Kmart, Fleming to Settle for $385 Million
Mar. 26, 2003
CHICAGO (AP) _ A bankruptcy court judge has approved a settlement between Kmart Corp. and Fleming Cos., slashing Fleming's $1.5 billion claim in the retailer's bankruptcy case to $385 million.
The resolution of the feud Tuesday lifted a cloud hanging over Kmart's plans to emerge from bankruptcy later this spring. Both sides in the days leading up to the hearing said that without Judge Susan Pierson Sonderby's formal approval, litigation on the matter could have gone on for months. Sonderby is at the U.S. Bankruptcy Court for the Northern District of Illinois.
The retailer remains on track to have a confirmation hearing on its reorganization plan on April 14. Kmart of Troy, Mich., filed for federal bankruptcy protection in January 2002.
Fleming, a wholesale food distributor based in Lewisville, Texas, provided groceries and related supplies to Kmart stores. Kmart terminated the Fleming contract in January, much to Fleming's surprise.
Kmart lead attorney Jack Butler said in open court that as part of the settlement, Fleming, once Kmart's largest supplier, would immediately sell the $385 million allowed claim to ESL Investments Inc. for $22 million. He said the $22 million price was less than what Fleming would have received had it held out for redistributions of new stock for the claim under the retailer's reorganization plan. ESL, together with Marty Whitman's Third Avenue Fund, previously agreed to fund Kmart's emergence from bankruptcy with a $292.8 million investment.
Separately, Judge Sonderby denied a motion by a former executive who was seeking a payment under a previous employment agreement. Former senior Vice President Hector Dominguez, who left the company in February 2002, had asked the court to compel Kmart to hand over a $200,000 severance payment.
Kmart attorney Charles Smith said that ``unusual circumstances'' were present at the retailer at the time that Dominguez's contract was finalized.
Former senior vice president of human resources Timothy M. Crow and his boss, former executive Vice President David P. Rots, both were fired from the company for allegedly granting cash bonuses to employees without proper authorization. Crow and Rots oversaw Dominguez's contract, Smith said.
Kmart's Smith said Dominguez's employment contract ``was the only one of its kind'' among similar executives at the company and that a number of the anonymous letters that the company received alleged specific wrongdoings by Dominguez.
Dominguez's attorney Michael Zousmer said Kmart had not yet made any determinations about wrongdoing and that the retailer's actions constituted a ``witch hunt.''
Beginning in January 2002, Kmart begin receiving the first of more than 70 anonymous letters that made allegations about certain employees and their business practices.