Class-action lawsuit accuses UNFI of improperly taking supplier discounts

United Natural Foods Inc. (UNFI) is facing a class-action lawsuit accusing the wholesale distributor of taking advantage of suppliers by applying prompt-pay discounts even when invoices are not paid on time.

Supplier NYSM Organics LLC, based in Vineyard Haven, Mass., filed the complaint on Nov. 3 in the Superior Court of Rhode Island, charging UNFI with two counts of breach of contract, a quasi-contract claim for restitution, and a violation of the Massachusetts Consumer Protection Act.

The complaint alleges that for years, UNFI has intentionally and systematically taken prompt-payment discounts to which it is not entitled, using a “difficult-to-catch sleight of hand” that violates supplier agreements.

“When this occurs, UNFI withholds payment on the supplier’s invoices until the supplier’s account is brought back into a positive balance, a process that can take weeks or months to resolve,” the complaint states. “UNFI engages in this practice because it believes it can get away with it.”

As a result of these deductions, many of UNFI’s suppliers—particularly smaller, newer companies—often end up owing UNFI more in deductions than the amount UNFI owes them for purchases, according to the complaint.

The complaint also claims that UNFI benefits when small suppliers go out of business and are replaced by new suppliers, as this provides the distributor with an opportunity to charge high onboarding fees.

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“Because of the magnitude of these deductions, what we have discovered is that certain suppliers, especially smaller ones, quickly find themselves in a situation where they owe UNFI more in deductions than UNFI owes them for products,” said Pat Huyett, a partner at Anapol Weiss, which is representing NYSM Organics LLC in the case. “We allege that UNFI is taking these prompt-payment discounts even when it is paying long after the time has passed for it to do so.”

The exact amount of damages has not been determined. UNFI now has two options: it can either respond to the complaint by admitting, denying, or claiming insufficient information on each allegation, or it can file a motion to dismiss the case on legal grounds.

“At UNFI, we value all our supplier relationships and take any concerns seriously,” the company said in an emailed statement to Supermarket News, a New Hope Network sister website. “We are currently reviewing the details of the complaint filed by NYSM Organics LLC and will work through the legal process to determine the next steps.”

Huyett noted that class-action complaints rarely go to trial and that settlements are typically reached.

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This article originally appeared on Supermarket News, a New Hope Network sister website. Visit the site for more trends and insights into the natural and organic products industry.