| Commitments and Contingencies | 15. COMMITMENTS AND CONTINGENCIES Self-insurance reserves and other commitments and contingencies The company records self-insurance reserves, excluding the distributor litigation discussed below, as an other accrued liability on our Condensed Consolidated Balance Sheets. The reserves include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on the company’s assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and current cost trends. The amount of the company’s ultimate liability in respect of these matters may differ materially from these estimates In the event the company ceases to utilize the independent distributor model or exits a geographic market, the company is contractually required in some situations to purchase the distribution rights from the independent distributor. The company expects to continue operating under this model and has concluded that the possibility of a loss is remote . The company’s facilities are subject to various federal, state and local laws and regulations regarding the discharge of material into the environment and the protection of the environment in other ways. The company is not a party to any material proceedings arising under these laws and regulations. The company believes that compliance with existing environmental laws and regulations will not materially affect the consolidated financial condition, results of operations, cash flows or the competitive position of the company. The company believes it is currently in substantial compliance with all material environmental laws and regulations affecting the company and its properties . In August 2016, the U.S. Department of Labor (the “Department”) notified the company that it was scheduled for a compliance review under the Fair Labor Standards Act. On November 5, 2018, the company was advised by the Department that the compliance review has been closed. Litigation The company and its subsidiaries from time to time are parties to, or targets of, lawsuits, claims, investigations and proceedings, including personal injury, commercial, contract, environmental, antitrust, product liability, health and safety and employment matters, which are being handled and defended in the ordinary course of business. While the company is unable to predict the outcome of these matters, it believes, based upon currently available facts, that it is remote that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows in the future. However, adverse developments could negatively impact earnings in a particular future fiscal period . At this time, the company is defending 15 complaints filed by distributors alleging that such distributors were misclassified as independent contractors. Twelve of these lawsuits seek class and/or collective action treatment. The remaining three cases either allege individual claims or do not seek class or collective action treatment or, in cases in which class treatment was sought, the court denied class certification. The respective courts have ruled on plaintiffs’ motions for class certification in eight of the pending cases, each of which is discussed below. Unless otherwise noted, a class was conditionally certified under the FLSA in each of the cases described below, although the company has the ability to petition the court to decertify that class at a later date
Case Name
Case No.
Venue
Date Filed
Status
Rosinbaum et al. v. Flowers Foods, Inc. and Franklin Baking Co., LLC
7:16-cv-00233
U.S. District Court Eastern District of North Carolina
12/1/2015
Neff et al. v. Flowers Foods, Inc., Lepage Bakeries Park Street, LLC, and CK Sales Co., LLC
5:15-cv-00254
U.S. District Court District of Vermont
12/2/2015
On May 16, 2019, the Court denied defendants’ motion to decertify the FLSA class and granted Plaintiff’s motion to certify under Federal Rule of Civil Procedure 23 a state law class of distributors who operated in the state of Vermont.
Noll v. Flowers Foods, Inc., Lepage Bakeries Park Street, LLC, and CK Sales Co., LLC
1:15-cv-00493
U.S. District Court District of Maine
12/3/2015
On January 15, 2019, the Court denied defendants’ motion to decertify the FLSA class and granted Plaintiff’s motion to certify under Federal Rule of Civil Procedure 23 a state law class of distributors who operated in the state of Maine.
Richard et al. v. Flowers Foods, Inc., Flowers Baking Co. of Lafayette, LLC, Flowers Baking Co. of Baton Rouge, LLC, Flowers Baking Co. of Tyler, LLC and Flowers Baking Co. of New Orleans, LLC
6:15-cv-02557
U.S. District Court Western District of Louisiana
10/21/2015
Carr et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Oxford, Inc.
2:15-cv-06391
U.S. District Court Eastern District of Pennsylvania
12/1/2015
On May 7, 2019, the Court denied defendants' motion to decertify the FLSA class and granted Plaintiffs' motion to certify under Federal Rule of Civil Procedure 23 three state law classes of distributors who operated in the states of Maryland, Pennsylvania, and New Jersey.
Boulange v. Flowers Foods, Inc. and Flowers Baking Co. of Oxford, Inc.
2:16-cv-02581
U.S. District Court Eastern District of Pennsylvania
3/25/2016
This matter has been consolidated with the Carr litigation described immediately above.
Medrano v. Flowers Foods, Inc. and Flowers Baking Co. of El Paso, LLC
1:16-cv-00350
U.S. District Court District of New Mexico
4/27/2016
Martins v. Flowers Foods, Inc., Flowers Baking Co. of Bradenton, LLC and Flowers Baking Co. of Villa Rica, LLC
8:16-cv-03145
U.S. District Court Middle District of Florida
11/8/2016
The company and/or its respective subsidiaries contests the allegations and are vigorously defending all of these lawsuits. Given the stage of the complaints and the claims and issues presented, except for lawsuits disclosed herein that have reached a settlement or agreement in principle, the company cannot reasonably estimate at this time the possible loss or range of loss that may arise from the unresolved lawsuits . Since the beginning of our fiscal 2018 , the company has settled, and the appropriate court has approved, the following collective and/or class action lawsuits filed by distributors alleging that such distributors were misclassified as independent contractors. In each of these settlements, in addition to the monetary terms noted below, the settlements also included certain non-economic terms intended to strengthen and enhance the independent contractor model:
Case Name
Case No.
