SHURFINE BOARD SETS MEETING ON RICHFOOD SUIT

ELLIOT ZWIEBACH

NORTHLAKE, Ill. -- Directors of Shurfine International here will hold a special meeting Nov. 8 to discuss the cooperative's response to a lawsuit filed against the company and several individual directors by Richfood Holdings, Richmond, Va., Jerry W. Davis, chairman of the board of Shurfine, told SN last week.

As reported earlier, Richfood's suit charges Shurfine and its directors with breaches of fiduciary responsibilities in a series of acts that resulted in "an inexcusable waste of corporate assets."

Shurfine's strategy meeting will be held in Tucson, Ariz., the site of a meeting of the Retailer Owned Food Distributors Association, the annual convention of which begins there the following day, Davis noted. Davis is also chairman of Affiliated Foods Southwest, Little Rock, Ark.

"We've appointed two attorneys to investigate the charges [against Shurfine], and the executive committee is in daily contact with those attorneys," Davis told SN. "The purpose of next month's meeting is to update the board on our response to the lawsuit and the case we are building.

"But we believe it is a nonsense lawsuit, and we deny all charges and allegations as they relate to the company and to specific board members."

Richfood has been a member of Shurfine since early 1992, although it temporarily suspended ordering from the cooperative in favor of ordering directly from vendors Sept. 22, two weeks before it filed suit.

The suit charges that Shurfine raised Richfood's prices and shortened its payment terms after it brought its allegations of fiduciary irresponsibility to the board. However, according to Davis, "No one [at Shurfine] was aware that Richfood was getting special consideration [on prices and terms], and the board never approved or saw anything relating to special consideration."

He said the changes occurred after Jim Barth became Shurfine's president, "following a general conversation we had about all customers being in compliance. It was after that meeting that we notified Richfood we would be enforcing those prices and terms with them."

Richfood contends in the lawsuit that it was contacted by Shurfine about becoming a member in late 1991. Under the agreement that Richfood ultimately negotiated with Shurfine, "Shurfine would never charge Richfood more than the price Richfood would pay if purchasing directly from the vendors . . . [and] would not impose more restrictive payment terms on Richfood than the terms Richfood received from the vendors.

"In return for these guarantees Richfood agreed to provide, and did provide, Shurfine with extensive and commercially valuable information detailing the prices and payment terms Richfood had in place with vendors. With this information, Shurfine was then able to negotiate effectively with vendors for price reductions down to the level of the Richfood prices," the suit says.

According to the suit, "[Richfood] determined that as to items constituting roughly 60% to 65% of Richfood's dollar purchase volume, Richfood received a better price from the vendor than did Shurfine. Conversely, Shurfine received a better price from the vendor than Richfood on items constituting roughly 35% to 40% of Richfood's dollar volume."

The suit said Richfood became concerned in late 1996 or early 1997 about the performance of Shurfine officers and directors and met with Shurfine's executive board Aug. 21 to express its concerns.

Richfood said that one week after the meeting, it received a letter dated Aug. 15, 1997, "informing Richfood that as of Sept. 1, 1997, Shurfine would raise prices to Richfood on more than 800 items, in material breach of the January 1992 agreement."

Shurfine also demanded payment from Richfood on terms shorter than Richfood's vendor-negotiated terms, the suit said.

The price increase was postponed until Sept. 15 and then Sept. 26 at Richfood's request, the suit points out. Richfood temporarily suspended ordering from Shurfine Sept. 22 "due to Shurfine's unilateral change in the terms on which Richfood and Shurfine conducted business and Shurfine's breach of the agreement."