Notes to the consolidated financial statements Annua l Report 2014 138
34 Commitments and contingencies (continued)
Ahold at a glance I Business review I Governance I Financials
Ahold and certain of its former or current subsidiaries are involved in a number of legal proceedings, which include litigation as a result of divestments, tax, employment, and other litigation and inquiries. The legal proceedings
discussed below, whether pending, threatened or unasserted, if decided adversely or settled, may result in liability material to Ahold's financial condition, results of operations or cash Rows. Ahold may enter into discussions
regarding settlement of these and other proceedings, and may enter into settlement agreements, if it believes settlement is in the best interests of Ahold's shareholders. In accordance with IAS 37 "Provisions, Contingent
Liabilities, and Contingent Assets," Ahold has recognized provisions with respect to these proceedings, where appropriate, which are reflected on its balance sheet.
Albert Heijn Franchising
The Vereniging Albert Heijn Franchisenemers (an association of Albert Heijn franchisees or VAHFR) has asserted claims against an Ahold subsidiary, Albert Heijn Franchising BV (AHF), for the years 2008 through 2012,
the alleged value of which in aggregate exceeds €200 million. AHF and the VAHFR have for a number of years had ongoing discussions about the resolution of certain cost items under individual franchise agreements.
On December 24, 2014, AHF and other legal entities within the Ahold Group of companies received a writ in which VAHFR and 239 individual claimants initiate proceedings as of April 15, 2015 before the District Court of
Haarlem with respect to these discussions. While repeating the previous quantification of the total value of their claims for the period 2008-2012, VAHFR and the individual claimants do not specify or seek payment for any
specific amount by the defendants in the litigation.
AHF believes that the position of the VAHFR and individual claimants as expressed in the writ of summons lacks substance and is without merit.
AHF and its affiliates will vigorously defend their interests in the legal proceedings. The claims period covers the years 2008 and 2009, even though these years have already been settled. While it cannot be ruled
out that individual franchisees have claims for the years 2010-2012, such claims have not been specifically and individually asserted let alone confirmed as valid based on an analysis on merit and amounts involved.
Notwithstanding the foregoing, the years from 2010 onwards are still to be settled. Ahold has an existing provision of €17 million with regard to the settlement of costs with individual franchisees for the entire period up to
and including 2014.
U.S. Foodservice - Waterbury litigation
In October 2006, a putative class action was fled against U.S. Foodservice by Waterbury Hospital, Cason Inc. and Frankie's Franchise Systems Inc. with the United States District Court for the District of Connecticut in
relation to certain U.S. Foodservice pricing practices (the Waterbury Litigation). Two additional putative class actions were fled in 2007 by customers of U.S. Foodservice, Catholic Healthcare West and Thomas King
Inc., in the U.S. District Courts for the Northern District of California and the Southern District of Illinois, respectively. These two new actions involved the same pricing practices as those in the Waterbury Litigation. The new
actions also named Ahold and two individuals as defendants. In accordance with the decision of the Judicial Panel on Multidistrict Litigation, in 2008 the actions were consolidated with the Waterbury litigation before the
U.S. District Court in Connecticut. Ahold was (among other parties) named as defendant. In July 2009, the Plaintiffs fled a motion to certify a Plaintiff class in the action. Both Ahold and U.S. Foodservice fled a motion to
dismiss against the complaint and also fled motions opposing the certification of a class in the action. In December 2009, the Court in Connecticut granted Ahold's motion to dismiss, as a result of which Ahold was no
longer party in the proceedings. U.S. Foodservice's motion to dismiss was partially rejected by the Court, as a result of which U.S. Foodservice remained defendant in the ongoing proceedings.
On November 30, 2011, the U.S. District Court granted the Plaintiffs' motion to certify a class in the action certifying a class consisting of any person in the United States who purchased products from
U.S. Foodservice pursuant to an arrangement that defined a sale price in terms of a cost component plus a markup ("cost-plus contract"), and for which U.S. Foodservice used a so-called "Value Added Service Provider" or
"VASP" transaction to calculate the cost component. On August 30, 2013, the U.S. Court of Appeals for the Second Circuit ("Second Circuit") affirmed the decision of the U.S. District Court. The effect of the District Court's
class certification order, if it were not reversed, vacated or otherwise modified, was to increase the potential liability exposure because it allowed the named Plaintiffs to litigate breach of contract claims and claims under the
Racketeer Influenced and Corrupt Organizations Act (RICO) on behalf of all Class Members. A RICO claim, if it were to be successful, could have led to an award to the plaintiffs of three times their compensatory damages.
On May 212014, Ahold announced that it had signed a term sheet agreeing in principle to settle the Waterbury Litigation. Subsequently, the parties entered into a long-form settlement agreement (the "Settlement Agreement")
setting forth the entirety of the parties' agreement.
Under the Settlement Agreement, Ahold agreed to make a payment of $297 million (equivalent to €215 million at the end of Q1 2014) into a settlement fund in return for a release from all claims from all participating class
members in relation to the challenged pricing practices. The amount paid in December 2014 to satisfy the claim was equivalent to €241 million.
The settlement was subject to approval by the U.S. District Court, which preliminarily approved the Settlement Agreement on July 16, 2014, and issued an Order granting final approval on December 9, 2014. Ahold made the
$297 million payment to the settlement fund on December 19, 2014. The appeal period relating to the U.S. District Court's final approval Order expired on January 8, 2015, with no appeal having been fled. Accordingly,
the settlement is now final and the potential liability for Ahold in this class action litigation has been resolved.
Ahold had recorded a net provision in the amount of €187 million in Q1 2014 (€215 million net of an estimated tax recovery of €28 million).