Monday, March 30, 2009

Arctic Glacier Suspends Executives After Internal Investigation

Arctic Glacier, which is under investigation by federal authorities for its alleged role in a market allocation conspiracy in the packaged ice industry, announced today that it is suspending two executives as a result of an internal investigation.

Arctic Glacier's press release states:

Winnipeg, March 30, 2009 – Arctic Glacier Income Fund (TSX:AG.UN) today announced that, effective immediately, Frank Larson, Executive Vice President, Operations and Gary Cooley, Vice President, Sales and Marketing of the Fund's operating subsidiary, Arctic Glacier Inc., have been suspended from their duties with pay at the direction of the Company's Board of Directors.

The Board has been conducting an internal investigation that was precipitated by the ongoing investigation being conducted by the Antitrust Division of the United States Department of Justice ("DOJ"). Based on this internal investigation, the Board believes Mr. Larson and Mr. Cooley may have violatedcertain of the company's policies. The Board may take further action regarding Mr. Larson and Mr. Cooley prior to or following the conclusion of the internal investigation.

The Antitrust Division of the DOJ and the attorneys general of Florida and 18 other states are conducting ongoing investigations of possible antitrust violations in the U.S. packaged ice industry. Arctic Glacier continues to cooperate with the authorities, as it has since it first learned of these investigations.

"Arctic Glacier will continue to provide our clients with first-class product quality and industry-leading customer service," said Keith McMahon, President and CEO of Arctic Glacier. "A team of senior executives will assume the duties and responsibilities of Mr. Larson and Mr. Cooley on an interim basis under my supervision and operations will proceed normally."

Alleged co-conspirator, Reddy Ice, previously suspended a sales executive, Ben Key, after its own internal investigation found that he "likely violated company policies and is associated with matters that are under investigation."

Consolidated class action lawsuits against Arctic, Reddy Ice, and Home City Ice are pending in federal court in Detroit. The court is expected to appoint lead class counsel shortly. Also pending in the same court is a lawsuit that Kotchen & Low LLP filed on behalf of a former packaged ice sales executive who assisted the government's investigation, and who was allegedly fired by Arctic Glacier and blacklisted from employment by the ice companies.

Related posts: Reddy Ice Suspends Sales Executive; Kotchen & Low Sues Packaged Ice Manufacturers; Over 70 Lawsuits Filed Against Packaged Ice Manufacturers.

Thursday, March 19, 2009

More About News America Settlement and Litigation

Several articles have been published recently regarding the Floorgraphics settlement and acquisition:

Fortune covered the settlement in this article on March 13. It reported that:

While Emmel was taking a break from testifying [during the trial], [News America President Chris] Mixson allegedly followed him into the restroom. Says [Emmel's attorney, Phil] Hilder: "It's my understanding that Mixson said 'Nice job telling lies on the stand,' in a very menacing way.

News America accused Emmel of making up the incident, and also pointed out that Floorgraphics has paid $375,000 for its share of Emmel's legal fees (which apparently exceed $750,000 total, with Insignia paying for the other half). The article also reported that Emmel is likely to testify at the upcoming Insignia trial.

The New York Times wrote about the settlement and acquisition in this March 12 article.

BNET reported today that the stock of both Insignia and Valassis jumped after the Floorgraphics settlement was announced, because:

The settlement and acquisition of FGI [Floorgraphics, Inc.] by News America raises the probability that Valassis may succeed in its trial (paving the way for a jackpot jury verdict in favor of Valassis) or that News America may offer to buy Insignia in a similar settlement to FGI's.

BNET also wrote on March 16 about the Summary Judgment ruling against Robert Emmel, observing that: "The ruling is chilling for employees of ad agencies and marketing firms who discover that their company is engaged in potentially illegal acts."

