Whistle blown on Wild Oats?

Former exec’s suit alleges misconduct prior to chain’s merger

By Nick Budnick

The Portland Tribune, Aug 21, 2008, Updated Oct 30, 2009 (14 Reader comments)

L.E. BASKOW / TRIBUNE PHOTO

While the merger of Wild Oats and Whole Foods natural foods stores is challenged in Washington, D.C., a former Wild Oats executive who was based in Portland has sued the company in Multnomah County Circuit Court, alleging corporate skulduggery.

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A Portland man who worked at the highest levels of the Wild Oats natural foods chain is suing the firm as well as its new owner, Whole Foods Market, claiming that his former bosses hurt his old company to line their own pockets — and then fired him before he could alert the corporation’s board of directors.

According to one legal expert, the lawsuit’s claims, including that Whole Foods paid less than it should have for Wild Oats, could play a role in federal antitrust proceedings trying to roll back the merger for allegedly hurting consumers in Portland and elsewhere.

Gary De Bay, who filed the lawsuit in Multnomah County Circuit Court, has both worked for and with an impressive roster of top brands, including Nike, ESPN and Starbucks.

A 52-year-old venture capital and strategic marketing specialist, De Bay has been written about in Business Week and The New York Times. Until recently, he lived in the West Hills in a six-bathroom, 6,000-square-foot home.

His detailed allegations, if true, shed light on the maneuverings of Wild Oats in the period before Whole Foods took it over in February 2007.

Moreover, they come at a time when the merger is being contested in federal court as well as in parallel administrative proceedings of the Federal Trade Commission.

Tasked with battling anti-competitive corporate activity, the agency hopes to roll back the merger, saying it violates antitrust law and hurts consumers in Portland and elsewhere. Though a year has passed, the FTC’s efforts were invigorated by a recent federal appeals court ruling that sided with the agency.

“If I were the lawyer for the FTC, interviewing (De Bay) as a potential witness would be high on my to-do list,” said Richard Pierce Jr., an antitrust professor at the George Washington Law School who has been monitoring the Wild Oats-Whole Foods merger case. “This lawsuit and whatever this guy might have to say in an FTC hearing could make the antitrust problems worse for Whole Foods and Wild Oats.”

In the world of Wall Street, such insider lawsuits alleging corporate skulduggery are hardly uncommon. But for one to be filed against the country’s two most prominent natural foods brands — which now are described jointly as “two peas in a pod” on the Whole Foods Web site — is unusual.

City a major market for chains

While De Bay’s allegations have the potential to make national news, they have special relevance to Portland, a key market for Whole Foods and Wild Oats.

In fact, the Whole Foods takeover of Wild Oats was intended to prevent “nasty price wars in Portland” and in several other cities between the competing chains, according to a widely publicized e-mail written by Whole Foods CEO John Mackey that has become a supporting exhibit for the FTC’s allegations of anti-competitive behavior.

Since the merger, Whole Foods reportedly has closed 12 Wild Oats stores, including two in Portland, and sold 35 others.

De Bay, through his lawyer, declined to comment on his suit. So did Libba Letton, a Whole Foods spokeswoman. Meanwhile, Whole Foods has distanced itself from Mackey’s comments, claiming the merger would not hurt competition.

De Bay’s lawsuit says he was hired in late 2004 to help Wild Oats combat Whole Foods as well as its other main competitor, Trader Joe’s. According to a former acquaintance, he alternated weeks working at the Wild Oats headquarters in Boulder, Colo., and at home in Portland.

Employed as the Director of Wild Oats New Ventures and Strategic Planning, the lawsuit says, De Bay, was the main author of the chain’s strategic growth plan intended to transform it from an “underperforming” company and quadruple its sales of $1.2 billion in just five years.

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