in the united states district court - halunen … the united states district court . ... bfbd was...

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA

CHARLOTTE DIVISION

Michael Troche, individually and on behalf of all similarly situated individuals, Plaintiff, v. Bimbo Foods Bakeries Distribution, Inc., F/K/A George Weston Bakeries Distribution, Inc., a Delaware corporation. Defendant.

Court File No. 3:11-cv-234-RJC-DSC

AMENDED CLASS ACTION

COMPLAINT AND JURY DEMAND

(EQUITABLE RELIEF SOUGHT)

Plaintiff, on behalf of himself and other similarly situated individuals, by and through his

undersigned counsel, files this Class Action Complaint, and alleges and says as follows:

NATURE OF ACTION

1. This is a Class Action Complaint brought to obtain declaratory, injunctive and

monetary relief on behalf of a class of individuals who currently act or did act in the past (during

the relevant limitations periods) as independent contract distributors for Defendant, Bimbo Foods

Bakeries Distribution Inc. (“BFBD”). The agreement between Defendant and Plaintiff is

memorialized in an Agreement (“Distributor Agreement” or “Agreement”) attached to this

Amended Complaint as Exhibit A. Plaintiff alleges breach of contract, breach of fiduciary duty,

violation of the Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, et seq., and

violation of the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1, et seq.

2. The class consists of all individuals who operate(d) as Distributors for BFBD in

North Carolina (“Class,” “Class members,” “Distributors”) and distribute(d) BFBD’s bakery

1 Case 3:11-cv-00234-RJC-DSC Document 35 Filed 10/23/13 of 28

products, at any time during the applicable limitations period. These Distributors are generally

referred to in the industry as “Independent Operators” or “IOs.”

3. This action primarily challenges Defendant’s breach of the Distributor Agreement,

namely the right to operate their businesses independently and with the ability to maximize their

profits.

PARTIES

4. Plaintiff Michael Troche is a resident of North Carolina who works as a

Distributor for BFBD in that state. In that position, among other things, he delivers BFBD’s

bakery products to local retailers, stocks the products on the retailer’s shelves and removes stale

product. He has worked as a Distributor since May 2007. Troche seeks damages in excess of

$75,000, exclusive of interest and costs.

5. BFBD is a corporation organized and existing under the laws of the state of

Delaware. Its principal place of business is 255 Business Center Dr., Horsham, Pennsylvania

19044. BFBD is a subsidiary of Bimbo Foods, Inc. (“Bimbo Foods”). BFBD’s primary business

is to deliver or distribute fresh baked goods to retailers. BFBD was previously known as George

Weston Bakeries Distribution Inc. (“GWBD”). Effective January 1, 2010, GWBD changed its

name to BFBD.

6. BFBD hires individuals such as Plaintiff, whom it classifies as IOs, to distribute

baked products throughout North Carolina. The brands consist of products available from Bimbo

Foods, including Arnold, August Bros., Anzio & Sons, Bimbo, Boboli, Brownberry (fresh bread

only), Entenmann’s, Francisco, Savoni, and Thomas.


JURISDICTION AND VENUE

7. This Court has jurisdiction over the claims asserted in this action pursuant to 28

U.S.C. § 1331(a), diversity of citizenship, and 28 U.S.C. § 1332(d), the Class Action Fairness

Act of 2005.

8. There are about 100 members in the Class and the amount in controversy, in the

aggregate, exceeds $5 million exclusive of interest and costs.

9. Venue is proper in this Court under 28 U.S.C §§ 1391(b)(1) and 1391(c) because

BFBD does business in North Carolina.

10. Plaintiff brings this action on behalf of himself and the Class identified below.

CLASS ACTION ALLEGATIONS

11. Plaintiff brings this action pursuant to Rule 23 of the Federal Rules of Civil

Procedure on behalf of the following Class:

All individuals who, through a contract or agreement with Defendant or otherwise, sold or distributed Defendant’s bakery products within the state of North Carolina, and who are or were classified by Defendant as independent operators/independent contractors, at any time from October 23, 2010 to the present for Counts I-VI; from October 23, 2009 to the present for Count VII; and from May 11, 2008 to the present for Count VIII.

12. Plaintiff reserves the right to redefine the Class or to add subclasses prior to class

certification.

13. Numerosity: Plaintiff estimates that there are about 100 current Distributors

throughout North Carolina. The Class includes former Distributors so the class size is likely

larger than 100, making it sufficiently numerous that individual joinder is impracticable. The

total number and identity of Class members is likely known by Defendant, and thus, Class

members may be notified of the pendency of this action by first class mail, electronic, and

published notice.


