CLAIMS DELAY FLEMING SALE TO C&S

Mark Hamstra

WILMINGTON, Del. -- As hearings continued late last week on the sale of Fleming's grocery-distribution business to C&S Wholesale Grocers, Brattleboro, Vt., more than 120 entities, including several retailers, filed objections with the U.S. Bankruptcy Court here.

Retailers and other contractual partners are seeking "cure" payments, which are payments a bankrupt company must make when it has violated a contract before it can transfer that contract to a third party. In Fleming's case, retailers allege that the Dallas-based wholesaler failed to fulfill its supply obligations. Fleming's service levels to retailers have been about 60% to 70%, vs. the standard 97%, retailers told SN.

Daniel DeFranceschi, an attorney for Albertsons, Boise Idaho, which has a cure claim against Fleming, said the wholesaler had originally agreed to pay all cure claims in full.

"I think what's going on now is the number of objections they got is far in advance of what they anticipated, or at least what they were publicly saying they anticipated, and now [Fleming] and C&S are trying to negotiate resolutions of all of those," he said.

The hearing for the sale of Fleming's assets began Aug. 11, but was postponed twice to allow Fleming and C&S time to resolve the cure claims and other issues.

In a separate hearing last week, the judge rejected Albertsons' motion to terminate its supply contract with Fleming. According to reports, the Albertsons business, which includes 40 stores in Oklahoma and Nebraska, could generate up to $10 million in royalties for Fleming through an agreement the company has with C&S to collect 1% of the royalties on supply contracts that C&S acquires. The reports said Fleming told the court it expects to receive up to $95 million in royalties during the next five years.

C&S told the court it plans to transfer most of Fleming's assets to third parties.

According to reports, cure claims against Fleming total more than $181 million, including $123 million from retail customers.

One four-store retailer, who asked not to be identified, said he originally filed a cure claim for $3 million, but dropped that to about $1.5 million.

In addition to added labor costs from working with a secondary supplier, he said his company also lost sales from out-of-stocks and the switch to a different private label.

Geoffrey Richards, an attorney for Fleming, described the $123 million of retailer cure claims as "misleading, highly inflated and inflammatory." He said Fleming was seeking to have the claims dismissed.