Venue
Date Filed
Comments
Coyle v. Flowers Foods, Inc. and Holsum Bakery, Inc.
2:15-cv-01372
U.S. District Court District of Arizona
7/20/2015
On March 23, 2018, the court dismissed this lawsuit and approved an agreement to settle this matter for $4.3 million, comprised of $1.2 million in settlement funds, $2.9 million in attorneys’ fees, and $0.2 million as an incentive for class members who are active distributors not to opt out of certain portions of the new distributor agreement. The settlement consisted of approximately 190 class members. This settlement charge was recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Income during the third quarter of fiscal 2017 and was paid during the first quarter of fiscal 2018.
McCurley v. Flowers Foods, Inc. and Derst Baking Co., LLC
5:16-cv-00194
U.S. District Court District of South Carolina
1/20/2016
On September 10, 2018, the court approved the parties’ agreement to settle for a payment of $1.5 million, comprised of $0.8 million in settlement funds, $0.6 million in attorneys’ fees, and a collective $0.1 million for a service award and as an incentive for class members who are active distributors not to opt out of certain portions of the new distributor agreement. The settlement class consisted of 106 class members. This settlement charge was recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Operations during the fourth quarter of fiscal 2017. This settlement was paid on November 1, 2018.
Zapata et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Houston, LLC (the "Zapata litigation")
4:16-cv-00676
U.S. District Court Southern District of Texas
3/14/2016
On September 12, 2018, the court dismissed the Zapata litigation and the Rodriguez litigation (defined below) and approved an agreement to settle both matters for $740,700, including attorneys’ fees, on behalf of 43 distributors. This settlement was paid and recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Income during the third quarter of fiscal 2018.
Rodriguez et al. v. Flowers Foods, Inc. and Flowers Baking Co. of Houston, LLC (the "Rodriguez litigation")
4:16-cv-00245
U.S. District Court Southern District of Texas
1/28/2016
See the Zapata litigation discussion immediately above.
Schucker et al. v. Flowers Foods, Inc., Lepage Bakeries Park St., LLC, and C.K. Sales Co., LLC
1:16-cv-03439
U.S. District Court Southern District of New York
5/9/2016
On September 5, 2018, the court dismissed this lawsuit and approved an agreement to settle this matter for approximately $1.3 million, comprised of $0.4 million in settlement funds, $0.9 million in attorneys’ fees, and a collective $0.1 million for service awards and incentives for class members who are active distributors not to opt out of certain portions of the new distributor agreement. The settlement consisted of 27 class members. This settlement charge was recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Income during the first quarter of fiscal 2018. This settlement was paid on November 19, 2018.
Green et al. v. Flowers Foods, Inc. et al.
1:19-cv-01021
U.S. District Court Western District of Tennessee
2/1/2019
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On September 7, 2018, the company negotiated a global settlement to resolve 12 pending collective action lawsuits against the company for a payment in the amount of $9.0 million, comprised of $5.4 million in settlement funds and $3.6 million in attorneys’ fees. The proposed settlement class consisted of approximately 900 members. The settlement also contained certain non-economic terms intended to strengthen and enhance the independent contractor model, which remains in place. On February 1, 2019, plaintiffs' counsel filed a consolidated complaint with the United States District Court for the Western District of Tennessee to obtain judicial approval of the parties' global settlement. The court approved the global settlement on February 27, 2019. Thereafter, the parties moved to dismiss the 12 settled lawsuits with prejudice. This settlement was recorded as a selling, distribution and administrative expense in our Condensed Consolidated Statements of Income during the third quarter of fiscal 2018. A total of $4.2 million was paid in March 2019, and a second payment of $3.5 million was made in June 2019. The remainder of the settlement funds ($1.3 million) reverted to Flowers per the terms of the settlement, and was recorded as a reduction of selling, distribution and administrative expense in our Condensed Consolidated Statements of Income for the twelve and twenty-eight weeks ended July 13, 2019. On August 12, 2016, a class action complaint was filed in the U.S. District Court for the Southern District of New York by Chris B. Hendley (the “Hendley complaint”) against the company and certain senior members of management (collectively, the “defendants”). On August 17, 2016, another class action complaint was filed in the U.S. District Court for the Southern District of New York by Scott Dovell, II (the “Dovell complaint” and together with the Hendley complaint, the “complaints”) against the defendants. Plaintiffs in the complaints are securities holders that acquired company securities between February 7, 2013 and August 10, 2 016. The complaints generally allege that the defendants made materially false and/or misleading statements and/or failed to disclose that (1) the company’s labor practices were not in compliance with applicable federal laws and regulations; (2) such non-compliance exposed the company to legal liability and/or negative regulatory action; and (3) as a result, the defendants’ statements about the company’s business, operations, and prospects were false and misleading and/or lacked a