14. Commonality: There are numerous questions of law and fact common to Plaintiff

and the Class, and those questions predominate over any questions that may affect individual

Class members, and include the following:

a. Whether BFBD breached its Agreement with Plaintiff and members of the

Class by unreasonably interfering with their right to independently run their businesses.

b. Whether BFBD breached its Agreement with Plaintiff and members of the

Class by unilaterally and unreasonably controlling Plaintiff’s and Distributors’ profits.

c. Whether BFBD breached its Agreement with Plaintiff and members of the

Class by requiring the IOs to participate in promotions that deprived Plaintiff and the

Class of profits they should have received.

d. Whether BFBD breached its Agreement with Plaintiff and members of the

Class by requiring them to pay for shrink that occurs in chain stores where scan-based

trading occurs.

e. Whether BFBD breached its Agreement with Plaintiff and members of the

Class by allowing the promotion of Sara Lee products in direct competition with the

products distributed by Plaintiff and the Distributors.

f. Whether BFBD, as agent of Plaintiff and members of the Class, breached its

fiduciary duties to them.

g. Whether BFBD should be required to provide Plaintiff and members of the

Class with an accounting of how their settlement amounts are calculated.

h. Whether BFBD violated the Unfair and Deceptive Trade Practices Act, N.C.

Gen. Stat. § 75-1.1, et seq.


i. Whether Plaintiff and members of the Class are protected as employees under

the North Carolina Wage and Hour Act, N.C. Gen. Stat. § 95-25.1, et seq.

j. Whether BFBD violated the North Carolina Wage and Hour Act by making

unlawful deductions from the wages of Plaintiff and members of the Class.

15. Typicality: Plaintiff’s claims are typical of the claims of other members of the

Class. Plaintiff is informed and believes that, like other Distributors, he was deprived of rights

under his Distributor Agreement with Defendant as well as statutory rights under the law, all as

set forth in this Amended Complaint. Plaintiff had the same duties and responsibilities as other

Class members, and was subject to the same policies and practices, and the same or substantially

similar conditions as were the other Class members. Plaintiff’s Distributor Agreement is similar

in all material respects to those entered into by other members of the Class. Plaintiff’s duties and

responsibilities under the Agreement are the same as those of other members of the Class and the

conduct that gives rise to Plaintiff’s claims similarly impacted all other members of the Class.

16. Adequacy: The named Plaintiff will adequately represent the interests of the

Class. He has been treated in the same manner as other Class members by Defendant and has

been damaged by this treatment in the same manner as other Class members. Plaintiff is

committed to vigorously prosecuting this action. He has retained counsel well-qualified to handle

lawsuits of this type. Plaintiff has no interests that are adverse to those of the Class.

17. Predominance: This case should be certified as a class action because the

common questions of law and fact concerning Defendant’s liability with respect to each count

predominate over any individual questions, including the amount of damages incurred by each

member of the Class.


18. Superiority: A class action is the only realistic method available for the fair and

efficient adjudication of the claims of the Class. The expense and burden of individual litigation

make it impracticable for members of the Class to seek redress individually for the wrongful

conduct alleged in each Count of this Complaint. Were each individual member required to bring

a separate lawsuit, the resulting multiplicity of proceedings would cause undue hardship and

expense for the litigants and the Court, and create the risk of inconsistent rulings, which would

be contrary to the interest of justice and equity.

FACTS COMMON TO ALL CLAIMS

19. Defendant BFBD is in the business of wholesale distribution of fresh bakery

products to retail food outlets, restaurants, and institutions.

20. BFBD contracts with individuals (such as Plaintiff) to sell and distribute baked

products in North Carolina under its trade name and trademarks.1 The brands consist of products

available from Bimbo Foods, including Arnold, August Bros., Anzio & Sons, Bimbo, Boboli,

Brownberry (fresh bread only), Entenmann’s, Francisco, Savoni, and Thomas. As discussed

below, BFBD added Sara Lee brand products to its list of available products.

21. BFBD has about 100 Distributors in North Carolina. About 80 of them work out

of the depots in Charlotte and Raleigh. Plaintiff works out of the Charlotte Depot. The remaining

Distributors get their products from locations in places across the state such as Asheville,

Kernersville and Wilmington.

22. Plaintiff and members of the Class have each contracted with Defendant to sell

and distribute bakery products purchased from Defendant to customers/outlets within a defined

distribution area. That contract is typically memorialized in a document called an Independent

1 BFBD also arranges for sale and delivery of products to Distributors by “affiliates.”


Distributor Agreement or Distribution Agreement (“Distributor Agreement”). Plaintiff’s

Agreement is attached to this Amended Complaint as Exhibit A. Distributors typically pay in the

high-tens of thousands of dollars for their routes.

23. The Distributor Agreement creates a franchise relationship between BFBD and

the Distributor.

24. The Distributors and BFBD are engaged in the same usual course of business: the

wholesale distribution of fresh bakery products to Outlets.

25. To become a Distributor, BFBD does not require persons to have professional or

trade qualifications specific to the work of its Distributors other than a valid driver’s license.

