FOOD LION ACCEPTS DAMAGES IN ABC CASE

GREG GATTUSO

SALISBURY, N.C. -- Food Lion here has decided to accept the reduced amount of punitive damages in its lawsuit against ABC -- $315,000 -- rather than go back to trial.

In court papers, Food Lion said its decision "is based solely upon its desire to avoid the time and expense of a new trial, and should not be construed as indicating any agreement with or consent to the Court's conclusion that the jury's awards of punitive damages were unconstitutional or otherwise excessive.

"Indeed, Food Lion continues to believe that the jury's expression of outrage at ABC's illegal conduct, in the form of the punitive damages awards, was entirely appropriate. Food Lion believes it is very likely that a retrial would result in a similar, if not larger, punitive damage awards. Because the Court presumably would again reduce the awards, a new trial would be a meaningless exercise."

As reported in SN, a jury found ABC liable for fraud, trespass and breach of the duty of loyalty when two news producers misrepresented themselves in order to gain employment at Food Lion stores for an undercover investigation into the chain's allegedly unsanitary food-handling practices. The report aired in 1992 on the network's magazine show, "Prime Time Live."

The jury awarded the supermarket chain $5.5 million in punitive damages, but the judge overseeing the case said that amount was unprecedented -- and most likely unconstitutional -- so he cut the damages by 90% and told Food Lion it could accept the amount or go back to trial.

A statement from ABC News said, "We believe that Food Lion's acceptance of the 90% reduction in punitive damages is a positive development. "However, ABC News' position throughout this case has been consistent. By going undercover and telling a vital story about Food Lion's unsanitary food-handling practices, we were following a great tradition of American journalism. We continue to stand behind the talented journalists who reported this important story. ABC News believes that the imposition of any damages under the facts of this case is wrong."

ABC News has said in the past it would appeal, according to a spokesman. But he declined to comment last week on the organization's next legal maneuver.

The judge's award of punitive damages includes the following:

$50,000 from Capital Cities/ABC, the network's former parent company;

$250,000 from the network; and

$7,500 each from Richard Kaplan, former executive producer of "Prime Time Live," and Ira Rosen, the show's senior producer.

ABC is now part of Walt Disney Co. SN is a unit of ABC's Fairchild Publications, New York. Food Lion may still appeal the judge's ruling on compensatory damages, said Chris Ahearn, Food Lion's spokeswoman. In the case, Judge N. Carlton Tilley ruled the chain could only sue for the actual amount it cost to hire and pay the undercover employees -- about $1,400. Ahearn said the chain may seek "broadcast damages" -- monies Food Lion lost as a result of the "Prime Time Live" broadcast, which would be significantly more than $1,400. However, as of last week, the chain had not decided whether to pursue that course, Ahearn said.

Food Lion has said the broadcast hurt sales in the Southwest, an area it had entered only recently when the "Prime Time Live" report aired.

Last month the company announced plans to close and sell 61 stores and a distribution center in the Southwest by mid-November. So far, Food Lion has sold three Oklahoma units to Homeland Holdings, Oklahoma City. Last week, the chain retained Gordon Bros. Partners, a retail advisory and finance firm here, to head up "going out of business" sales at 58 of those stores.

Gordon Brothers said last week it will manage all aspects of the liquidations, including store operations, merchandising, advertising and signs. Gordon Brothers expects to complete the liquidations by the end of the month, leaving the stores "broom clean."

"We are responsible for the direct day-to-day operations of the stores," Micheal Keefe, one of Gordon Brothers' managing directors, told SN last week.

Gordon Bros. is running newspaper run-of-press ads, along with spot TV ads and metro traffic radio sponsorships to promote the sales, which offer as much as 30% or more off regular prices.

The challenge will be to maintain a flow of traffic over the 30-day sales period by keeping staples like milk and bread in stock while slower-turning merchandise is sold off. To accomplish this, Gordon Bros. has enlisted several direct-store-delivery vendors supply the stores directly.

"We have to keep the convenience factor of the stores in place while we liquidate the items that don't liquidate themselves," Keefe said.

The 58 stores to be liquidated are concentrated in four major markets: Dallas, Houston, Oklahoma City and Shreveport, La. All of the inventory from Food Lion's Roanoke, Texas distribution center was moved into the stores to be liquidated.

When the sale began, items were marked at 10% off, with some nonfood categories marked at 30% off. As the sale progresses, discounts will be deepened depending on how much of the items remain and how many more days the stores will be open.

"We will get more aggressive as time goes by, especially on items that we have a lot of," Keefe said.

Gordon Bros. said it guaranteed Food Lion a outbid other retail advisory and finance firms, guaranteed an up-front cash guarantee on its inventory.

Originally, Food Lion retained the firm to liquidate 54 stores. Last week, it turned over control of four others to Gordon Bros., under slightly different terms.

The firm came to Food Lion's attention through Food Lion's chief financial officer, Laura Kendall. Kendall had worked with Gordon Bros. when her former employer, F&M Drug Stores, needed stores liquidated.

"Food Lion is a profitable supermarket chain whose Southwest stores represented a disproportionate drain on the company's financial and management assets," said Kendall. Kendall said with 62 new stores and 100 renovations in the near future, "we recognized that it was in the best interest of the company, its employees and its shareholders to dedicate [Food Lion's] energies and resources to the profitable areas of its business.

"With Gordon Brothers handling the strategic liquidation of our southwest locations, we believe that Food Lion will receive the greatest return on these assets without wasting valuable management resources and time on an area that does not represent the future of our business."