SALT LAKE CITY -- Fleming Cos., Oklahoma City, said last week it is considering appealing a decision by a district judge here who granted class-action status to a lawsuit against the wholesaler by a group of independent operators.
Fleming said it will disclose a decision by April 7. A spokesperson told SN, "We will continue to vigorously defend ourselves."
The class-action ruling of earlier this month opened the door for up to 245 Fleming customers in Utah, Idaho, Nevada and Wyoming to join a group of independent operators in the suit, which claims Fleming intentionally overcharged and defrauded the plaintiffs.
Although an attorney for the plaintiffs said it is too early to determine the exact amount of alleged overcharges, he said damages in the action could total between $100 million and $200 million.
The attorney, Brent O. Hatch, told SN he expects to begin the discovery process shortly and anticipates a jury trial could begin early next year.
The suit accuses Fleming of withholding information from customers about so-called inside margins -- payments from vendors that actually reduced its cost of goods. Similar claims have been invoked by various retailers against Fleming in the past few years, including David's Supermarkets, Grandview, Texas, in 1993; Furr's Supermarkets, Albuquerque, N.M.; and Randall's Food Markets, Houston, both in 1997.
The latest complaint was filed in 1998 against Fleming and Terry Rogers, operating group president for the wholesaler's locally based distribution center, by Storehouse Markets, Provo, Utah, which operates five area stores, and Weiser IGA Supercenter, a single-store operator in Weiser, Idaho.
According to the suit, Fleming's supply agreements promised to sell products to retail customers at cost plus specified fees. However, the suit alleges that Fleming never told plaintiffs about the inside margins.
"Unbeknownst to plaintiffs, Fleming has for many years systematically, intentionally and willfully overcharged for groceries and related products ... [and] knowingly failed and refused to pass along Fleming's true or actual cost for the groceries and related products it has purchased for resale to plaintiffs before adding the sell-plan fees.
"Fleming covertly, knowingly and intentionally manipulated the 'cost' Fleming has passed on to plaintiffs for the products [they] have purchased ... such that the cost Fleming has charged ... is higher than the cost Fleming actually has paid for those products."
To conceal this information from its customers, the suit says, Fleming created a misleading paper trail "by keeping at least two sets of books and by creating or generating false or fictitious invoices ... [in case] a retail customer would ask to see Fleming's books or the invoices that Fleming purportedly paid to establish its costs."
The suit says Fleming routinely purchased and sold goods between divisions "to internally create false or inflated prices or costs for groceries ... rather than the actual cost paid. ... Fleming then has resold the products to the grocery retailers at the improperly inflated price."
The suit cites testimony by Fleming executives in previous litigations, including the David's lawsuit -- a case Fleming lost but whose jury verdict ordering Fleming to pay $211.1 million was set aside following disclosure of a prior financial relationship between the trial judge and affiliates of David's. Fleming ultimately agreed to pay the retailer $19.9 million to settle the claims.
Fleming reached an out-of-court settlement with Furr's and agreed to pay the retailer $800,000 a month through the life of its supply agreement, which lasted about a year; in the Randall's action, an arbitration panel ruled the retailer could terminate its supply agreement with Fleming because the wholesaler had breached the agreement by conspiring with vendors to inflate prices.
Meredith Adler, equity analyst, Lehman Bros., New York, said she expects Fleming will attempt to settle the suit quickly. She said Fleming's current corporate managers "are very focused on moving on and not getting embattled with things that may or may not have happened in the past."
Gary Giblen, portfolio manager, First New York Securities, New York, said, "It's not good to having these things coming up, particularly just as Fleming was doing better. Regardless of how the suit turns out, it can be nothing but bad news for Fleming."