26. Some Distributors’ contracts originated with predecessors of Defendant including

GWBD, Best Foods Baking Group and Best Foods Baking Distribution Company. These

contracts govern the relationship between BFBD and its Distributors. Plaintiff’s Distributor

Agreement, Ex. A, originated with GWBD. Unless indicated otherwise, the contracts of other

Distributors are equivalent to Plaintiff’s for purposes of the claims alleged in this Amended

Complaint.

27. BFBD entices individuals to become Distributors by asking “Are you interested in

owning your own business and selling some of the strongest brands in the baking business?”2

The Distributor Agreement offered to potential Distributors states in ¶ 2.3 without equivocation

“the parties intend to create an independent contractor relationship and it is of the essence of this

agreement that Distributor be an independent contractor for all purposes . . .” The Agreement

further states at ¶ 2.3 that “[a]s an independent contractor, DISTRIBUTOR has the right to

2http://www.bimbobakeriesusa.com/be_a_distributor/. Last reviewed 10/22/2013.


operate the business as DISTRIBUTOR chooses, and shall bear all risks and costs of operating

such business.”

28. The understanding that Distributors are entrepreneurial, independent

businesspersons who own their business and thus are entitled to operate the business to their

benefit by selling products under the BFBD’s trade names and trademarks is, therefore, integral

to the business relationship. The right to control the sales of product to customers within a

purchased territory is an essential aspect of the business relationship.

29. Plaintiff and the other Distributors execute their distribution work by what is

called Direct Store Delivery. They pick up their product from a BFBD facility in the morning and

make deliveries of product directly to the stores on their route. Other day-to-day tasks include

servicing their stores by maintaining adequate and fresh supplies of products in the stores,

rotating product and removing stale and damaged product. Distributors are expected to maintain

positive relationships with personnel in each of the stores on their routes. Other tasks include

keeping records of their transactions, which they do through a handheld computer, and placing

orders.

30. Plaintiff’s Agreement contemplates that he will earn income by buying products

from BFBD at one price, selling them to a customer at a higher price and making money on the

difference. That difference is sometimes called “commission” or “margin.”

31. In the Agreement at ¶ 3.2, BFBD states that it agrees to sell and deliver product to

Distributors “or to arrange for such sale and delivery by affiliates” in sufficient quantities “to

adequately and properly supply the Outlets in the Sales Area.”

32. Paragraphs 3.4 and 3.5 of the Distributor Agreement describe how the

Distributors will be paid for selling BFBD’s products. The Distributors are compensated on a


weekly basis for their sales to chain stores and other outlets that have been approved for credit.

Instead of actually remitting the purchase price of the products to BFBD, and keeping the

difference, a Distributor remits to BFBD the charge slips for the products sold to credit-approved

customers. BFBD will credit the Distributor’s settlement account for the difference between the

remitted accounts receivable and the purchase price owed to BFBD for the products sold to the

Distributor, plus any credit for stale or damaged merchandise returned according to the Return

Policy. BFBD then makes certain deductions and pays the Distributor the remaining amount in

his settlement account each week.

33. At least at its Charlotte and Raleigh depots, BFBD uses a hierarchy of managers

to monitor and control the Distributors. The BFBD managers claim to and routinely exert

supervisory and disciplinary authority over the Distributors. On information and belief, some of

those same managers monitor and control the work of the Distributors in other parts of the state

as well. The hierarchy includes a Vice President and General Manager in charge of an entire

region that includes North Carolina, Regional and District Sales Managers, and Managers in

charge of specific Outlets. Managers who are not actual employees of BFBD are employed by

other companies related to BFBD. These other managers perform their services through

intercompany agreements between their employers and BFBD.

INTERFERENCE WITH DISTRIBUTORS’ RIGHTS TO RUN BUSINESS INDEPENDENTLY

34. Through its management structure, BFBD dictates and controls the work of

Plaintiff and Distributors in many ways, thereby interfering with the Distributors’ right to

independently run their own business. Among other examples, BFBD:

a. Interferes with the Distributors’ relationships with their stores by, among other

things, contacting store managers about matters related to the Distributor’s business,


physically entering the stores and making suggestions to store managers about asking for

promotions and product stocking, and going into the stores and combing through

Distributors’ product looking for out of date or out of code items.

b. Dictates the Distributors’ schedules by mandating the time and days for

Distribution, maintaining product at the Outlets, and pulling stale.

c. Determines which BFBD products Distributors can distribute to particular

Outlets.

d. Dictates when product must be picked up from the warehouse and threatens

fines against Distributors who don’t comply.

e. Provides suggested orders to Distributors but then criticizes them if the

suggested order results in too much stale or too little product in the store.

f. Directs Distributors on how to manage their routes.

g. Disciplines Distributors for not following its regulations that interfere with the

Distributors’ operation of his route.

h. Threatens to issue a “breach letter” to the Distributors, that could lead to

termination of their work for BFBD and require the Distributor to sell his route, if the

Distributor fails to yield to a managers’ independent business decisions regarding an IOs

route.

i. Interferes with the Distributors’ relationship with its customers, often times

directly interfering with a customer complaint.


