Ahold settles U.S. Foods customer lawsuit for $297 million

NEW YORK Wed May 21, 2014 11:44am EDT

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NEW YORK (Reuters) - The Dutch retailer Ahold on Wednesday agreed to pay $297 million to settle U.S. class-action litigation accusing its former U.S. Foodservice distribution unit of defrauding thousands of hospitals and restaurants through overcharges.

Ahold said it will take a 215 million euro charge in the first quarter for the settlement in principle, which requires approval by U.S. District Judge Alvin Thompson in Hartford, Connecticut.

It remained liable even after selling U.S. Foodservice, now known as U.S. Foods, in 2007 to a group led by private equity firms Clayton, Dubilier & Rice and Kohlberg Kravis Roberts.

The settlement came after the U.S. Supreme Court on April 28 refused to hear U.S. Foods' appeal of the class action, which covered about 75,000 customers.

U.S. Foods is based in Rosemont, Illinois and employs about 25,000 people. Sysco Corp agreed in December to buy the company for $3.5 billion, combining the two largest U.S. food distributors.

According to the lawsuit, U.S. Foodservice used shell companies, sham transactions and phony invoices to inflate prices it charged "cost-plus" customers from 1998 to 2005.

With Ahold's approval, the shell companies pretended to buy and then resell food to U.S. Foodservice at a higher "invoice cost," which would be passed on to customers, the lawsuit said.

Richard Wyatt, a Hunton & Williams partner representing the plaintiffs, said he believes the settlement is among the largest to resolve civil racketeering claims under the U.S. Racketeer Influenced and Corrupt Organizations Act, or RICO.

He called the settlement "eminently fair" and believes it represents "a very high percentage of the improper overcharges."

Lodewijk Hijmans van den Bergh, Ahold's chief corporate governance counsel, in a statement said the accord lets the company avoid further costly and time-consuming litigation.

In September 2010, U.S. Foodservice agreed to pay $30 million to settle U.S. Department of Justice accusations that it overbilled on government contracts. The company denied wrongdoing.

Ahold's U.S. brands include Giant supermarkets in mid-Atlantic states, Stop & Shop supermarkets in northeast states, and the online grocery delivery service Peapod.

The case is In re: US Foodservice Inc Pricing Litigation, U.S. District Court, District of Connecticut, No. 07-md-01894.

(Reporting by Jonathan Stempel in New York; Editing by Sofina Mirza-Reid)

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