Finally, a recent filing in the Insignia case provided some additional details regarding the alleged conduct by News America that Insignia is challenging, including alleged false statements made by News America. Specifically, Insignia stated in interrogatory responses that:

News America made false and misleading statements regarding Insignia's compliance rate; News America made false and misleading statements regarding its own compliance rate; News America made false and misleading statements regarding Insignia's financial condition; News America made false and misleading statements regarding Insignia's history of payments to retailers; News America made false and misleading statements regarding the exclusivity provisions of certain News America contracts; News America made false statements about the exclusive nature of its relationship with certain retailers; and News America made false statements about Insignia's performance of its contractual obligations with CPGs and retailers. Insignia further identifies the following entities to which false and misleading statements were made, including but not necessarily limited to: Georgia Pacific; White Wave; Ocean Spray; McCain; Solo Cup; Hormel; Kraft; Ryan Multifoods / Ryan Partnership; Pfizer, Dreyer's; Kellogg's; Dial; Chef America / Nestle; Nabisco; Campbell's; Sorrento; B & G Foods; Colgate; Church & Dwight; Pinnacle Foods; Procter & Gamble; SC Johnson; Tyson's; General Mills; Pillsbury; and Safeway.

Click here for related posts about News America Marketing.

Friday, March 13, 2009

Court Grants Summary Judgment Against News America Whistleblower

Summary Judgment Against Emmel - News America Marketing was awarded summary judgment on its breach of contract claim against Robert Emmel, a whistleblower and former employee who retained confidential business documents after he was fired, and who recently testified against News America at the Floorgraphics trial. ( click here for the order).

Former Employee - Emmel worked at News America from 1999 to 2006 as an account director, selling News America services to retailers. In that capacity he was privy to confidential information, including sales prices and tactics, and contract terms. News America's employee policies prohibited disclosure of confidential information, and on December 21, 2006, a few weeks after he was fired, Emmel signed an agreement not to disclose confidential News America information.

Disclosures - Despite the policies and agreement:

During his employment and after his termination, Emmel voluntarily disclosed
confidential company documents to governmental entities. Specifically,
unbeknownst to NAMIS, Emmel provided documents to (1) two United States
Senators; (2) two United States Senate Committees; (3) the Securities and
Exchange Commission; and (4) the New York State Attorney General. Emmel's final
disclosure of confidential information to the government was on December 20,
2006, when he sent fifty-five pages of documents to the United States Senate
Finance Committee.

Retention of Documents - After his termination, Emmel "retained confidential company documents and information, including three DVDs that contained a complete copy of every document that was stored on the hard drive of his [company]-issued laptop."

Lawsuit Against Emmel - News America challenged Emmel's disclosures as a breach of the employee policies and of the December 21, 2006 agreement, along with several other causes of action. The Court rejected News America's argument that the employee policies were binding contracts, but found a violation of the December 21 agreement. Emmel argued that he did not disclose any confidential information after signing the agreement on December 21, but the court rejected this argument, finding that the documents he mailed on December 20 were not received until after December 21, and therefore "Emmel's voluntary disclosure did occur after the agreement was signed." News America also argued that the December 20 agreement was breached by his disclosures in response to a subpoena from Floorgraphics, but the court did not reach that issue.

No Whistleblower Protection - Emmel argued, unsuccessfully, that his breach was justified by his status as a whistleblower who sought to disclose News America's anticompetitive business practices. He stated in a declaration that his disclosures to government authorities were an effort to "document . . . what [he] believed in good faith was N[ews America]'s illegal anti-competitive conduct against N[ews America] competitors and N[ews America]'s fraudulent conduct against its own retailer-customers." The court found no authority protecting such disclosures.

Nominal Damages - While News America did not prove any actual damages caused by Emmel's actions, the court found that nominal damages for breach of contract were appropriate, along with injunctive relief. On the remaining causes of action, the court granted summary judgment in favor of Emmel, namely: conversion, breach of the duty of good faith and fair dealing, breach of fiduciary duty, promissory estoppel, fraud, and punitive damages.

Costs and Fees - A jury will now consider the amount of nominal damages to award, and the amount of expenses and attorney's fees, if any, to award to News America in connection with the breach of contract claim. In defending News America's lawsuit, Emmel has incurred well over $400,000 in legal fees (though he testified that the tab was picked up by Floorgraphics and Insignia), and he's spent substantial time and effort in his case, as well as in the other related lawsuits.

Benefits - But despite the costs, I'm sure he takes substantial satisfaction in knowing that the truth about News America's anti-competitive behavior -- at least some part of it -- has been publicly revealed. Emmel provided crucial documents and testimony in the Floorgraphics litigation. At trial, for example, he testified about "Operation Retailer Freedom," which was News America's effort to sign up very small retailers with only one or two stores with the goal of destroying Floorgraphics.

Related posts.