UNILATERAL AND UNREASONABLE CONTROL OF DISTRIBUTORS’ PROFIT

35. The Distributor’s Agreement at ¶ 3.3 states that “Products will be sold to

DISTRIBUTOR on reasonable terms and prices as established by BFBG from time to time.”

36. The majority of the Distributors’ sales are to chain stores. In Plaintiff’s sales area,

100% of his sales are to chain stores, including Harris Teeter, Food Lion, Walmart and BJ’s

Wholesale Club.

37. Under the Distributor Agreement at ¶ 5.2, Defendant has covenanted to represent

Plaintiff and the Class as their agent in connection with sales to chain stores. The Distributor

Agreement represents that these chain stores “require standard terms for all DISTRIBUTORS.”

Accordingly, Plaintiff and the Class are wholly dependent upon Defendant to represent their

interests in negotiating with this important customer base. This agency relationship imposes a

fiduciary duty on Defendant to act in the best interest of Plaintiff and the Class.

38. While Plaintiff and the Class have agreed that BFBD will act as their agent in

negotiating with the chain stores, the Distributor Agreement at ¶ 5.2 further states that BFBD,3 as

Distributor’s agent, “shall use commercially reasonable efforts to obtain from Chains

authorization to sell Products in the Chains and information regarding the prices and terms at

which the Chains would be willing to purchase Products for their Outlets, and [BFBD] will

communicate the information concerning such authorizations, prices and terms to

DISTRIBUTOR.”

39. The Agreement then states at ¶ 5.2 that a Distributor may negotiate with a Chain

and may revoke the designation of BFBD as his or her agent. Plaintiff does not believe a Chain

3 Plaintiff’s Agreement originated with GWBD, but is now with BFBD. Plaintiff references BFBD in the Amended Complaint in those places where his Agreement references GWBD.


would engage in such negotiations; Plaintiff is aware of no Distributor who has invoked this

clause; at least one Distributor has been told not to invoke these provisions when he raised the

issue, and others, including Plaintiff, do not believe they would be allowed to do so, making the

provisions illusory.

40. The Distributors have a pre-determined margin rate as part of their agreement

with BFBD. Plaintiff’s margin is 20% for his primary products, Arnold and Thomas, 18% for

Entenmann’s and 12% for private label. That means that his compensation or profit for his

business depends on the prices that BFBD negotiates with the chains for these products.

41. The wholesale price at which products are sold to stores is the usual price at

which a product is sold by the Distributor to the store. When products are sold to chains on a

non-promotional or non-sale basis, BFBD sells the product to the Distributors at the wholesale

price less the margin that will go to the Distributor. The Distributors’ profit from its margin is

maximized when they sell products at wholesale prices.

42. BFBD regularly offers products to customers for promotional or sale prices,

which are less than the wholesale price. When this occurs, Plaintiff earns less for the same

product because his margin is a proportion of the lower price at which he must sell the product to

the customer.

43. In theory, promotional prices are supposed to increase total sales and Distributors

are supposed to profit from such promotions as a result of what is called “lift,” or additional

income realized from increased sales. In fact, though, Plaintiff and the other Distributors have to

work harder, sell more products and incur more business expenses to achieve lift. For example,

when BFBD requires Plaintiff and the Distributors to participate in promotions such as “buy one

get one free” (“BOGO”), much more work is required, but the lift often is not reasonably


proportional to the work involved. Accordingly, the Distributors unreasonably lose profit from

such promotions, while BFBD still gains sales that it can calculate by units.

44. For some stores, including Walmart, Target, BJ’s Wholesale Club, and Sam’s

Club, BFBD made a deal with them, agreeing that it will always sell product to the stores at a

promotional price, resulting in a permanent reduction in Plaintiff’s income for sales to those

stores. When this pricing is used, BFBD’s loss is likely less than that of its Distributors because

BFBD’s production costs decrease when it manufactures a larger number of units. The

Distributors don’t achieve such economies of scale because their profit is based on the money

paid by the customer not on the number of units purchased.

45. BFBD has unilaterally and consistently negotiated and imposed promotional

pricing on Distributors, as well as the terms and conditions with respect to which Plaintiff and

the other Distributors are required to sell products to chain stores. BFBD thereby controls the

profit margin of Plaintiff and the Class, who have no power to impact this critical aspect of their

businesses. This set of facts has undermined Plaintiff’s and the Class’ ability to function as

independent businesspersons and entrepreneurs under the Distributor Agreement.

46. In general, BFBD does not seek meaningful input from the Distributors in making

critical decisions about pricing, promotions and terms of sale that bind the Plaintiff and the other

Distributors. Instead BFBD dictates to the Distributors what decisions have been made and

requires them to implement the pricing, promotions and terms BFBD negotiated.

