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CHICAGO - Food distributor Fleming Cos. Inc. heads to court on Wednesday to dispute Kmart Corp.'s allegations that Fleming did not abide by terms of a 10-year, $4.5 billion grocery supply agreement that is now defunct, Reuters reports.
The filings in U.S. Bankruptcy Court in Chicago show that Kmart didn't notify Fleming of the emergency Feb. 3 bankruptcy court hearing to end the supply deal, which accounted for some 20 percent of Fleming's sales.
The documents show Kmart expressed worries that Fleming could declare bankruptcy itself as a way to block Kmart from scrapping the deal, but Fleming said it had no such plans.
Fleming said it would not challenge the rejection of the supply deal, but wanted the bankruptcy judge to remove from the court order certain Kmart claims that Fleming did not provide adequate service under the agreement.
"Fleming requests an opportunity to present its side of the story," the food distributor said in a filing dated Feb. 7.
A Fleming spokesman told Reuters the motion was filed to "factually rebut" claims Kmart made in its recent court documents. A Kmart spokesman declined to comment beyond the company's filings.
The grocery supply agreement, drawn up two years ago, was supposed to run through February 2011, but Kmart received U.S. Bankruptcy Court approval last week to end the deal. It said the pact no longer made financial sense in light of Kmart's plans to close more than 300 stores, including about half of its supercenters.
In its motion seeking to get out of the supply deal, Kmart said Fleming raised its fees twice since July 2001 and did not provide the level of service that the retailer expected. Kmart also worried that providing Fleming advance notice that it wanted to terminate the agreement would allow the supplier to file its own Chapter 11 petition.
But Fleming argued it had not received notice of any material breach of the supply agreement, and said Kmart's costs increased as the retailer failed to meet volume projections.
In the court documents, Fleming also said it was not notified of the hearing to end the supply deal, and rejected Kmart's assertion that Fleming would have declared bankruptcy if it knew about the hearing.
The court documents show Kmart's CEO Day asked his personal assistant to call Mark Hansen, Fleming's chairman and CEO, on Jan. 30 after Hansen told analysts and reporters on a conference call that it may end the supply deal with Kmart if the two could not agree on new terms.
"As of the filing of this motion (on Feb. 3), Mr. Hansen has not returned my call, which is inconsistent with the prior dealings between the parties," Day said in an affidavit filed with the bankruptcy court.
Fleming said Hansen's comments were "perfectly consistent" with a press release issued by Fleming and previewed by Kmart.