DC’s Food Deserts Benefit From Food Overpricing Scheme Settlement Fund

By Debra Bruno

October 16, 2017

Hunton & Williams LLP has obtained court-approval to donate more than $60,000 in remaining funds from a class-action settlement to support DC Central Kitchen

There’s poetic justice in taking the uncollected funds from a class action suit involving food overcharges and donating them to DC Central Kitchen.

When Hunton & Williams LLP helped its clients win a $297 million class action lawsuit in 2014 – thought to be one of the largest civil class action settlements brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) in recent history – against a food provider for overbilling clients, about $60,000 of that award was left over, says attorney Torsten Kracht.

“We were trying to find some group whose purpose is aligned with what the case was about,” Kracht says. After gathering suggestions from others in the firm, the attorneys, who included Richard Wyatt Jr. and Ryan Phair, settled on DC Central Kitchen’s Healthy Corners program, which turned out to be a nice link to the idea of food service and fair pricing, Kracht says.

Healthy Corners brings fresh produce to corner stores in Wards 7 and 8, where there are few supermarkets. Alexander Moore, DC Central Kitchen’s chief development officer, says many people in both wards rely on the bodegas and quickie marts for their daily shopping. What they find there tends more to Twinkies than to apples and bananas.

The program is an “innovative approach to addressing the problem of food deserts,” Moore says. Healthy Corners operates as a wholesaler and distributes fresh fruits and vegetables at wholesale cost to about 70 corner stores in these lower-income neighborhoods. The stores then can mark up the produce to make a profit, but still sell it for far less than they would have without that initial wholesale rate, Moore says.

The bounty is the result of the 2014 class action lawsuit that was unusual because civil cases involving RICO lose in court as much as 98 percent of the time, Kracht says. While it’s tempting to bring a claim under RICO because of the potential for huge payouts for both plaintiffs and attorneys, the courts set high standards for the pleading requirements, he adds.

While the popular imagination equates RICO cases with organized crime syndicates, civil RICO cases don’t necessarily translate to mob business. These cases usually involve some kind of service set up to solve a fake problem, or a problem that wouldn’t otherwise exist but for the racket.

In the case involving U.S. Foodservice, Inc., the lawsuit argued that between 1998 and 2005, the company created six “value-added service providers" – companies formed solely to buy the goods and mark them up, instead of buying directly from a farmer or other direct food producer, says Kracht. The plaintiffs (whose names are under seal) were some of the country’s largest food service providers, including restaurants and institutional food services.

Several rounds of payout took care of the bulk of the $297 million, including $99 million (a third of the settlement fund plus another $8.1 million for litigation expenses) to the eight firms that acted as class counsel in the lawsuit. Even after the money was distributed, there were still companies that didn’t take the settlement, either because they went out of business or just didn’t cash the checks for unknown reasons, says Kracht.

After the bulk of the money was distributed, $60,000 remained. “In my experience, in almost every class case, we will end up with some money that is uneconomical to redistribute,” he says. Hunton & Williams suggested DC Central Kitchen as beneficiary of that money to U.S. District Judge Alvin W. Thompson in Connecticut, where the case was argued. The judge, who agreed, needed to approve where the leftover money would go.

So far, says Moore, DC Central Kitchen has received the first half of the payout, which has gone to helping corner stores do a better job of stocking fresh produce. In addition to providing produce at lower prices, the Healthy Corners program gets refrigerators and shelving to the stores “so they can actually stock products,” says Moore. Storeowners also get training on how to handle produce safely and figure out a reasonable retail price, he says.

“We’re doing what we can to stimulate demand and make people aware of these products,” Moore says. If DC Central Kitchen can show that people are buying produce from stores wrapped in bullet-proof glass, he adds, it’s proof to the private sector that they should be opening full-size grocery stores in these areas.

Debra Bruno is a freelance journalist who writes for The Wall Street Journal, The Washington Post, and Washingtonian Magazine. She lived in China for three years and has worked at Legal Times, Roll Call, and other publications.