47. BFBD does not provide adequate information to the Distributors to allow them to

evaluate whether BFBD is acting in the Distributors’ best interests when negotiating with the

chain stores. Similarly, BFBD withholds information preventing the Distributors from knowing


whether BFBD is acting within the discretion entrusted it to act reasonably and in good faith to

benefit the Distributors’ best interests.

48. In particular, Plaintiff and the Distributors cannot readily determine whether a

promotion or discount that they are required to support, is accompanied by an appropriate

contribution from BFBD, or whether BFBD is benefiting disproportionately by the contribution

from the Distributors.

49. BFBD provides little if any recourse to the Distributors to even know, let alone

address, whether BFBD has acted in their best interests in fulfilling its contractual obligations as

Distributors’ agent.

INEQUITIES RELATED TO PROMOTIONS

50. In certain stores, including Harris Teeter, which are not scan-based and do not use

promotional pricing all the time, promotions typically start at midnight on Tuesday (in effect,

Wednesday) and run through Wednesday of the following week.

51. BFBD requires Distributors to sell product to these stores at the promotional price

effective the Monday before the promotion starts.

52. These pricing terms mean that Plaintiff and the Class members are required to sell

product to the stores in their territories at a discounted promotional price, but the store could sell

the product for full price for three days before the promotion begins.

53. This requirement negatively impacts Plaintiff and the Class members’ profits

because their earnings are a percentage of the price the customer pays. This is so because the

price the customer pays typically depends on whether it is charging full price to its store

customers or whether it is charging a promotional price. Under the pricing arrangement

negotiated by BFBD with these stores, the store makes additional profit on the sale, while


Distributors lose their profit or margin on the difference between what the store paid and the

usual wholesale price it should have paid for product sold prior to a promotion.

54. A similar situation occurs at the back end of promotions. When Plaintiff and Class

members remove stale and damaged product after the sale ends, they are required to credit the

store for stale and damaged product at the full wholesale price – if that was the price on the day

on which product was removed –even if the store originally paid only a promotional price for the

product.

55. This requirement also has a negative impact on Distributors’ profits because

credits to stores are deducted from their earnings, causing the Distributors to lose their margin or

commission on the difference between what the store paid for the product and the amount the

store was credited when the product was removed from the store. While the Distributor loses

money, the store actually makes money on products that it does not sell, and some of that money

comes right out of the Distributors’ pocket.

56. Nothing in the Distributor Agreement allows BFBD to limit the profits Plaintiff

and/or the Class should be permitted to make.

INEQUITIES RELATED TO SHRINK

57. BFBD allows Chains to select what is called Scan-Based Trading (“SBT”) to pay

for purchases. This means that the Chain does not pay for the product upon delivery. The

Distributor does not check in his or her product when he delivers it to the Chain, but instead puts

product on the shelf. The Chain only pays for the product at the point that a customer buys it and

the product is scanned through the cash register. Several Chains in North Carolina have elected

to use SBT, including BJ’s Wholesale Club, Food Lion, Target and Walmart.


58. The Distributor Agreement at ¶ 3.5 states that when a Chain has elected “to pay

for purchases of product on a scan, rather than delivery basis, [BFBD] or its affiliates shall

purchase the receivable from DISTRIBUTOR at the full face value of the scan report.”

59. One side effect of using SBT is the creation of a shortfall called “shrink” that

represents product that is delivered but never scanned. Causes of shrink include such things as

theft or damaged goods being thrown away. BFBD has independently negotiated with those

Chains using SBT ensuring that the Distributors are charged for a substantial portion, if not all,

of the shrink.

60. BFBD uses a very complicated method of tracking and reporting shrink that

involves tracking inventory over a thirteen-week period and charging Distributors the following

quarter for claimed shrink that allegedly occurred the prior quarter, and then making adjustments

for promotional costs. Consequently, it is impossible for Distributors to determine whether they

are being accurately charged for the claimed shrink, or whether they should be charged at all

since they supposedly purchased the product the morning they picked up the product to deliver it

to the Chain.

61. The cost of shrink imposed on Distributors will depend on the size of the route,

but for Plaintiff that cost can amount to several thousand dollars per year.

62. Nothing in the Distributor Agreement allows BFBD to impose the cost of shrink

on the Plaintiff and the Distributors.

BFBD PROMOTES SARA LEE PRODUCTS IN COMPETITION WITH DISTRIBUTORS’ PRODUCTS

63. BFBD has also failed to act in the Distributors’ best interest in its capacity as their

agent and fiduciary by allowing the promotion of Sara Lee products in direct competition with

the products distributed by Plaintiff and the Distributors.


64. Bimbo Bakeries USA, Inc. is one of the entities that acquired Sara Lee’s North

American Fresh Bakery division in November, 2011. On information and belief, the same people

that are supposed to be acting as agents for and in the best interests of Plaintiff and the

Distributors in the promotion of Distributors’ products, are now responsible for promoting Sara

Lee products, which is in direct competition with Distributors.

