Safeway 2004 Annual Report Download - page 51

SAFEWAY INC. 2004 ANNUAL REPORT 49
SAFEWAY INC. AND SUBSIDIARIES
Note L: Commitments
and Contingencies
LEGAL MATTERS In July 1988, there was a major fire at
the Company’s dry grocery warehouse in Richmond,
California. Through March 1, 2005, in excess of 126,000
claims for personal injury and property damage arising from
the fire have been settled for an aggregate amount of
approximately $125 million. The Company’s loss as a result
of the fire damage to its property and settlement of the
above claims was substantially covered by insurance.
As of March 1, 2005, there were still pending approxi-
mately 600 claims against the Company for personal injury
(including punitive damages), and approximately 290
separate active claims for property damage, arising from
the smoke, ash and embers generated by the fire. A
substantial percentage of these claims have been asserted
in lawsuits against the Company filed in the Superior Court
for Alameda County, California. There can be no assurance
that the pending claims will be settled or otherwise
disposed of for amounts and on terms comparable to those
settled to date. Safeway continues to believe that coverage
under its insurance policy will be sufficient and available
for resolution of all remaining personal injury and property
damage claims arising out of the fire.
On August 23, 2000, a lawsuit entitled Baker, et al. v.
Jewel Food Stores, Inc., et al. was filed in the Circuit Court
of Cook County, Illinois, against the Company’s subsidiary,
Dominick’s Finer Foods, Inc. (predecessor of Dominick’s Finer
Foods, LLC), and Jewel Food Stores, a subsidiary of
Albertson’s, Inc. The complaint alleges, among other things,
that Dominick’s and Jewel conspired to fix the retail price of
milk in nine Illinois counties in the Chicago area, in violation
of the Illinois Antitrust Act. The court certified the lawsuit as
a class action on behalf of all persons residing in the nine-
county area who purchased milk from the defendants’ retail
stores in these counties during August 1996 to August 2000.
In January 2003, trial began to a judge, without a jury. At
trial plaintiffs’ expert calculated damages against both
defendants in amounts ranging from $51 million to $126
million, which amount would be trebled under applicable law.
The judge, after hearing three weeks of testimony, dismissed
the action at the end of plaintiffs’ case, without requiring
Dominick’s and Jewel to present the defense case. Plaintiffs
filed an appeal in the Illinois Appellate Court, which affirmed
the trial court’s judgment on January 12, 2005. Plaintiffs have
sought leave to appeal to the Illinois Supreme Court.
On or about November 21, 2003, four shareholder
derivative lawsuits were filed in the California State Superior
Court for San Mateo County, California, which actions have
been consolidated into a single action entitled In re Safeway,
Inc. Derivative Litigation, with a single shareholder plaintiff.
The action is brought against the nine individuals who were
serving as Safeway’s directors at the time the suit was
filed, Kohlberg Kravis Roberts & Co. (“KKR”), two Company
officers, and the Company as a nominal defendant. The
complaint alleges, among other things, that the Company’s
directors concealed information about poor performance at
some of the Company’s divisions in order to enable KKR and
certain directors and officers to sell shares of Company stock
at an inflated price. The complaint asserts causes of action
for breach of fiduciary duty, abuse of control, violations of
the California Corporations Code and other claims. The
parties have entered into a Memorandum of Understanding
dated as of March 11, 2005, pursuant to which the Company
has agreed to implement certain corporate governance
enhancements and the plaintiffs have agreed to dismiss all
claims with prejudice. The Memorandum of Understanding is
subject to execution of a definitive stipulation of settlement
and approval by the Court.
On February 2, 2004, the Attorney General for the State
of California filed an action in the United States District
Court for the Central District of California (Los Angeles),
entitled State of California, ex rel. Bill Lockyer v. Safeway
Inc. dba Vons, et al., against the Company’s subsidiary, The
Vons Companies, Inc., Albertson’s, Inc. and Ralphs Grocery
Company, a division of the Kroger Company. The complaint
alleges that certain provisions of a Mutual Strike Assistance
Agreement entered into by the defendants in connection
with the Southern California grocery strike that began on
October 11, 2003 constituted a violation of section 1 of the
Sherman Antitrust Act. The complaint seeks declaratory and
injunctive relief. Defendants filed a motion for summary
judgment based on the federal non-statutory labor exemption
to the antitrust laws, which was heard by the court on
February 10, 2005.
There are also pending against the Company various
claims and lawsuits arising in the normal course of
business, some of which seek damages and other relief,
which, if granted, would require very large expenditures.
It is management’s opinion that although the amount of
liability with respect to all of the above matters cannot be
ascertained at this time, any resulting liability, including any
punitive damages, will not have a material adverse effect
on the Company’s consolidated financial statements taken
as a whole.