U.S. Foodservice ex-CEO seeks $10 million from Ahold

Miller lawsuit contends Dutch parent reneged on benefits, severance

March 09, 2004|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The former head of Columbia-based U.S. Foodservice, the subsidiary at the center of an accounting scandal that nearly toppled Dutch food retailer Royal Ahold NV last year, is suing his former employer for failing to pay severance and retirement benefits and is seeking $10 million in damages.

James L. Miller, who helped build U.S. Foodservice into the nation's second-largest restaurant and institutional supplier before being forced out in the wake of accounting irregularities, is charging Royal Ahold and U.S. Foodservice with breach of contract and fraud.

The lawsuit claims Royal Ahold wrongly singled out Miller as a scapegoat and punished him for being a whistle-blower after the disclosure in February 2003 that U.S. Foodservice had inflated profits by $1.1 billion over three years. Miller resigned in May - and did so, according to the lawsuit - after senior Royal Ahold managers asked him to do so "for the good of the company," while explicitly promising the extensive benefits and severance agreed to in his employment agreement.

In the lawsuit, filed Feb. 26 in Baltimore County Circuit Court, Miller says the company failed to pay severance, retirement benefits, including 401(k) contributions due for 2003, and post-termination benefits - including medical coverage for Miller and his wife, life insurance, disability, accrued vacation and medical coverage for his ex-wife.

According to an Oct. 4, 2000, letter from Robert S. Tobin, then chief executive of Ahold USA, which confirmed the terms of Miller's employment as CEO of U.S. Foodservice, Miller was to receive a salary, not including bonuses, of $750,000 a year as of Sept. 1, 2000, and use of a new car and memberships at two country clubs while chief executive and for three years afterward. The letter was filed as an exhibit to the lawsuit.

A Feb. 2, 2001, letter from U.S. Foodservice, also filed with the lawsuit, promises Miller "reasonable access" to the corporate airplane for personal use beyond his retirement date, and - also after retirement - administrative assistance for personal business, such as banking, telephone answering and appointment scheduling.

Contractual benefits

"They don't have any right to terminate these contractual benefits that he's entitled to," Benjamin Rosenberg, Miller's attorney, said yesterday. "There has never been any evidence and indication anywhere that he had any knowledge of these accounting issues at U.S. Food until February 2003. They're trying to walk away from their obligations to him."

An Ahold spokesman said yesterday that the company had no comment on specific charges in Miller's lawsuit.

"We do not share Mr. Miller's presentation of the facts in the lawsuit," said Fritz Schnuhl, an Ahold spokesman in the Netherlands.

Since Miller filed the lawsuit, Rosenberg said, Royal Ahold has agreed to continue the medical benefits and to give 30 days' notice if the company plans to terminate the benefits.

At a Royal Ahold shareholders meeting last week in The Hague, Ahold executive board member Peter N. Wakkie said the food retailer and distributor will hold Miller and two fired U.S. Foodservice executives responsible for damages relating to fraud at the division. The company is trying to recover bonuses paid to Miller, as well as to former executives Mark P. Kaiser and Tim Lee, who were fired last year.

In a Jan. 28 letter to Miller, Wakkie, an Ahold executive vice president and chief corporate governance counsel, asked Miller to return all bonus payments received since Royal Ahold acquired U.S. Foodservice in 2000 and said post-termination benefits would be terminated as of Feb. 29.

"It is clear that those bonuses were paid to you based upon inflated revenue and earnings calculations," Wakkie said in the letter.

Multiple investigations

The grocer, whose U.S. holdings also include the Stop & Shop and Giant Food chains, is being investigated by the U.S. Securities and Exchange Commission, the Dutch public prosecutor and the U.S. attorney for the Southern District of New York because of the overstatements.

It is also the target of two lawsuits. Ahold has said one of those lawsuits, by Dutch shareholder group VEB, may cost it as much as 100 million euros. VEB wants Ahold to restate five years of results and has asked a Dutch court to investigate the company for evidence of mismanagement.

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