65. Sara Lee has products that compete head-to-head with products sold by Plaintiff

and the Distributors. Moreover, Sara Lee products are generally sold at lower prices. For

example, Sara Lee’s whole wheat long loaf bread is thirty to forty cents cheaper than Arnold

Dutch Country bread. Sara Lee sells bagels in flavors that Plaintiff and the Distributors offer as

well, but Sara Lee’s prices undercut those of Plaintiff and Distributors by up to about a dollar a

bag. Plaintiff recently had Entenmann’s powdered donuts on sale for 2/$5.00, but Sara Lee also

had powdered donuts on sale at the same time for $1.99. Even when not on sale, Sara Lee’s

donuts are about fifty cents cheaper.

66. Following the acquisition of Sara Lee in November, 2011, BFBD has allowed

Sara Lee products to be heavily promoted within Plaintiff and Distributors' territories in a

manner that undermines their interests. Examples of this include:

a. Plaintiff and other Distributors now have to share adjoining shelf space with

Sara Lee, making it evident that Sara Lee has equivalent products at a lower price.

b. BFBD has required Plaintiff and other Distributors to participate in joint

promotions involving Sara Lee in which their products were priced higher than Sara

Lee’s and the difference in price was obvious because they were sharing display space.

c. BFBD has given advantages to Sara Lee that disadvantage Plaintiff and the

Distributors. For example, this summer, a re-set of shelf space occurred at the Food Lion


stores. Sara Lee brand products generally got more shelf space while space for

Distributors’ products (Arnold and Thomas) was decreased. Plaintiff has recently

experienced a re-set in his Walmart store and Sara Lee’s space was increased by 4 feet,

while space for his products was decreased by 1-2 feet. Plaintiff is aware that this has

happened in other stores to other Distributors. These decreases in shelf space also put

Plaintiff and the Distributors at a higher risk that they will run out of product.

d. Sara Lee’s drivers are BFBD employees. Recently, Plaintiff and Distributors

have been grouped together with and penalized for the conduct of the Sara Lee drivers.

Based on the conduct of Sara Lee drivers, Food Lion instituted a penalty for running out

of items. This penalty is now being threatened against Distributors, despite the fact that

Distributors are not BFBD employees.

67. Plaintiff has observed loss of sales on products he sells where equivalent products

are offered by Sara Lee at a lower price.

68. BFBD’s promotion of competing products creates a conflict in its duty as agent

for Plaintiff and the Distributor. While a sale of a competing Sara Lee product is a loss of that

sale to Plaintiff, BFBD gets a sale whether the customer selects Sara Lee or one of the products

sold by Plaintiff and the Distributors.

69. During Plaintiff’s tenure as a Distributor for BFBD and its predecessors, he has

never before experienced the situation where BFBD or a predecessor has directly, or indirectly

through another means, sold product in direct competition to products for which he has exclusive

distribution rights to chains within his sales area.


BFBD MAINTAINS A SETTLEMENT SYSTEM THAT CANNOT BE MONITORED FOR ACCURACY BY DISTRIBUTORS

70. BFBD’S system for settling accounts is not transparent. Distributors, including

Plaintiff, have been unable to determine the accuracy of their settlement amounts.

71. Among the reasons are BFBD’s use of a complicated method of charging

Distributors for shrink over a thirteen-week period, with six-week revolving amounts, and other

practices such as delayed crediting of Saturday stale returns.

72. Plaintiff and others have tried to analyze their settlements and get answers to

questions from BFBD, but generally have found it virtually impossible to determine whether

they are receiving the proper amounts in their settlements.

DEDUCTIONS FOR HANDHELD COMPUTER-RELATED EXPENSES

73. The Distributor Agreement at ¶ 4.1 requires Distributors to have and maintain at

their expense a “computer assisted record-keeping system compatible with the system

maintained by [BFBD] now or in the future.”

74. Besides requiring Distributors to lease or purchase handheld computers, BFBD

deducts amounts each week from the Plaintiff and the Class members as charges for handheld

computer-related expenses, currently characterized as “communication charge” and “handheld

supplies.”

75. If the Distributors were not working for BFBD they would not incur these fees.

76. Plaintiff does not recall and does not believe he ever signed an authorization for

BFBD to deduct these handheld computer-related charges from his settlement each week.

77. On information and belief, Defendant has no system in place to ensure that

Distributors sign express authorizations for these deductions, or any other deductions made from

their settlement checks, including, but not limited to, fines and penalties.


COUNT I Breach of Contract: Interference

(On behalf of Plaintiff and the Class)

78. Plaintiff re-alleges and incorporates by reference each and every allegation set

forth in the preceding Paragraphs.

79. Defendant has breached the Distributor’s Agreement at ¶ 2.3 and its equivalents in

other Distributor Agreements by, among other things, failing to treat Plaintiff and the Class as

independent contractors and interfering with their rights to operate their distributor business as

they choose.