Thursday, March 12, 2009

News America Acquires Floorgraphics

News America Marketing announced that it has acquired Floorgraphics' network of in-store contracts and other assets (presumably as part of their recent settlement agreement).

News America's press release, as reported by BNET, states:

News America Marketing announced today that it has entered into an agreement with FLOORgraphics, Inc. to purchase the company's network of in-store contracts and other assets. This will expand News America Marketing's network of at-shelf, floor and cart advertising and in-store promotion products to 50,000 stores in the United States.

Laura Richards, News America Marketing's Vice President of Corporate Communications, stated, "We're pleased to be expanding our network of stores to better serve our customers and we're very excited to incorporate the quality network so ably developed by FLOORgraphics."

News America took a large number of retail contracts away from Floorgraphics through allegedly anticompetitive means, which was at issue in their recent lawsuit that ended in a settlement mid-trial. While Floorgraphics' remaining retail contracts were largely limited to smaller retailers, the acquisition helps ensure that News America will continue to have a monopoly on the in-store floor, coupon, and shelf advertising business in grocery stores, as it will be difficult or impossible for any potential new competitor to gain a significant foothold, even in smaller stores.

In addition to the in-store floor, coupon, and shelf business, News America has been attempting to gain a dominant market share in the market for Free-Standing Inserts, and in the market for in-store price-based signs. In each market, News America faces a single major competitor (Valassis and Insignia respectively), both of which have lawsuits against News America scheduled for trial later this year, alleging that News America has engaged in unlawful competition. While the outcome is not yet clear, retailers and manufacturers will almost certainly benefit from victories for Valassis and Insignia that foster vigorous competition, as their continued survival and competition with News America will ultimately benefit stakeholders in the consumer goods industry.

Additional analysis of the acquisition is available here, from BNET.

Related posts.

Wednesday, March 11, 2009

Floorgraphics v. News America -- Case Ends in Settlement

News America agreed to a settlement with Floorgraphics, Inc., ending the trial before Floorgraphics had finished presenting its case.

Although I do not know the terms of the settlement, the timing – in the midst of trial after compelling testimony from Floorgraphics' first few witnesses -- suggests that it is for a substantial sum.

The fact that News America was forced to settle may bode well for the Insignia suit against News America, and to a lesser extent the Valassis case (whose allegations are less similar to Floorgraphics' allegations than those of Insignia).

Here's a short recap of the trial, with thanks to a reader for providing some of the details:

After short opening statements, Gary Henderson was the first witness. Mr. Henderson attended a meeting at which News America allegedly threatened to "destroy" Floorgraphics for competing in the in-store shelf and coupon advertising industry. Henderson was asked about News America illegally accessing Floorgraphics' computer system, and the fact that server logs showed that access to Floorgraphics' computers was initiated from News America's offices. Mr. Henderson testified that News America engaged in widespread disparagement of Floorgraphics, contradicting News America's arguments that the disparagement was isolated. Specifically, my source indicates that he testified that a letter from Dominic Porco of News America (which Floorgraphics alleged was false) was sent to all of News' customer contacts. The so-called "Porco letter" (available here, thanks to a blog reader), asserted that Floorgraphics compliance rate was less than 50%. In other words, News claimed that for every two ads that Floorgraphics contracted to install, it only installed one. (News America made similar assertions about Insignia, claiming in, e.g, this flyer, that Insignia's compliance rate was only 16%). By contrast, Floorgraphics maintained that its actual installation rate was typically over 90%.

The next witness was Bob Emmel, who testified that News America had engaged in a campaign to take retailers away from Floorgraphics using aggressive tactics. Emmel is a former employee of News America who did not like News America's tactics, and happened to have kept a copy of his electronic files from his company computer. His testimony and these files proved very useful to Floorgraphics. According to a source, his testimony provided "many new damaging evidence points," though the source also stated that his testimony was "very difficult to understand if you are not experienced in this business," as it included a lot of industry jargon.

The third witness was Floorgraphics executive George Rebh, who provided an overview of the rise and fall of Floorgraphics' business.

The settlement was announced and the case was dismissed on the morning of March 10. With resolution of Floorgraphics' claims, two major cases remain pending against News America Marketing: Insignia v. News, andValassis v. News (along with two related state court cases).

Related Posts.

