Avon 2004 Annual Report Download - page 62

Global Beauty 83
Notes to Consolidated
Financial Statements
of Solow’s claims. In a separate action that has been
pending since 1975, Solow alleges that Avon misappro-
priated 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 and trial is scheduled to begin in May 2005.
This action is unaffected by the settlement with Solow.
While it is not possible to predict the outcome of litiga-
tion, management believes that there are meritorious
defenses to the claims asserted and that the remaining
action should not have a material adverse effect on the
Consolidated Financial Statements. This action is being
vigorously contested.
Avon Products Foundation, Inc. (the “Avon Foundation”)
is a defendant in an arbitration proceeding brought by
Pallotta TeamWorks (“Pallotta”) in September 2002,
before Judicial Arbitration and Mediation Services, Inc.
Pallotta asserts claims of breach of contract, misap-
propriation of opportunity, tortious interference with
prospective contractual arrangement and unfair com-
petition arising out of the Avon Foundation’s decision
to use another party to conduct breast cancer fund-
raising events, and seeks unspecified damages and
attorneys’fees. The arbitrator dismissed Pallotta’s
misappropriation claim in January 2003, its unfair com-
petition claim in February 2003 and its tortious interfer-
ence claim in July 2003. A hearing on the remaining
claim commenced in July 2003 and the parties have
now completed the post-hearing briefing stage. Oral
argument before the arbitrator has been scheduled for
March 2005. The Avon Foundation believes that it has
meritorious defenses to the claims asserted by Pallotta
and has filed a number 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, management believes
that these proceedings should not have a material
adverse effect on the Consolidated Financial State-
ments of the Company.
Blakemore,et al.v.Avon Products,Inc.,et al.is a purported
class action pending in the Superior Court of the State of
California on behalf of Avon Sales Representatives who,
“since March 24, 1999, received products from Avon they
did not order, thereafter returned the unordered prod-
ucts to Avon, and did not receive credit for those
returned products.” The complaint seeks unspecified
compensatory and punitive damages, restitution and
injunctive relief for alleged unjust enrichment and viola-
tion of the California Business and Professions Code. This
action was commenced in March 2003. The Company
filed demurrers to the original complaint and three sub-
sequent amended complaints, asserting that they failed
to state a cause of action. The Superior Court sustained
the Company’s demurrers and dismissed plaintiffs’
causes of action except for the unjust enrichment claim
of one plaintiff, the amount of which is nominal. The
court also struck plaintiffs’class allegations. Plaintiffs
filed Petitions for Writ of Mandate with the Court of
Appeal of the State of California seeking to overturn
the Superior Court’s dismissals in respect of the com-
plaints. In June 2004, the Court of Appeal issued an
Alternative Writ of Mandate and Order mandating that
the Superior Court vacate its prior rulings or, in the alter-
native, show cause why such a mandate should not
issue. Separately, plaintiffs filed with the Superior Court a
motion for reconsideration of the court’s decision strik-
ing plaintiffs’class allegations in this matter, which deci-
sion was unaffected by the action of the Court of Appeal.
The Superior Court chose not to vacate its rulings in
respect of the complaints, so the parties were ordered
to prepare briefs to the Court of Appeal regarding the
Superior Court’s order granting the Company’s demur-
rers. The Superior Court also chose not to change its rul-
ing striking plaintiffs’class allegations and the plaintiffs
have appealed that decision to the Court of Appeal.
The parties have fully briefed the Writ of Mandate pro-
ceeding and the appeal of the class allegation issue.
Argument before the Court of Appeal regarding both
the Writ of Mandate and the appeal of the class allega-
tion issue is scheduled to take place in March 2005. The
Company believes that this action is a dispute over pur-
ported customer service issues and is an inappropriate
subject for consideration as a class action. While it is
not possible to predict the outcome of litigation, man-
agement believes that there are meritorious defenses to
the claims asserted and that this action should not have
a material adverse effect on the Consolidated Financial
Statements. This action is being vigorously contested.