Lawsuit Targets Pact by Grocers

A union-backed consumer lawsuit filed Thursday against the three supermarket chains in the 6-week-old strike and lockout alleges that the chains’ unusual mutual-aid pact violates California antitrust law.

The suit casts a spotlight on a key element of the labor dispute that has seldom been mentioned since the strike began Oct. 11 and that executives at the grocery stores -- Kroger Co.’s Ralphs, Albertsons Inc. and Safeway Inc.’s Vons and Pavilions -- refuse to discuss publicly in any detail.

The pact basically says that if one of the three chains reaps added business during the dispute, it will share some of that money, according to some Wall Street analysts who follow the companies closely.

Ralphs is seeing a windfall because the United Food and Commercial Workers removed its pickets there Oct. 31 to focus union efforts on the other two. And under the mutual-aid deal the chains quietly made before the strike, “Kroger is obligated to share any earnings gains with the other two retailers,” analyst Mark Husson of Merrill Lynch & Co. said in a report last week.

Vons spokeswoman Sandra Calderon, while declining comment on the suit, said such an agreement is “completely and totally permissible by law.”

An Albertsons spokeswoman had no comment on the suit. A Ralphs official couldn’t immediately be reached after the suit was filed.

On Thursday, all three grocery chains agreed to resume contract negotiations with the union Saturday. Federal mediator Peter Hurtgen had recessed the talks Nov. 12.

Under the chains’ pact, it isn’t clear exactly what would be shared -- part of Ralphs’ sales or part of its profit -- or how much. Also not known is whether payments would be made before the strike ends.

“I will acknowledge that there is an agreement, but we’re not going to say anything about it,” said Gary Rhodes, a spokesman for Cincinnati-based Kroger. “I’m not going to characterize it, nor provide any details about it.”

The lawsuit, filed in Los Angeles County Superior Court, claims the “arrangement by which each agrees to share revenues with the others” restrains competition, keeps prices at artificially high levels and thus violates the state’s antitrust Cartwright Act.

The suit seeks to have the arrangement nullified and asks for unspecified damages. It was filed on behalf of three Los Angeles County residents. Their attorney, Joe Whatley, was traveling and unavailable for comment.

Rick Icaza, president of UFCW Local 770 in Los Angeles, one of seven locals involved in the dispute, said the union had no direct role in bringing the lawsuit but “we certainly didn’t discourage it. We think [the agreement] illegal.”

Ellen Anreder, a spokeswoman for the other six locals, said that in earlier negotiations “the union asked for this document and the employers specifically said it wasn’t bargaining related, so they did not comply with our request.”

The UFCW struck Safeway on Oct. 11. Albertsons and Ralphs locked out their union workers the next day in a show of solidarity. About 70,000 workers have been idled at 859 supermarkets in Southern and Central California.

The three chains are bargaining with the UFCW as a single unit, which also includes helping each other financially as the strike wears on.

But the companies aren’t divulging details about the arrangement. They have said nothing in their filings with the Securities and Exchange Commission. It isn’t known whether an independent auditor would have to oversee the sharing of money, or whether those funds would be subject to taxes.

Some labor and legal experts said the chains undoubtedly believed the laws gave them wider liability against antitrust allegations because they were joined as one in the labor negotiations. But the analysts struggled to cite other examples that matched what the supermarkets were doing.

“It’s bizarre, that’s the least I can say,” said Gary Chaison, a professor of industrial relations at Clark University in Worcester, Mass. Chaison said he couldn’t recall a similar situation in any industry, although the airlines had strike-related aid arrangements when they were still regulated by the federal government. They were deregulated in 1978.

The chains’ sharing of cash also raises questions about the union’s strategy of taking its pickets away from Ralphs. That move prompted consumers to flood Ralphs’ stores and thus gave Ralphs the windfall that it’s now presumably sharing with the two chains the UFCW is trying to pressure.

The UFCW’s Icaza said the union didn’t have confirmation of the mutual-aid pact as it mapped out its strategy.

Wall Street’s interpretation of the pact is mixed. Mia Kirchgaessner of research firm Bernstein wrote in a report earlier this month that Kroger has to “share any uplift in profits with Safeway and Albertsons,” and so the union’s decision to move away from Ralphs “is a help to all three companies.”

The money won’t compensate the chains for the hundreds of millions of dollars they’re losing from the strike and walkout, said Charles Craver, a labor law professor at George Washington University Law School in Washington.

“I don’t care how much revenue sharing you’re getting from Ralphs, it’s going to be a pittance” compared with the strike-related losses, Craver said. But, he added, “whoever made the decision at management, this is a decision to help ... decrease the pressure on the other chains from caving in to the union’s demands.”