Sunday, March 8, 2009

Floorgraphics v. News America Trial Begins

Trial in Floorgraphics v. News America began on March 3.

According to a March 2 article about the case in BNET Advertising:

At issue is whether News America has lied, cheated and stolen to maintain its market share. FGI claims News America "engaged in illegal computer espionage by breaking into FGI's password-protected computer system and obtaining proprietary FGI information." News America denies the allegations.

Henderson - After jury selection on March 3, Floorgraphics called its first witness on March 4: Gary Henderson, a sales executive who attended a lunch meeting between Floorgraphics and News America executives in 1999. At the meeting, Paul Carlucci of News America allegedly threatened to "destroy" Floorgraphics if it tried to compete with News America in the in-store shelf advertising business (as reported in this Inc. article).

Emmel - Floorgraphics' second witness was Robert Emmel, a former News America employee who testified under subpoena regarding alleged anti-competitive business practices by News, including efforts to wrest contracts with retailers away from Floorgraphics. Mr. Emmel was fired by News America, but he kept a copy of the files from his company computer, including documents reflecting News' aggressive tactics. News America learned about these files after Mr. Emmel was subpoenaed for a deposition by Floorgraphics, after which News America filed suit against him personally, alleging that his retention of the documents constituted a breach of contract and misappropriation of trade secrets. Mr. Emmel is represented by Phil Hilder, the same attorney who represented Enron whistleblower Sherron Watkins.

News' Trial Brief - Some of the documents regarding the computer break-in and News America's allegedly anti-competitive conduct are available here, from Bnet, along with News America's trial brief. In its trial brief, News America argues that "the law requires Floorgraphics to prove causation and damages to each retailer and each consumer packaged goods manufacturer that purportedly did less business with Floorgraphics because of News America Marketing's alleged tortious acts." Floorgraphics contends that News America's anti-competitive actions led to a massive decline in Floorgraphics' business, and intends to offer evidence of the overall business decline rather than testimony from each customer who switched from Floorgraphics to News America.

One reader wrote in to tell me that "lotsa juicy things came out the past couple of days" of testimony (though he didn't provide specifics). Trial transcripts won't be publicly released until June, so any additional details about the trial that readers can provide are appreciated:

Prior coverage of the case from this blog: FLOORgraphics' Suit Against News America Set for Trial October 1; Summary Judgment Motion Denied in FGI v. News America Marketing.

Revised 3/9/09.

Friday, March 6, 2009

Whole Foods Settles with FTC, Will Sell 32 Stores

Whole foods announced today that it entered into a consent order with the FTC.

Under the terms of the order, a trustee has been appointed to sell certain Whole Foods assets within six months, including:

  • leases and related assets for 19 non-operating former Wild Oats stores;

  • leases and related fixed assets for 12 operating acquired Wild Oats stores and 1 operating Whole Foods Market store; and

  • Wild Oats® trademarks and other intellectual property associated with the Wild Oats stores.

A complete list of affected store locations is available in the Decision and Order.

The divestitures include stores in the majority of the markets in which the FTC had challenged the Whole Foods - Wild Oats merger as anti-competitive. FTC Chairman Jon Leibowitz praised the agreement, stating: "As a result of this settlement, American consumers will see more choices and lower prices for organic foods. It allows the FTC to shift resources to other important matters and Whole Foods to move on with its business."

Whole Foods CEO John Mackey, meanwhile, expressed satisfaction with the agreement, stating that it was in the best interests of Whole Foods "to resolve this matter so we can dedicate our full attention to [business operations]."

Pursuant to FTC protocol, the settlement agreement has been placed on public record for a 30-day comment period. The FTC has provided a short summary and analysis of the dispute and agreement, available here, to aid public comment.

The dispute between the FTC and Whole Foods has been costly for Whole Foods, and has led to criticism of both Whole Foods and the FTC. Given the risks and costs to both sides of litigating the case further, a settlement made sense for the parties. But as Owen Fiss (author of the law review article Against Settlement) would point out, the settlement provides peace, but leaves unresolved the question of whether it provides justice.

Related posts: Whole Foods Anticipates Settlement; Whole Foods Proposes Settlement with FTC; Whole Foods Files Suit Against FTC; Whole Foods Faces Consumer Class Action; D.C. Circuit Reverses Ruling That Allowed Whole Foods Merger.


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