Grocer’s big award for fraud, distress overturned

October 31, 2008

Jonathan F. Johnson, once regarded as the country’s most successful minority grocer, contended that his supplier had forced his companies out of business and broken him personally.

A Richmond Circuit Court jury agreed last year and awarded him $16 million from Minnesota-based SuperValu Inc., the third-largest grocery supplier in the country.

In September, however, the Supreme Court of Virginia decided the case with the saddest possible words for an appellee holding a multi-million dollar award: “Reversed and final judgment.”

In reaching its verdict, the jury found SuperValu liable for $15.5 million for constructive fraud and $500,000 for intentional infliction of emotional distress but rejected Johnson’s claim of actual fraud.

Johnson opened the inner-city Community Pride grocery store chain in Richmond in 1992 with $700,000 in seed money and support from his former employer, Ukrop’s Super Markets, and other Richmond business leaders.

SuperValu bought Johnson’s supplier, Richfood Holdings, in 1999, and Johnson and his lead attorney, Verbena Askew of Hampton, contended that his new supplier forced him to buy the Rack & Sack chain at an inflated price.

After Johnson objected to the fairness of the deal, SuperValu agreed in November 2001 to clear him of the debts related to it, to provide new financing and to pay him a consultant’s fee of $2 million over five years.

However, Askew contended that SuperValu management had concluded that Johnson was a complainer and had structured the deal so there was no way he could succeed.

She noted that SuperValu was in the process of restructuring from a business that predominantly supplied grocery store chains to one that operated its own stores. Askew contended that the company used many of Johnson’s ideas for operating inner-city stores in its Sav-A-Lot chain, which competed with Johnson’s stores.

Johnson believed that he needed to expand to stay in business, but he contended that SuperValu forced him to close his stores in April 2004 when it would do no more for him than accelerate the payments due him under the consultant’s agreement so that he could invest that money in his business.

SuperValu countered that it had concluded Johnson was trying to grow too fast and believed it would have been risky to provide additional support.

Litigation followed, with SuperValu contending that its agreement with Johnson’s company required all claims to be resolved by arbitration. An arbitration, which Johnson did defend, resulted in a $3.5 million award against Johnson’s company, but not him personally.

Johnson’s civil suit sought damages for him personally rather than for his company. A physician testified during the 2 1/2-week trial that Johnson suffers from depression and anxiety and is more prone to a heart attack as a result of the stress from the failure.

Richmond attorney Edward J. Fuhr argued for SuperValu on appeal that the finding of constructive fraud could support an award of damages based on a misrepresentation of present fact but not on a promise of future action, as would have been the case if the jury had based its award on actual fraud. The constructive fraud claim failed because all of Johnson’s claims were based on promises of future action, Fuhr contended.

Writing for the majority in SuperValu Inc. v. Johnson, Justice Barbara Milano Keenan agreed and rejected an argument by Johnson’s attorney the wording of the instructions allowed the jury to award damages for misrepresentation of a present fact.

As for the emotional distress claim, the concept is aimed “at prohibiting conduct intended to cause personal, emotional damage to an individual, rather than conduct intended to cause economic damage to a business,” Keenan wrote.

“Although a person may be so closely associated with the operation of a business that economic damage to that business may result in damage to the individual’s emotional state, the [concept] of intentional infliction of emotional distress does not encompass such personal consequences of business conduct,” she concluded.

Written by Alan Cooper  |  Filed Under Home Page Items, Weekly Update 

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