Safeway Files Suit Against Yucaipa

PLEASANTON, Calif. -- Safeway Cos. here yesterday filed suit against Yucaipa Cos. for breach of contract, fraud, and intentional interference in connection with Safeway's effort to sell its Dominick's chain in Chicago.

In its cross-complaint filed in Los Angeles Superior Court in response to Yucaipa's Aug. 4 lawsuit, Safeway also explains why Yucaipa's bid for the chain was not acceptable, and why Safeway selected another bidder as the winner.

At the start of the Dominick's bidding process, Safeway asked all bidders to sign an agreement that they would refrain from discussions with the labor unions representing Dominick's employees until after a winning bidder had been selected. Safeway alleges that, instead of promptly signing the agreement, Yucaipa, without Safeway's knowledge or approval, negotiated regarding the terms of a future labor contract with the unions, and then approached Safeway about entering into the bidding process. Safeway was concerned that these negotiations would undermine the bidding process and hamper the efforts of other bidders to deal with the unions. Therefore, Safeway requested that Yucaipa agree, and Yucaipa agreed in writing, that if it was not the winning bidder, it would inform the unions that it was not interested in buying Dominick's and was supporting the party selected by Safeway as the winning bidder.

According to Safeway, when the bids were requested, Yucaipa submitted a bid that was not competitive and contained too many conditions. Yucaipa was told it needed to improve its bid and eliminate many of the conditions, but failed to act on this advice. At the end of the bidding process, Yucaipa was not the winning bidder because its bid was still not competitive and contained too many conditions. Yucaipa even refused to submit its final offer in writing, Safeway said.

Safeway then selected another bidder as the winner. Safeway asked Yucaipa to perform its contractual obligation to inform the unions that it was no longer interested in Dominick's, but Yucaipa refused to do so. Instead, Safeway alleges, Yucaipa communicated with the unions and filed a meritless lawsuit to try to interfere with any transaction between Safeway and the winning bidder.

Safeway seeks damages, punitive damages, an injunction preventing Yucaipa from further interference with the unions, and an order requiring Yucaipa to perform its contractual obligation to assist the selected bidder.

In its lawsuit, Yucaipa claims Safeway engaged in a biased bidding process and had "extorted" Yucaipa's agreement to support the winning bidder with the unions. Yucaipa alleged that Safeway never had any intention of selling Dominick's to Yucaipa because Safeway had purchased the Chicago chain from a group that included Yucaipa for a higher price, and would be too embarrassed to sell the chain back to Yucaipa at a lower price. Safeway denies the allegations.
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