80. Plaintiff and the Class have performed all material terms of their Distributor

Agreements.

81. Plaintiff and the Class have been injured by this breach because they have been

deprived of their rights as independent contractors to independently operate their business as

they choose.

82. Accordingly, Plaintiff and the Class are entitled to injunctive relief prohibiting

BFBD from interfering with the above-breached rights.

COUNT II Breach of Contract: Unilateral Control of Profits




84. Defendant breached Plaintiff’s Distributor Agreement at ¶¶ 2.3, 3.3, 5.2, and their

equivalents in other Distributor Agreements, by its unilateral and unreasonable control of the

profits of Plaintiff and the Class. Among other things, Defendant has required Distributors to

participate in pricing and promotional programs with chain stores that do not reasonably increase


their profits or otherwise benefit the Distributors’ businesses given the prices set, the terms of the

sales to the Distributors, and the costs in time and resources expended on the promotions. In

addition, Defendant does not seek meaningful input from the Distributors as a part of its

decision-making processes and thereby unilaterally and unreasonably controls and limits

Plaintiff’s profits.

85. As agent of the Plaintiff and the Class, Defendant has also violated its duty of

good faith and fair dealing, as well as any fiduciary duties arising from its status as an agent, by,

among other things, engaging in the conduct cited in the paragraphs above.


Agreements.

87. Plaintiff and the Class have been damaged as the direct and proximate result of

Defendant’s breach of the Distributor Agreement.

88. Accordingly, Plaintiff and the Class are entitled to recover all damages resulting

from Defendant’s breach, as well as injunctive relief prohibiting BFBD from continuing to

breach the Distributor Agreement in the manner described in this count.

COUNT III Breach of Contract: Promotions




90. Defendant’s requirement that Plaintiff and the class participate in promotions, as

described in paragraphs 50-56 above, constitutes a breach of the Plaintiff’s Distributor

Agreement, including but not limited to ¶¶ 3.2, 3.3, and 5.2 (and their equivalents in other

Distributor Agreements), because the promotion requirements unreasonably deprive Plaintiff and


the Class of profits and fail to properly credit Distributor for damaged or stale product sold to a

chain and then returned after the promotion period ends.

91. As agent for Plaintiff and the Class, Defendant has violated its duty of good faith

and fair dealing, as well as fiduciary duties arising from its status as an agent, by engaging in the

conduct cited in the paragraphs above.


Agreements.






COUNT IV Breach of Contract: Shrink




96. By imposing the shrink cost on Plaintiff and the Class, Defendant breached the

Distributor Agreement, specifically but not limited to ¶¶ 3.3 and 5.2 and their equivalents in

other Distributor Agreements.


good faith and fair dealing, as well as any fiduciary duties arising from its status as an agent, by

engaging in the conduct cited in the paragraphs above.



Agreements.






COUNT V Breach of Contract: Sara Lee




102. Defendant’s promotion of Sara Lee products in direct competition with the

products distributed by Plaintiff and the Class constitutes a breach of the Distributor Agreement

including but not limited to ¶¶ 1.1, 1.4, 2.1, 3.3, 5.1, and 5.2 and their equivalents in other

Distributor Agreements.


good faith and fair dealing, as well as any fiduciary duties arising from its status as an agent, by

engaging in the conduct cited in the paragraphs above.


Agreements.







COUNT VI Breach of Fiduciary Duty




108. As the agent for Plaintiff and the Class pursuant to the Distributor Agreement at

¶5.2, BFBD also had a fiduciary duty to the Plaintiff and the Class to act in their best interests

and with good faith, due care and loyalty.

109. Defendant breached this duty by the conduct described above, including that

conduct described in Counts II through V. Defendant put its own interests and the interests of the

chain stores above the interests of the Plaintiff and the Class. This included but was not limited

to: depriving the Plaintiff and the Class of any ability to determine or control their profit;

negotiating terms that were unreasonable and in fact forfeited Distributors’ profit in favor of and

to the chain stores and itself; and, by promoting Sara Lee products in direct competition with the

products distributed by Plaintiff and the Class.

110. Defendant has further breached its fiduciary duty to Plaintiff and the Class by

failing to provide sufficient information about its calculation of Distributors’ settlement amounts

to enable them to determine whether they had received everything due and owing to them.


Defendant’s breach of its fiduciary duty to them.



from Defendant’s breach of fiduciary duty, as well as injunctive relief prohibiting BFBD from

continuing to breach its duty to act in the best interest of the Plaintiff and the Class.

113. Additionally, Plaintiff and the Class seek as equitable remedies an accounting of

their settlement accounts, an explanation of how those amounts are calculated (including SBT),

and adoption of a method of determining settlements that enable Plaintiff and the Class to

determine whether they have received what is due and owing to them.

