CLEBURNE, Texas (FNS) -- Fleming Cos. and David's Supermarkets were ordered to resume mediation by mid-May after a judge here upheld a judgment of more than $200 million against Fleming in the fraud and breach-of-contract case.
Fleming posted a $230 million bond April 12 to appeal the verdict when Judge C.C. "Kit" Cooke ruled that the Oklahoma City-based wholesaler pay $207 million in damages, plus interest, to David's, a 23-unit chain based in Grandview, Texas. Cooke also ordered Fleming and David's to return to mediation within 30 days under former appellate judge David Keltner in Dallas.
The moves follow the failure of a third round of mediation in the lengthy case, which culminated in mid-March when a Texas jury found the nation's largest wholesaler guilty of fraud and breach of contract in connection with overcharging the small Texas supermarket chain.
"Fleming has posted the bond required to appeal this unjust verdict," Robert E. Stauth, Fleming chairman and chief executive officer, said in a statement. "We also intend to litigate this responsibly through the judicial system, not the media."
Fleming did not specify whether the case could be settled when mediation is reconvened. A settlement would avoid a lengthy appeals process, which could take two to three years, as well as lift some financial pressure off Fleming, which faces several other legal actions, including four class-action suits filed in the past month by investors and other suits alleging overcharging.
David's attorney Bill Sims said he was pleased with the judge's ruling and feels assured that David's will be able to collect the verdict despite other financial claims against Fleming. "No matter how many lawsuits may be filed or what happens with the stockholder class-action suits . . . we will be protected with the bond."
Sims, a partner at the Vinson & Elkins office in Dallas, said several of Fleming's retail customers have been talking seriously with him about pressing similar lawsuits. "We are in the process of talking to a number of Fleming customers."
Both Sims and Fleming spokeswoman Nancy Del Regno declined to detail why mediation failed and what the prospects were for the upcoming session, explaining that the mediator prohibited disclosure.
However, in two mediation sessions held before the February trial, Fleming failed to offer more than $3 million, which David's deemed inadequate. Money continued to be
the problem in the third round, Sims said.
The litigation already is taking a financial toll on Fleming, which earned $42 million from revenues of about $17.5 billion last year and had long-term debt of $1.3 billion as of Dec. 31.
Fleming reported that it would take a charge of about $7.1 million in the first quarter of 1996 in connection with the David's litigation. The company also cut its shareholders dividend earlier this month.
The annual cost of the $230 million bond and related letters of credit will be $2.2 million, according to Fleming. The bond is backed by Aetna Casualty & Surety Co., Reliance Insurance Co., Employers Reinsurance Corp. and Continental Casualty Co.
Since the mid-March jury verdict, Fleming's stock and bond prices have plunged, prompting the four investor lawsuits. Those suits claim Fleming failed to disclose the David's litigation and cost shareholders and bondholders significant damages.
Barry Roads Foods in Kansas City, Mo., also filed a suit in late March. The supermarket operator seeks damages for lost profits and other problems it claims stem from a contract and franchise dispute with Fleming. The case is similar to the David's suit, which accused Fleming of inflating manufacturers' prices and breaking its cost-plus contract, almost driving the grocery chain into bankruptcy.