Natural Foods Merchandiser

Sunflower Market Deals Wilt in Court

The first in a chain of large-scale, price-conscious natural foods stores opened Oct. 8 in Albuquerque, N.M. Two days later, a district court judge ordered Sunflower Markets to shut the doors linking the grocery with an adjacent liquor store and café owned by Wild Oats Market founder Michael Gilliland and his brother Patrick Gilliland.

Michael Gilliland's ownership in Westside Liquors LLC and Milagro Café violated the noncompete agreement he signed when he parted company with Wild Oats in 2001, Boulder, Colo., District Court Judge Carol Glowinsky found. The court issued a temporary restraining order requiring any physical openings between the market, liquor store and café to be closed, or Gilliland's involvement in the two businesses to cease until his noncompete expires in March.

In September, Boulder-based Wild Oats Markets Inc. initiated legal action to block the opening of Sun Flower Market, claiming Gilliland violated his agreement not to own or directly consult with a retail grocery operation within 10 miles of a Wild Oats store. There are three Wild Oats stores within 10 miles of Sun Flower, each of which has a café. Lawyers for the nation's second-largest natural grocery chain also claimed Gilliland attempted to lure employees from its three Albuquerque stores.

Because of what Gilliland described as a "peculiarity of New Mexico liquor license laws," he also held the lease on the 40,000-square-foot building in Westside Liquors' name and subleased space back to Sun Flower. The court ruled Gilliland may continue to hold the lease on the building.

Gilliland and his wife, former Wild Oats General Council Elizabeth Cook, countersued, claiming severance payments were due to Cook and that the company owed Cook and Gilliland more stock options. That portion of the case is still pending.

Sun Flower Market owner Randy Clapp would suffer "significant financial losses if the operation of Sun Flower Market" were prohibited by judicial order, but a joint marketing plan for the liquor and grocery stores indicated Gilliland was "both directly and indirectly participating in a food store or supermarket in breach of his employment agreement," the court found.

Since the ruling, Michael and Patrick Gilliland have sold their interest in the café and liquor store to Clapp, one of Michael Gilliland's founding partners in Wild Oats. "Rather than cause Randy any problems, we just sold him the two entities," Michael Gilliland said.

Clapp and Patrick Gilliland are not bound by noncompete agreements. Patrick Gilliland, vice president of operations for Sun Flower, was scouting a second location in Phoenix and could not be reached. Clapp did not return a call for comment.

The temporary restraining order satisfied Wild Oats, spokeswoman Sonia Tuitele said, noting that the grocery chain has not logged any appreciable loss of business as a result of the new Albuquerque market. "The only disruption we may have experienced, but have probably overcome because of the economy, was the staff that was hired away," she said. "That's disruptive to any operation."

Last summer, Michael Gilliland told The Natural Foods Merchandiser that he expected to launch a small chain of natural foods stores for price-conscious consumers in the Southwest in the second quarter of 2003. At the time, he said he had no immediate plans to partner again with Clapp. In December, he said he hoped to nail down real estate deals on five or six markets by year-end. "Randy and I are involved in a number of businesses together. Both of us are definitely on the same wavelength as to what we want to accomplish here."

Natural Foods Merchandiser volume XXIV/number 1/p. 14

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