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June 29, 2000


The opinion of the court was delivered by: Rodriguez, District Judge.


I. Introduction

Plaintiffs, United Food and Commercial Workers Union and Participating Employers Tri-State Health and Welfare Fund (the "Health & Welfare Fund") and United Food and Commercial Workers and Participating Employers Tri-State Pension Fund (the "Pension Fund") (the Health & Welfare Fund and the Pension Fund hereinafter referred to collectively as the "Plaintiffs" or the "Funds") bring this action against Defendant Fleming Foods East, Inc.*fn1 and Fleming Companies, Inc. (collectively, "Fleming") under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. § 1145 and for tortious interference with contract.

A bench trial was held on October 19-21, 1998. Having carefully considered the credibility of the witnesses, all of the evidence and the arguments of counsel for the parties, the Court renders the following Findings of Fact and Conclusions of Law in accordance with Federal Rule of Civil Procedure 52(a).

II. Findings of Fact*fn2

A. Background

1. The Funds are jointly administered, multi-employer, employee benefits plans governed under the provisions of ERISA and the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 186 et. seq. The Funds provide a comprehensive scheme of medical related and retirement benefits to eligible employees and their dependents who are employed by employers in the retail food industry. The Funds are financed by way of contributions remitted by companies that are signatory to collective bargaining agreements with various Locals of the United Food and Commercial Workers Union.

2. Fleming is one of the world's largest distributors of wholesale food products much of which is distributed to retail food establishments. The company reported sales in 1995 of over $17 billion and net income of $42 million. Fleming is in the business of supplying grocery and other food related products and support services to supermarkets, including such things as retail accounting services, computer services, inventory management, equipment leasing and electronic services. October 19, 1998 Trial Transcript (hereinafter "Tr. I") at 153.

3. Fleming is constantly attempting to increase its business by locating suitable food establishments for acquisition. A small percentage (approximately 25%) of supermarket retailers are able to obtain complete financing elsewhere, but approximately 75% resort to Fleming, generally for inventory financing. Thus, Fleming is also an incidental lender, where the loan function is incidental to its primary mission. Fleming is a lender of last resort.

4. During October 1990 through July 1991, Fleming negotiated with Mayfair Supermarkets, Inc., t/a Foodtown (hereinafter, "Mayfair") for the purchase of five supermarket locations in New Jersey. On July 18, 1991, Fleming and Mayfair executed an Asset Purchase Agreement for the purchase by Fleming of the five supermarket locations for a total purchase price of $7.9 million. The five stores that were the subject of the Asset Purchase Agreement were known as the "Cherry Hill Store," the "Somerdale Store," the "Moorestown Store," the "Haddon Store," and the "Pennsauken Store." The portion of the purchase price allocated to the Pennsauken store was $1,110,000.00.

5. Fleming identified five operators to run each of the five different locations. Carlo DiMichele ("DiMichele") was identified as the operator for the Pennsauken Store. At the time, DiMichele had forty years' experience in the supermarket industry. Contemporaneous with its purchase of the stores from Mayfair, Fleming assigned its rights under the Asset Purchase Agreement to each of the five operators. The rights to the Pennsauken Store were assigned to DiMichele, Carmella DiMichele and Meels, Inc. ("Meels") through an Assignment of Asset Purchase Agreement dated July 18, 1991.

6. DiMichele was to operate the Pennsauken Store through Meels. Meels was a New Jersey corporation formed by DiMichele in August 1989 for the purpose of purchasing a supermarket in Runnemede, New Jersey, which never materialized. DiMichele was the sole shareholder, officer and director of Meels. Meels was not a subsidiary of Fleming and Fleming never owned any shares of Meels stock. Its corporate records were maintained by DiMichele's attorney, John A. Jones. Meels adopted by-laws and held annual meetings of the Board of Directors and shareholders in 1992 and 1993. No representative of Fleming attended these meetings or has ever served as an officer or director of Meels.

7. Neither DiMichele nor Meels had sufficient assets to consummate the transaction with Mayfair for the Pennsauken Store. Therefore, the parties agreed that Fleming would finance the transaction with Mayfair for Meels through loans totaling $1,200,000.00. Contrary to most lending practices, Fleming rather than DiMichele determined the ultimate amount of the loan. See October 20, 1998 Trial Transcript (hereinafter, "Tr.II") at 16; Tr. I at 101; October 21, 1998 Trial Transcript (hereinafter, "Tr.III") at 18-19 (expert opinion of Richard H. Weidner*fn3). Also contrary to standard lending practices, Fleming prepared the underlying financial documents on behalf of Meels. Tr. III at 18-19.

8. As early as April 10, 1991, Fleming received financial information from Mayfair on the operation of the Pennsauken Store, including sales figures, gross profits, equipment inventories and other expenses, as well as copies of the union contracts, employee lists and rates of pay. Tr. I at 57-60, 69; Tr. II at 8, 30. This information, together with DiMichele's financial statement and his "operating knowledge of the business," was used by Fleming to prepare an internal financing package (the "Financing Package") containing various financial documents regarding the funding and anticipated operation of the Pennsauken Store. Tr. I at 100; Pl.Exs. 49-54. These documents included a Pro Forma financial statement and a detailed Marketing Plan.

