OKLAHOMA CITY -- A year ago, a Texas jury handed down a staggering $211.2 million judgment against wholesaler Fleming Cos. here. Last week, Fleming and plaintiff David's Supermarkets reached an out-of-court settlement for less than a tenth of that sum, which resolved the matter and obviated the need for a new trial that had been set for May.
Calling the major agreement simply "a pragmatic business decision," Fleming said it would pay $19.9 million to David's, Grandview, Texas, to settle the retailer's three-and-a-half-year-old lawsuit.
In that suit, David's, a 23-store operator, accused Fleming of overcharges and fraud, in breach of their supply agreement. David's 1996 sales were approximately $70 million.
In addition, the other defendant in the case -- James E. Stuard, Fleming's former executive vice president of the Southern region, who retired in April 1995 -- has reportedly reached a separate agreement with David's that includes an undisclosed amount.
Stuard's attorney was unavailable for comment last week, and Fleming officials declined to specify whether Stuard had made a settlement, or if any such settlement would be paid by Fleming's executive-risk insurance coverage.
With last week's agreement among the parties to mutually release their charges, the way has been cleared for entry of a final order dismissing the David's litigation by mid- to late April, Fleming said, following negotiations on the final language by attorneys for the two companies.
Fleming also said it will continue to pursue a defamation lawsuit that it filed in late January against David's counsel, William D. Sims. The suit charges Sims with making false and disparaging statements about Fleming. Fleming's original defamation suit also included charges against David's and its owner, David Waldrip, but as part of last week's settlement, charges against David's and Waldrip have been dropped.
Commenting on the settlement agreement with David's last week, Robert E. Stauth, chairman and chief executive officer of Fleming, said, "This settlement is not an admission of liability by anyone but a pragmatic business decision to avoid a protracted and costly legal battle.
"We were fully prepared to pursue this through the court system, but we are pleased to get the matter behind us.
"We must protect Fleming's hard-earned reputation for integrity and ethical business relationships, but we must also weigh the effect of prolonged litigation against that of a resolution. Our efforts center on building our company and serving our customers."
Sims told SN last week, "Everybody at David's is delighted with the amount of money we will receive from both defendants."
According to Fleming, there are still three groups of lawsuits pending against it:
Ten class-action lawsuits filed by shareholders in the wake of the David's suit that seek recovery for perceived damages on behalf of individual shareholders.
Two shareholder derivative suits filed by shareholders on behalf of the company seeking recovery for perceived damages for alleged improprieties by Fleming directors and officers. A suit filed earlier this month by Furr's Supermarkets, Albuquerque, N.M., that seeks to terminate its 10-year supply agreement with Fleming because of alleged overcharges.
In mid-March 1996 a jury in Johnson County, Texas, found Fleming guilty of David's claims and ordered the distributor to pay the $211.2 million damages to David's -- a judgment that was set aside last June following disclosure of a prior financial relationship between the trial judge, C.C. Cooke, and affiliates of David's.
A new trial, with Judge C.W. Duncan presiding, had been scheduled to begin in January but was delayed until May. In the interim Judge Duncan called for mediation among the parties, which led to last week's settlement of all but the defamation suit against Sims.
Nancy Del Regno, Fleming's vice president of communications and public affairs, said Fleming's position in the David's case has never changed. "We still believe that we met the terms of our supply agreement and that all charges are unfounded, and we've never deviated from that position."
Fleming's suit against Sims accuses the attorney of acting with malice and specific intent to cause injury to Fleming by making false and misleading statements to the press after the jury judgment against Fleming.
For example, it says Sims called Fleming "sleazy"; accused it of throwing mud on the trial judge; characterized the lawsuit as a street fight and Fleming as thugs; accused Fleming of threatening jurors and targeting the judge when subpoenas failed to disclose any harmful information; accused Fleming of trying to besmirch the judge's name, and implied that Fleming was involved in a fire that occurred at David's corporate headquarters in January 1996.
Fleming says in the suit those statements caused financial damage to the company, including loss of profits due to injury of the company's reputation, costs associated with posting a bond in the lawsuit, loss of goodwill, downgrading of Fleming's debt and restructuring of its credit.
"We think there's merit in that case and it should be pursued," David Almond, senior vice president and general counsel for Fleming, told SN.
Sims said discovery will start shortly in the defamation suit, with a trial likely within six months to a year.
Gary Giblen, managing director of Smith Barney, New York, said the fact that David's was willing to settle for a fraction of what it was earlier awarded by a jury "indicates it would probably have lost the case on appeal, and it confirms the view that the suit itself was an opportunistic move by David's.
"Otherwise, if David's had such a good case, why settle for a fraction of the amount?"
He said he was not surprised by the out-of-court settlement "because the damages were not sustainable."
However, Giblen also said he believes other retailers might be encouraged to file lawsuits similar to the David's case against Fleming "because the settlement payment to David's is enough money to make it worthwhile for copycat suits to be filed."
Regarding Furr's, Giblen said, "It will be interesting to see if the Furr's lawsuit against Fleming can be settled expeditiously too, although it looks like there are more issues in that case than in the David's case. But I doubt Furr's would have filed suit if David's hadn't done so."
In the Furr's lawsuit, filed earlier this month, Furr's charged Fleming and its officers with various breaches of promise.
Furr's also said it has been offered a lower price of goods by another wholesaler and has submitted the competing bid to Fleming, which must determine if it believes the competing offer is qualified and then decide how to proceed.
Almond, the Fleming counsel, told SN, "It may require arbitration if we decide the bid is not qualified."