Article Image
Krispy Kreme Facing Arbitration

Thursday, June, 20, 2013


A Lorton, VA Krispy Kreme production plant will be headed into arbitration as a result of claims of property damage. The plant was closed in March of 2009, terminating 68 employees working at the facility. The plant was 38,000 square feet and was used to create donuts for sale at other sites.

Virginia's Fairfax County accused Krispy Kreme of dumping waste from their production process into sewers, including yeast and grease. The county accused Krispy Kreme of the activity in March of 2009, asking for $20 million in civil penalties and repair costs to the sewer system.  Once the production plant closed, Krispy Kreme announced that they had set aside $750,000 to settle the dispute with the county, although they alleged having spent over $900,000 in legal costs up to that point.

The case escalated in January when the landlord of the production plant site, Colchester Security II LLC, came after Krispy Kreme in court, alleging a lease breach and negligence that caused property damage. The landlord is seeking up to $2.7 million in damages. Krispy Kreme, however, denies the allegations, and plans to file counterclaims in excess of $3 million surrounding indemnity claims and their own allegations of lease breach.

Krispy Kreme states that additional fees for possible liability claims have not been set aside already, as their management doesn't see situations where a less has been incurred. Legal fees for the company, however, have already reached over $400,000 in the first fiscal 2014 quarter.  Both parties appeared in a trial situation in early March of 2013, where all parties agreed to work through the alternative dispute resolution program through binding arbitration. This isn't the first time that Krispy Kreme has gone through arbitration to solve legal issues- the company went up against a franchisee in 2003 as well, where they lost their case.