Pennington v. Harvest Foods, Inc.

934 S.W.2d 485, 326 Ark. 704, 1996 Ark. LEXIS 638
Supreme Court of Arkansas·Decided November 25, 1996·No. 95-732·Published·Cited by 16 cases

Opinions

ROBERT L. Brown, Justice.

This is an appeal by appellants Joel Tumblson, Sr.; Soundra Tumblson; Joel Tumblson, Jr.; T.S.P., Inc.; and Top Spread Potato, Inc. (Tumblson appellants). The appellee is Harvest Foods, Inc., a corporation that owned over 50 grocery stores at time of trial. On May 16, 1994, Harvest Foods filed its second amended complaint against Don Pennington (former President and CEO of Harvest Foods), the Tumblson appellants, John Oldner and his various businesses, and Billy J. Armstrong and Service Brokerage Company, Inc. In that complaint, Harvest Foods outlined three schemes devised by the defendants that supported causes of action for breach of fiduciary duty, civil conspiracy, conversion, and fraudulent concealment.

The first conspiracy alleged was between Pennington and John Oldner (Oldner/Pennington conspiracy). The facts asserted were that Oldner, a food broker, acquired various products such as health and beauty aids and bagged ice for resale to retail chains like Harvest Foods. Pennington allegedly received kickbacks in the form of commissions from Oldner on products sold to Harvest Foods through Oldner’s businesses. Pennington and Oldner also conspired to steer business to Oldner’s clients. Oldner in turn would pay Pennington a “consulting fee” through an account known as Capital City Marketing, which was maintained by Pennington. The conspiracy occurred in 1990 and 1991.

The second alleged conspiracy was between Pennington and Billy J. Armstrong, also a food broker (Armstrong — Pennington conspiracy), and it, too, was a kickback scheme. Armstrong owned in whole or in part Service Brokerage Company, Inc. Pennington sent business to Armstrong through Service Brokerage Company, and the two men split the brokerage fees, commissions, and “slotting fees” paid by manufacturers for space in the chain’s warehouse. Pennington was also paid by Armstrong as a “consultant.” Payments were made to Pennington’s Capital City Marketing account set up by Pennington. Coleman Dairy, Bunzl Mac-Pac, Sweetheart Cups, and other vendors were alleged to be involved through Armstrong. The conspiracy occurred from 1989 into 1991.

The third alleged conspiracy involved Pennington and the Tumblson appellants (Tumblson/Pennington conspiracy) and was a self-dealing scheme. Joel Tumblson, Sr., was the produce merchandising manager at Harvest Foods and in that capacity bought produce for the store. He worked under Pennington, and the two men started a company known as T.S.P. in 1987, which bought produce, packaged it, and sold it to Harvest Foods. Soundra Tumblson worked for T.S.P. as bookkeeper and eventually owned half the stock of the company. Betty Bryant, Pennington’s former spouse, owned the other half of the company’s stock. Joel Tumblson, Jr., managed the day-to-day operations of T.S.P.1 T.S.P. sold potatoes, tomatoes, onions, watermelons, and other produce to Harvest Foods at inflated prices, with Joel Tumblson, Sr., controlling both ends of the transaction. Joel Tumblson, Sr., and Pennington divided the profits derived at T.S.P. The arrangement continued into 1991.

On June 30, 1993, T.S.P. and Joel Tumblson, Jr., moved to sever the claims against them from the claims involving the Oldner/ Pennington conspiracy and the Armstrong/Pennington conspiracy. Two days later, Joel Tumblson, Sr., and Soundra Tumblson filed their motion to sever on the same basis. A hearing on the motions was held on August 2, 1993. At the hearing, the Tumblson appellants argued that Pennington was the only link among the defendants and the three conspiracies and that the Tumblson/Pennington conspiracy should be severed. In denying the motions to sever, the court said:

There are doubts in my mind that this would not be proper to sever, but if the plaintiff feels comfortable in proceeding without the severance and feels strongly enough that this is not reversible error, I’m not going to sever. I think that the Supreme Court might well agree with you defendants that is (sic) should be severed but it’s the plaintiff’s lawsuit.

The order denying severance was entered on December 1, 1993.

The three-and-one-half-week trial began on September 13, 1994. Before the testimony, counsel for T.S.P. and Joel Tumblson, Jr., objected to Harvest Foods “changing horses” at trial on their theory of damages because the company had not previously stated it was going to pursue the benefits received by the Tumblsons and Pennington as a damage theory in addition to lost profits to the company. Counsel for Harvest Foods denied the allegation and argued that the damages were not inconsistent. Counsel for Joel Tumblson, Sr., and Soundra Tumblson added that the new damage theory smacked of restitution and claimed that Harvest Foods did not disclose this theory when questioned during discovery. The trial court denied a motion for continuance and ruled that the defendants were not surprised by the evidence and further that the damages for benefits received were part and parcel of the overall damages claimed by Harvest Foods.

Because of the issues raised at trial and on appeal, we will present an abstract of the testimony at trial. Robert Rough, who had previously worked for Harvest Foods as Chief Financial Officer, testified that he was the second highest ranking officer at the company. Rough stated that after Pennington left the company, he collected the financial records involving Pennington’s transactions. He found three schemes involving Oldner and Pennington. One involved consulting fees and brokerage commissions for health and beauty products purchased from SAJ Distributors and bagged ice purchased from Big-R Ice Company. The fees and commissions were split between the men.

Rough also described three schemes under the Armstrong/ Pennington conspiracy. Coleman Dairy had been a supplier of dairy products to Harvest Foods without the need for a food broker. Rough testified that Armstrong’s firm, Service Brokerage, began acting as a food broker for the account and that funds were traced from Harvest Foods to Service Brokerage and then to Pennington’s Capital City Marketing account. Rough explained that Armstrong claimed that the money paid to Pennington’s account was for consulting services by Pennington. The second scheme involved Bunzl Mac-Pac, a distributor of foam trays for meat and plastic bags for produce. As in the case of Coleman Dairy, Harvest Foods was already getting its foam trays from another company without the need for a food broker. Thereafter, the original supplier of foam trays wanted to include Bunzl Mac-Pac in the distribution scenario. At first, the price of the trays did not change. Rough testified that it was later discovered that the price of the foam trays had increased exactly six percent and that funds were routed to Armstrong’s firm and Pennington’s Capital City Marketing account in connection with brokerage payments for the foam trays. For the final scheme, Rough testified that Harvest Foods did not receive slotting fees for space in Harvest Foods’s warehouse for a line of new products from Sweetheart Cup as it should have. The payment was made directly to Service Brokerage.

Rough next testified that Don and Betty Pennington and Joel and Soundra Tumblson were the owners of T.S.P. He stated that he figured the total benefit to the Penningtons under the potato scheme from 1988 to 1991 was $311,761. The benefit to Joel and Soundra Tumblson for the same period was $336,047.

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Pennington v. Harvest Foods, Inc., 934 S.W.2d 485, 326 Ark. 704, 1996 Ark. LEXIS 638 (Ark. 1996).

934 S.W.2d 485 (Pennington v. Harvest Foods, Inc.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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Pennington v. Harvest Foods, Inc.
934 S.W.2d 485 (Supreme Court of Arkansas, 1996)