COUNT VII Unfair and Deceptive Trade Practices (On behalf of Plaintiff and the Class)



115. Defendant’s violation of its duty as an agent and fiduciary as described in Counts

II through VI also constitutes an unfair act or practice in violation of N.C. Gen. Stat. § 75-1.1.

That conduct was at least unethical, oppressive, and substantially injurious to Plaintiff and the

Class as consumers who invested tens of thousands of dollars in their businesses, expecting to be

able to run their businesses independently.

116. To the extent that Defendant’s conduct is viewed to stem from a breach of

contract, Defendant’s additional breach of its fiduciary duty constitutes substantial aggravating

circumstances warranting protection under this statute.

117. The above-described conduct is in or affects commerce.

118. Plaintiff and the Class were damaged by Defendant’s violation of N.C. Gen. Stat.

§ 75-1.1.



from Defendant’s violation of the Unfair and Deceptive Trade Practices Act, as well as injunctive

relief prohibiting BFBD from continuing to engage in unfair practices.

120. Plaintiff and the Class are also entitled to treble damages and attorneys’ fees under

the provisions of N.C. Gen. Stat. §§ 75-16 and 75-16.1.

COUNT VIII ILLEGAL DEDUCTIONS IN VIOLATION OF THE

NORTH CAROLINA WAGE AND HOUR ACT (On behalf of Plaintiff and the Class)



122. Although Distributors are contractually supposed to be Independent Contractors,

BFBD is nonetheless treating them as employees by breaching the Agreement as described

herein. For purposes of protection under the North Carolina Wage and Hour Act, N.C. Gen. Stat.

§ 95-25.1 et seq., Plaintiff and the Class members are therefore employees of Defendant, not

independent contractors.

123. Plaintiff and the members of the Class receive “wages” as defined in N.C. Gen.

Stat. § 95-25.2(16).

124. The North Carolina Wage and Hour Act at N.C. Gen. Stat. § 95-25.8 limits

deductions from employee wages to particular circumstances such as when the employer has a

written authorization from the employee in advance of making the deduction, or for “cash

shortages, inventory shortages, or loss or damage to an employer's property,” but these

deductions are only allowed after giving the employee written notice of the amount to be

deducted.


125. Defendant has unlawfully withheld monies from the compensation earned by

Plaintiff and the Class. This includes, but is not limited to, expenses related to the Distributors’

use of their handheld computers. These expenses are currently characterized as “communication

charge” and “handheld supplies.”

126. Plaintiff and, on information and belief, the Class members have not expressly

and freely given written consent to these deductions, and the deductions are not allowed under

any of the provisions of N.C. Gen. Stat. § 95-25.8.

127. Defendant has withheld these funds unlawfully without providing advance notice

to the Plaintiff and members of the Class of the amounts, reasons, or documentation to justify

such deductions, and absent any lawfully sufficient reason for such conduct.

128. As a direct and proximate result of Defendant’s conduct, Plaintiff and members of

the Class have been deprived of compensation to which they were entitled.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff requests of this Court the following relief on behalf of himself,

and all members of the Class:

a. An Order certifying the Class, appointing Plaintiff as Class Representative and

appointing the undersigned counsel of record as Class Counsel;

b. An Order awarding Plaintiff and other members of the Class injunctive relief and

damages, including compensatory damages, incurred as a result of Defendant’s breaches of its

Distributor Agreement and breach of fiduciary duty as described in the Amended Complaint;

c. An Order awarding treble compensatory damages under N.C. Gen. Stat. § 75-16

for Defendant’s violation of the Unfair and Deceptive Trade Practices Act;


28

d. An Order for declaratory and injunctive relief determining that Plaintiff and

members of the Class are employees for purposes of the protections of the North Carolina Wage

and Hour Act, enjoining Defendants from pursuing the illegal policies, acts and practices

described in this Amended Complaint going forward, and for damages consisting of the amounts

deducted;

e. An Order awarding Plaintiff reasonable attorneys’ fees and costs;

f. An Order granting such other and further legal and equitable relief as this Court

deems just and proper, including an award of punitive damages as allowed by law; and

g. That all issues triable by a jury be so tried.

This the 23rd day of October, 2013.

JAMES, McELROY & DIEHL, P.A. /s/ John R. Buric John R. Buric, N.C. Bar No.: 22688 600 South College Street, Suite 3000 Charlotte, North Carolina 28202 Telephone: (704) 372-9870 Facsimile: (704) 333-5508 Email: [email protected]

HALUNEN & ASSOCIATES /s/ Susan M. Coler Susan M. Coler, MN Bar No. 217621

admitted pro hac vice IDS Center, Suite 1650 80 South Eighth Streeet Minneapolis, Minnesota 55402 Telephone: (612) 605-4098 Facsimile: (612) 605-4099 Email: [email protected]

Attorneys for Plaintiff and Putative Class

Case 3:11-cv-00234-RJC-DSC Document 35 Filed 10/23/13 of 28

in the united states district court - halunen … the united states district court . ... bfbd was...

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