Avon 2003 Annual Report Download - page 30

Contingencies
Avon is a defendant in a class action suit commenced in 1991 on behalf of
certain classes of holders of Avon’s Preferred Equity-Redemption Cumulative
Stock (“PERCS”). Plaintiffs allege various contract and securities law claims
related to the PERCS (which were fully redeemed in 1991) and seek aggregate
damages of approximately $145.0, plus interest. A trial of this action took place
in the United States District Court for the Southern District of New York and
concluded in November 2001. At the conclusion of the trial, the judge reserved
decision in the matter. Avon believes it presented meritorious defenses to the
claims asserted. However, it is not possible to predict the outcome of litigation
and it is reasonably possible that the trial, and any possible appeal, could be
decided unfavorably. Management is unable to make a meaningful estimate of
the amount or range of loss that could result from an unfavorable outcome but,
under some of the damage theories presented, an adverse award could be
material to the Consolidated Financial Statements.
Avon is a defendant in an action commenced in the Supreme Court of the
State of New York by Sheldon Solow d/b/a Solow Building Company, the
landlord of the Company’s former headquarters in New York City. Plaintiff seeks
aggregate damages of approximately $80.0, plus interest, for the Company’s
alleged failure to restore the leasehold premises at the conclusion of the lease
term in 1997. A trial of this matter was scheduled for February 2002, but was
stayed pending the determination of (i) an interlocutory appeal by plaintiff of an
order that denied the plaintiff’s motion for summary judgment and granted partial
summary judgment in favor of the Company on one of the plaintiff’s claims; and
(ii) an appeal by plaintiff of a decision in an action against another former tenant
that dismissed plaintiff’s claims after trial. In January 2003, both appeals were
decided against the plaintiff. Plaintiff filed motions for leave to appeal both deci-
sions, which were denied. A trial has been scheduled to commence on May 24,
2004. In a separate action that has been pending since 1975, Solow alleges that
Avon misappropriated the name of its former headquarters building and seeks
damages based on a purported value of one dollar per square foot of leased
space over the term of the lease. Although this action remained dormant for
over twenty years, discovery in the matter has been revived. While it is not
possible to predict the outcome of litigation, management believes that there
are meritorious defenses to the claims asserted and that these actions should
not have a material adverse effect on the Consolidated Financial Statements.
These actions are being vigorously contested.
Avon Products Foundation, Inc. (the “Avon Foundation”) is a defendant in
an arbitration proceeding brought by Pallotta TeamWorks (“Pallotta”) on
September 3, 2002, before Judicial Arbitration and Mediation Services, Inc.
Pallotta asserts claims of breach of contract, misappropriation of opportunity,
tortious interference with prospective contractual arrangement and unfair
competition arising out of the Avon Foundation’s decision to use another
party to conduct breast cancer fundraising events, and seeks unspecified
damages and attorneys’ fees. The arbitrator dismissed Pallotta’s misappropri-
ation claim in January 2003, its unfair competition claim in February 2003 and
its tortious interference claim in July 2003. A hearing on the remaining claim
has been ongoing since July 2003. The Avon Foundation believes that it has
meritorious defenses to the claims asserted by Pallotta and has filed a num-
ber of counterclaims. The Avon Foundation is a registered 501(c)(3) charity
and is a distinct entity from Avon Products, Inc., which is not a party to these
proceedings. While it is not possible to predict the outcome of litigation, man-
agement believes that these proceedings should not have a material adverse
effect on the Consolidated Financial Statements of the Company.
Blakemore, et al. v. Avon Products, Inc., et al. is a purported class action com-
menced in March 2003 in the Superior Court of the State of California on
behalf of “all persons in the United States who were or are Independent Sales
Representatives (‘ISRs’) for Avon from 1999 to the date of judgment who were
shipped product by Avon that the ISR did not order, who were charged for such
product and who were not credited for such charges.” The initial complaint
demanded unspecified damages and equitable, injunctive and/or declaratory
relief for alleged violations of the California Business and Professions Code,
breach of contract, unjust enrichment and “money had and received.” The
Company filed a demurrer to the complaint, asserting that it failed to state a
cause of action. In December 2003, the court sustained the Company’s demur-
rer based on the initial plaintiff’s failure to allege actual damages, but gave the
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