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SPECIAL ALERT:
Nolans Victorious In Lawsuit vs.
Ocean Spray: This One’s For You, Jim

Jim Prevor’s Perishable Pundit, May 30, 2009

We’ve provided extensive analysis of the lawsuit between Jim and Theresa Nolan, their company, The Nolan Network, and Ocean Spray. You can find a summary of our coverage here.

If you haven’t had a chance you might want to read the original story published in Pundit sister publication, PRODUCE BUSINESS. It is a piece titled, Special Report: Ocean Spray Sued By Longtime Associates, which provides an overview of the dispute.

In the end, there was barely anything to talk about. The verdict called for was so obvious that after only three hours of deliberation a jury of 13 found Ocean Spray liable and, as a result of its unfair and deceptive business practices, the jury declared damages equal to $1,000,000.

The judge now will set a date to rule on the final damages. He can order up to treble damages or $3,000,000 plus compel Ocean Spray to pay legal fees.

Although they have issued no statement, one should expect that Ocean Spray will appeal.

The trial has been filled with passion. It started with a “hail Mary” attempt by Ocean Spray’s counsel to gut the Nolan’s case by keeping mention of the Robinson-Patman Act out of the trial and a battle over a series of objections issued during the depositions.

For the very first time Ocean Spray suggested a settlement just a few days before trial. Theresa, though, was doing this for vindication — for her and, especially, for her beloved husband, Jim. It was unlikely any settlement offer would be approved until a jury had found their cause righteous.

Ken Ryan, the former procurement manager for C & S Wholesale Grocer, which supplies BJ’s, gave persuasive testimony. It was C&S that, in a sense, brought the issue to a head:

It was the Ocean Spray practice to issue standard price lists for each class of trade, so, theoretically, all club stores should have been paying the same price. C&S supplied BJ’s and sent Ocean Spray a letter:

On September 7, 2001, Robert Hawthorne, president and CEO of Ocean Spray, received an e-mail from Ken Ryan, procurement manager for C&S, who supplies BJ’s, which currently has over 160 club stores in the Eastern United States, according to its website.

In part, Ryan wrote: “In reviewing last year’s sales data, which includes competitors’ retails, we have concluded not all club stores received the same price from Ocean Spray on 12/2lb cases. Based on our $25 f.o.b. price, plus .50 cents freight, we had a $2.125 unit cost price. This is before any warehouse costs and costs to transport them to our BJ’s club stores. These costs average .75 per case, which brought our delivered cost to the stores to $2.19 per unit.”

Ryan further stated this “forces” the company to have a $2.99 retail price to make a profit. At the same time, C&S store checks of Costco revealed Costco selling the same pack for $2.29 during the season, which is only .10 cents above C&S’s total cost.

“Stores do not survive on that type of gross profit margin. This difference in retail has hurt our stores’ price image and increased our shrink due to lower sales,” Ryan’s e-mail said.

Ryan proceeded to request a meeting with Ocean Spray “to correct this problem.”

According to the Nolan complaint, Graham West, managing director of ingredients technology group, O’Brien’s boss, as well as Neil Bryson, Ocean Spray’s in-house attorney, and O’Brien went to C&S headquarters.

The complaint states, “Although C&S requested Theresa, TNN’s president, also attend the meeting, West did not allow her to attend… West refused to allow Theresa to attend the meeting because he knew Theresa was aware of the special pricing given Costco in 2000; had opposed it from the beginning; and had already stated she would not lie to C&S’s management about it.”

At the meeting Ryan demanded that Ocean Spray reimburse C&S for the price difference it paid versus Costco, plus damages.

“The Ocean Spray representatives told C&S to claim some cranberries it would receive from Ocean Spray were of poor quality and to take a discount from an Ocean Spray invoice,” the Nolan complaint reads.

The complaint points out that the Nolans were deeply unhappy with the whole situation:

A January 15, 2002 report from the Nolans to Ocean Spray says, “We still believe the cooperative needs to tell Sam’s Club what took place on fresh cranberries club store pricing during season 2000. It should offer to remit them the difference between the considerably higher price that they paid Ocean Spray for the 1/2lb. club pack versus what Costco was charged.

“In addition, there should be reparations for any other damages that Sam’s Club may feel they suffered from being out of line on price with their main competitor all season. Over four months now have passed from the time when C&S Wholesale Grocers e-mailed Rob Hawthorne confronting him about this identical situation in connection with the fruit that they supply BJ’s.”

Continuing, the report says, “Since C&S quickly reached a settlement with Ocean Spray, we’re surprised that something hasn’t been done to also compensate Sam’s Club. It’s almost ironic that the cooperative was a recipient of Sam’s Club prestigious ‘Vendor of the Year’ award for the same year when this unfortunate incident occurred.