reasonable basis. The counts of the complaints are asserted against the defendants pursuant to Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 under the Exchange Act. The complaints seek (1) class certification under the Federal Rules of Civil Procedure, (2) compensatory damages in favor of the plaintiffs and all other class members against the defendants, jointly and severally, for all damages sustained as a result of wrongdoing, in an amount to be proven at trial, including interest, and (3) awarding plaintiffs and the class their reasonable costs and expenses incurred in the actions, including counsel and expert fees. On October 21, 2016, the U.S. District Court for the Southern District of New York consolidated the complaints into one action captioned “In re Flowers Foods, Inc. Securities Litigation” (the “consolidated securities action”), appointed Walter Matthews as lead plaintiff (“lead plaintiff”), and appointed Glancy Prongay & Murray LLP and Johnson & Weaver, LLP as co-lead counsel for the putative class. On November 21, 2016, the court granted defendants’ and lead plaintiff’s joint motion to transfer the consolidated securities action to the U.S. District Court for the Middle District of Georgia. Lead plaintiff filed his Consolidated Class Action Complaint on January 12, 2017, raising the same counts and general allegations and seeking the same relief as the Dovell and Hendley complaints. On March 13, 2017, the defendants filed a motion to dismiss the lawsuit which was granted in part and denied in part on March 23, 2018. The court dismissed certain allegedly false or misleading statements as nonactionable under federal securities laws, and will allow others to proceed to fact discovery. On July 23, 2018, lead plaintiff filed his motion for class certification. The defendants filed their memorandum of law in opposition to class certification on October 5, 2018. The court scheduled a hearing on the class certification motion for February 28, 2019 . On May 10, 2019, the parties filed a notice of settlement informing the court that a settlement in principle of the case had been reached. On July 12, 2019, lead plaintiff and Plaintiff Chris B. Hendley filed an unopposed motion for (1) preliminary approval of the class action settlement; (2) certification of the settlement class; and (3) approval of notice to the settlement class. Also on July 12, 2019, the parties entered into a Stipulation and Agreement of Settlement (the “Stipulation”), which (along with its exhibits) sets forth in detail the terms of the settlement and the releases of all claims against the Defendants. The Stipulation and settlement remain subject to court approval. The settlement in principle is for $ 21.0 million and is expected to be paid by the company’s insurance provider. This amount is recorded on the company’s Condensed Consolidated Balance Sheet as of July 13, 2019 as an other current asset due from the insurer and an other accrued liability due for the settlement in principle . Recording this transaction resulted in no impact to the company’s Condensed Consolidated Statements of Income because the expense for the settlement in principle was offset by the expected recovery from the insurer. On June 8, 2018, a verified shareholder derivative complaint was filed in the U.S. District Court for the Middle District of Georgia by William D. Wrigley, derivatively on behalf of the company (the “Wrigley complaint”), against certain current and former directors and officers of the company. On June 14, 2018, a related shareholder derivative complaint was filed in the U.S. District Court for the Middle District of Georgia by Stephen Goldberger, derivatively on behalf of the company (the “Goldberger complaint” and together with the Wrigley complaint, the “federal derivative complaints”), against the same current and former directors and officers of the company. The federal derivative complaints allege, among other things, breaches of fiduciary duties and violations of federal securities laws relating to the company’s labor practices, and seek unspecified damages, disgorgement, and other relief. On June 27, 2018, these derivative actions were consolidated and stayed until the earlier of (1) an order from the court on any summary judgment motions that may be filed in the consolidated securities action, or (2) notification that there has been a settlement reached in the consolidated securities action, or until otherwise agreed to by the parties. On June 21, 2018, two verified shareholder derivative complaints were filed in The Superior Court of Thomas County, State of Georgia, by Margaret Cicchini Family Trust and Frank Garnier, separately, derivatively on behalf of the company (together the “state derivative complaints”), against certain current and former directors and officers of the company. The state derivative complaints allege, among other things, breaches of fiduciary duties relating to the company’s labor practices, and seek unspecified damages, disgorgement, and other relief. On July 12, 2018, these derivative actions were consolidated and stayed until the earlier of (1) an order from the court on any summary judgment motions that may be filed in the consolidated securities action, or (2) notification that there has been a settlement reached in the consolidated securities action, or until otherwise agreed to by the parties. The company and/or its respective subsidiaries are vigorously defending these lawsuits. Given the stage of the complaints and the claims and issues presented, the company cannot reasonably estimate at this time the possible loss or range of loss, if any, that may arise from the unresolved lawsuits. See Note 13, Debt and Other Obligations |