9. The Marketing Plan was prepared by Fleming representatives and arguably incorporated DiMichele's store policies and procedures and his anticipated costs of operation, including labor expenses. Tr. I at 68-69, 100. Although the Marketing Plan, including the Pennsauken Store's labor budget, was completed in May 1991, the new collective bargaining agreement ("CBA") with the United Food & Commercial Workers Union, Local 1360 ("Local 1360") was not ratified until August 1991, approximately three months later. Tr. I at 70-72.

10. The only access DiMichele had to the labor contracts was through Fleming, which had obtained that information from Mayfair in April 1991. Tr. I at 59-60, 62; DiMichele Dep. at 42-46. Negotiations between Local 1360 and each of the five operators took place in the first half of 1991. Attorney Al Fiergang, who had acted on behalf of Fleming in the past, represented the five operators during the negotiations. Tr. I at 109. Representatives of Local 1360 believed that Fleming was playing an active role in the negotiations and was requesting concessions in order to consummate the purchase of the five supermarket locations from Mayfair. As a result of this belief, representatives of Local 1360 advised Fleming of the successor language in the Mayfair collective bargaining agreement upon learning of the impending sale. At the time of the negotiations, Fleming was aware of the labor costs at the Mayfair locations, including the Pennsauken Store. Fleming would benefit, at least indirectly, from a favorable labor contract because such a contract would help operators succeed more. Tr. I at 99, 106-07.

11. Because Fleming would be looking to DiMichele's net worth as collateral for the loan, DiMichele submitted a one-page personal financial statement. This statement was unaudited and unsworn and reflected a personal net worth of $475,000. Tr. I at 71-73; Pl.Ex. 52. Of this amount, $59,000 was tied-up in his pension plan and was unreachable by a creditor. Tr. I at 20, 74-75, 115-16. Approximately one-third of his personal net worth was in the stock of Johnmar Millville, Inc., for which Fleming did not determine a market value because it was not sold on the open market. Tr. I at 115. Fleming never asked for or reviewed DiMichele's tax returns or audited financial statements. Tr. I at 74, 115. Nor did Fleming conduct an analysis or valuation of the net worth of Meels' fixtures and equipment which would serve as collateral on the loan. Tr. II at 20. Based on the financial information available to Fleming, the personal guarantees of DiMichele were "worthless." Tr. III at 23.

12. Nonetheless, the Financing Package was approved by John Traub, Catherine Gold and Mark Batenic because they thought it was "reasonable" and because the total anticipated transfers to Fleming from the Pennsauken Store would be over $43 million. Tr. I at 62-63, 76-78, 110-11; Pl.Ex. 14 (May 28, 1991 Letter from Mark Batenic to Mr. Mangold recommending loan package and noting that "Carlos has a history of running a good, tight operation and is very comfortable with the labor projection which he has included on the pro forma. The store will be operated as a union store and a favorable contract will be negotiated with the new operators and the union."). Although Fleming maintains a written company policy governing the approval of loans for the acquisition of new stores, none of these three individuals were aware of, or relied upon, that policy. Tr. I at 64-65, 110-13. After their approval, the Financing Package was subsequently sent to corporate headquarters where the loan to Meels in the amount of $1,015,000 was approved. Tr. I at 63-64.

13. No arms-length lender, in any capacity, would have approved this loan in light of "the lack of hard collateral, small profit margin, questionable cash flow, lack of personal assets for the individuals guaranteeing the loan." Tr. III at 19-24. Meels never would have been able to obtain credit in the open market or operate without the support it received from Fleming. Tr. III at 71-72 (opinion of Mark Lavinsky*fn4).

14. Prior to entering into agreements with Fleming to purchase the Pennsauken Store, DiMichele reviewed these documents with his accountant and attorney. He also visited the store and discussed the store with a Mayfair representative and representatives of Fleming.

B. The Financial Documents

15. The closing on Fleming's five-store acquisition from Mayfair took place on August 8, 1991. Simultaneously with that closing, Fleming and Meels entered into a Loan Agreement which provided for a principal loan in the amount of $1,015,000.00 for the purchase from Mayfair of inventory and fixtures at the Pennsauken Store. Pl.Ex. 37. Under the terms of the Loan Agreement, the loan was to be repaid over a period of seven years, at an interest rate of prime plus three points. The Loan Agreement also provided for a second loan in the amount of $185,000.00 for accounts payable.

16. Pursuant to the terms of the Loan Agreement, Meels agreed to the following obligations:

(a) to maintain minimum life insurance in the amount of $250,000 on all of its officers, Pl.Ex. 37 ¶ 6.11;
(b) to refrain from purchasing or redeeming shares of stock, paying dividends, or permitting any change in the stock ownership of Meels as long as any obligation of Meels to Fleming existed under any of ...

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