“Legal considerations aside, the fact remains that the special pricing Ocean Spray gave to Costco in 2000, which we advised against from the start, was highly unethical in the least. It enabled them to enjoy a significant competitive advantage over the other club stores as well as those conventional supermarket chains, such as Safeway, that have come to view Costco as a rival.”

Theresa Nolan’s testimony and cross-examination were also highly persuasive. In general the efforts by Ocean Spray’s lawyers to muzzle her were overruled.

Richard O’Brien, who had been the Nolan’s immediate supervisor at Ocean Spray, tried to paint a positive picture. He spoke nothing but good of Jim and Theresa calling them the “King and Queen of Produce” and expressed that there had been a desire to hire them directly.

A “smoking gun” e-mail was discussed during O’Brien’s testimony — one in which Ocean Spray executives discussed getting rid of the Nolans and hiring a produce expert after Jim Nolan sent a report that was discussed in the original PRODUCE BUSINESS article:

“We’d like to remind everyone of how giving preferential treatment to selected accounts on an item like fresh cranberries, aside from the legal issues, can ultimately cost the cooperative far more money than just that of the actual concession made to the recipient as well as create serious customer relations problems,” Nolan’s report reads.

The report pointed out the price Ocean Spray charged H.E. Butt on fresh cranberries in December was “astonishing considering all the trouble the cooperative got into with C&S over what it did for Costco. Not only was H.E. Butt’s f.o.b. price 21% less than what all other customers in the U.S. and Canada had, the retailer also saved on average around another dollar per case in transportation costs the entire season by receiving a substantially reduced freight rate,” Nolan’s report reads.

Nolan further noted as far as can be determined, besides H.E. Butt being the only customer in North American still paying $19 f.o.b. per case for the co-op’s fresh cranberries in December, “H.E. Butt was the sole account that intentionally wasn’t invoiced the correct amount according to the cooperative’s published 2002 freight rate sheet.”

Furthermore, as pointed out in Nolan’s e-mail report, unlike the situation with Costco, where the “biggest risk Ocean Spray incurred by giving just that customer a steep discount from the published price for the 2 lb. bag in 2000 is to its credibility with the other club stores (Sam’s Club apparently is still unaware of what happened regarding Costco in 2000 despite TNN’s longstanding, strong recommendation to Ocean Spray that it come clean with them about this), the deal H. E. Butt enjoyed has the potential to jeopardize the cooperative’s relationships and reputation with everyone it sells fresh cranberries to in the produce industry.”

Following that report, the PRODUCE BUSINESS story explains what happened:

On the next day Ocean Spray vice president — cranberry, Stewart Gallagher, forwarded TNN’s December report to Randy Papadellis, who had succeeded Hawthorne as president and CEO of Ocean Spray. Gallagher was responsible for the co-op’s beverages, foods and ingredients business. Instead of expressing any concern Ocean Spray’s Antitrust Policy Compliance Guide and/or federal antitrust laws may have been violated, Gallagher wrote, “FYI. I refuse to have my people go through another season with this guy representing us.

Do I have your approval to hire a produce expert to manage this business next season so we can completely cut Nolan out of our lives? We are paying him a fortune as a consultant. We’ll save a lot of money and improve a lot of people’s blood pressure if we never have to read reports like this again.”

Less than two hours later, Graham West, who reported to Gallagher, forwarded prior e-mails to Lesser and O’Brien, both of whom reported to West, stating, “Rich & Jim, I discussed this with Stu this morning… getting a fresh produce manager (cranberry & grapefruit) isn’t the entire answer but I’ll take it and make it work if we can get rid of this guy.”

Thirty-three minutes later, O’Brien forwarded prior e-mails to Graham West and Lesser with copies to Gallagher and Neil Bryson stating, “I believe we have Neil’s support in going with a new hire.”

On the stand Richard O’Brien’s position was that the e-mail had nothing to do with getting rid of the Nolans but only hiring a produce expert.

The Nolan’s attorney, though, is a former prosecutor and in his brilliant cross-examination he poked hole after hole in O’Brien’s testimony and the Ocean Spray case. The courtroom was choked with emotion, the Jury on the edge of their seats and, Theresa Nolan, whose composure throughout was extraordinary, finally could not contain her tears when the truth seemed to shine through as one juror audibly gasped: “oh my God!”

And so the verdict was rendered.

Although the judge may change the amount of damages and Ocean Spray almost certainly will appeal, this verdict will cause no end of trouble for Ocean Spray.

Up to this point it has been a dispute in the courts, and as a result many retail executives, who knew that their companies would have been damaged if the allegations made toward Ocean Spray were true, have merely monitored the situation. Now, with a court decision rendered, the public finding of a jury that Ocean Spray engaged in unfair and deceptive business practices, we can expect the legal departments at Wal-Mart, Sam’s Club, Safeway and others to spring into action.

C & S claimed that Ocean Spray caused BJ’s damages because of higher shrink, slower sales and, crucially, reputational damage in its war for price image against Costco.

