of deceiving the investing public and artificially inflating and maintaining the market price by not disclosing potential liabilities. "Not an iota of information relating to this litigation was ever publicly disclosed by Fleming as defendants embarked on a course of fraud to conceal this adverse information from the market and from Fleming's shareholders," the Steiner suit said.
Fleming's Del Regno said the company had been served with the lawsuits and was reviewing them. "Fleming routinely meets Securities and Exchange Commission disclosure requirements and will continue to do so," she said.
In another lawsuit, filed March 28 in U.S. District Court in Oklahoma, Missouri-based Barry Roads Foods Inc. is seeking damages for lost profits and other problems the company claims stem from a contract and franchise agreement dispute with Fleming. In the suit, store officials claim that their Food 4 Less store in Kansas City "lost its ability to compete in the marketplace because of the increase in the price of goods/products delivered to its store together with other charges it incurred as a result of the implementation of the Fleming Flexible Market Program."
David's attorney Sims said the suit is similar to the one pressed by David's Supermarkets. The chain claimed that it lost profits because of contract violations and overcharging by Fleming, which regularly marked up true costs by paper transfers and failed to give it the benefit of rebates and promotional discounts.
Observers expect other suits to be filed soon. Although Fleming has called the verdict an isolated incident, some supermarket retailers disagreed.
Fleming's Del Regno said the company had no comment on future lawsuits or on the status of previously filed lawsuits.
The wholesaler, which has more than 3,500 retail customers nationwide and operates about 300 stores.
