Waterbury Hospital Suing Food Distributor, Alleging Kickback Scheme

WATERBURY (AP) — Waterbury Hospital has filed a federal class-action lawsuit against the nation’s second-largest food distributor, accusing it of making billions of dollars through an illegal kickback scheme.

The suit against US Foodservice alleges the troubled Maryland-based company instructed suppliers to artificially increase their prices, then passed along those inflated prices to US Foodservice customers.

The suit also claims the company, which is owned by Dutch corporation Royal Ahold NV, demanded kickbacks from companies from which it purchased the food at inflated prices.

James E. Hartley Jr, a Waterbury lawyer who filed the lawsuit, said victims of the alleged scam lost hundreds of millions of dollars. The lawsuit, which was filed in October in US District Court in New Haven, alleges the scheme accounted for 16 to 20 percent of the company’s total sales between 2000 and 2003.

The case has been assigned to US District Court Judge Christopher Droney.

Rob Meyne, vice president of corporate communications at US Foodservice, directed requests for comment to the company’s attorney, who could not be reached Wednesday or Thursday.

The lawsuit also lists Cason Inc, an Illinois-based company that runs an Italian restaurant, as a plaintiff along with Waterbury Hospital. The claim alleges that potentially thousands of other victims could be identified through US Foodservice’s business records.

The lawsuit, which does not seek a specific amount, accuses US Foodservice of breach of contract and racketeering.

It is the latest in a string of difficulties faced by US Foodservice Inc, which Royal Ahold has announced it wants to sell.

Earlier this month, US Foodservice’s former chief marketing officer was convicted on fraud and conspiracy charges after a federal jury in New York City found he manipulated financial records to exaggerate earnings.

Mark Kaiser, 49, of Ellicott City, Md., was among several company officials accused of boosting the company’s earnings by $800 million from 2000 to 2003 by reporting fake rebates from suppliers, moves which boosted their own bonuses.

Ahold said in 2003 that it had overstated its earnings by more than $1 billion, mostly because of the alleged fraud at US Foodservice, and its stock lost 60 percent of its value, shaving $6 billion from its market cap.

Netherlands-based Ahold’s US properties include the Stop & Shop and Giant supermarket chains. US Foodservice is one of the largest distributors of food products in the country, providing to restaurants and cafeterias.