Well, BJ’s is tiny compared to Sam’s Club — if BJ’s suffered, Sam’s Club suffered much more. And Texas is one of the battlegrounds in the US for Wal-Mart, if Wal-Mart was suffering reputational damage to its image as “low price leader” vis a vis H.E. Butt, it will cost Ocean Spray a lot more than one million — or even three million — to make that right.

There also is a possibility of USDA intervention, with Ocean Spray’s ability to continue in the fresh business coming under scrutiny. Here was how we posed the question:

Did Ocean Spray treat its growers unfairly and violate the PACA? For example, how did Ocean Spray decide who got credit for a high priced sale to Sam’s Club and a low priced sale to Costco? Did Ocean Spray urge and allow C&S to claim “bad quality” on fruit Ocean Spray knew was in good condition — and did this impact grower returns? Did Ocean Spray offer deals to Costco and H.E. Butt on fresh product to assist with the marketing of processed product — and did this impact grower returns?

Although this was not a criminal trial as it was a civil suit, still the finding of a jury that a fresh produce operation has engaged in unfair and deceptive business practices could well prompt an investigation as to whether those practices are, in fact, compatible with the requirements for maintaining a PACA license.

It is better to win than to lose and when the dispute centers on matters of personal integrity, the victory is sweeter still.

Yet this vindication can never be anything but bittersweet. What can it profit a person to win a lawsuit and lose the one they love?

When Jim Nolan died, Theresa collected herself and drew on reserves she never knew she had to see this through.

Just as we were writing this piece we received a note from Bruce Paschal:

By now you should know the results of the Ocean Spray trial. Jim is vindicated and somewhere he is smiling.

I know the law doesn’t work this way but, if I had the power to make all things right with the world, I would have arranged things so that those people could have been charged with manslaughter.

If it was not for them and the activities the jury verdict rejects, I believe, in my heart of hearts, that my friend Jim would still be alive today.

Ocean Spray and its high powered lawyers strung the case out for years and years. Jim internalized much more than we knew, the burden of paying for lawyers was heavy, and, though I’m not a doctor, I believe the whole matter cost him his life.

Hopefully the food industry has learned a lesson about ethics.

I shall never forget my friend Jim. Many people did not feel it was possible for Jim Nolan to get justice in a Plymouth courthouse, so this is a triumph for our system of justice.

The “Pundit” was fearless in its coverage and thus never gave up on Jim — and neither did his legion of friends.

With Jim having now been vindicated — please rerun the column the “Pundit” wrote when Jim died — it was a classic.

— Bruce Paschal

We appreciate Bruce’s note. And we will honor his request. This one is for Jim, it originally ran March 4, 2008:

Jim Nolan, A Man Of Honor
And Integrity, Passes Away

With a trial set to start in six weeks, why did the fates deny him his moment on the stand? It is the unspoken question everyone who knew him asks themselves, as word has filtered out that Jim Nolan has passed away.

We don’t know every detail yet, and we couldn’t bear to ask his loving wife Theresa to speak, not when the love of her life, her partner and husband has just been taken from her.

He died of a heart attack Sunday night. Which just makes his friends ask what breaks a man’s heart?

Jim spent a lifetime working with Ocean Spray and built a righteous reputation.

Grant Hunt put it this way:

Jim Nolan was iconic to the fresh cranberry industry. Throughout all of the travails of some challenging seasons, Jim always was a tower of integrity and honor. He worked tirelessly on behalf of Ocean Spray’s growers. Our industry will sorely miss Jim.

Bruce Paschal explained it like this:

He was pure. In an industry where purity is not to be assumed. He was pure. A man of principle and integrity.

We’ve written extensively about the dispute and lawsuit between Jim and Theresa Nolan, their company, the Nolan Network, and Ocean Spray.

Lawsuits are always about many things but, at base, this one was about Jim Nolan wanting to be honest and up front with all his customers.

JIM NOLAN & HIS CAT BO
SEPTEMBER 1999

We used a photo, taken by Bill Martin of PRODUCE BUSINESS during happier days back in 1999. Since the split with Ocean Spray, things weren’t as happy. It wasn’t only money… so many of his “friends” were involved with Ocean Spray, and when the dispute broke out, they felt they couldn’t be seen as “siding” with Jim.

The whole episode is horribly sad.

He wanted to have his day in court. To have a chance to testify, tell his side of the story, and we hoped the court would publicly confirm the righteousness of his conduct and his life.

We suppose the lawsuit will go on. Theresa will battle for truth and her husband’s honor. But now Jim will never get his moment on the stand.

Nobody knows why someone dies, but everyone who cared for Jim sensed that something about the whole situation sucked the life out of him. He just wasn’t meant for the kind of battle that was required.

He was, as Bruce said, pure.

When we get more information we will pass it on. In the meantime we extend our deepest condolences to Theresa.

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