* * *FEATURE* * *Wild Oats Wins Temporary Restraining Order Against Gilliland

A grocery store in Albuquerque, N.M., is still in operation after a recent court hearing, one that forced Wild Oats Markets Inc.'s (NasdaqNM: OATS) co-founder Mike Gilliland to answer charges that he violated a non-compete agreement by helping to found the store that opened in October and also determined that Gilliland had no ownership interest in the business.

Gilliland, who at the time was bound under a non-compete agreement with OATS, was not found to have any ownership interest or investment in the 40,000-sq.-ft. Sun Flower Market located in the Corrales Center in northwest Albuquerque, nor was he found to have decision-making power in its creation. Nonetheless, the district court in Boulder, Colo.—home to Gilliland and OATS headquarters—granted a temporary restraining order against Gilliland in October and mandated that he cease a joint marketing plan with the new store.

Sun Flower is “based on a farmers market concept and heavy on produce,” says Sandra Romero, marketing director. The store sells mainstream brands, local and organic produce and homeopathic remedies. It aims for prices that are “20 to 35 percent below the competition,” according to Pat Gilliland, Sun Flower's president of operations and Mike Gilliland's brother, via an Oct. 4 article in the New Mexico Business Weekly.

The court's ruling will be in effect until there is a hearing on Wild Oats' motion for a preliminary injunction. After the hearing, the court says it will amend the temporary restraining order to include an expiration date. However the court's actions are now essentially irrelevant; OATS has since released Gilliland from his contract. Nonetheless, the court found in October that Gilliland was guilty of directly and indirectly being involved with an OATS' competitor due to a joint marketing arrangement between Sun Flower and the adjoining Westside Liquors and the nearby Milagro Café, in which Gilliland had an ownership interest at the time.

Though court documents state that evidence was “inconclusive” regarding Gilliland's hand in the creation of Sun Flower, the court told Gilliland to seal an entrance between the liquor store and Sun Flower and to cease joint-marketing efforts. In turn, Gilliland sold his 90-percent interest in the establishments to Sun Flower owner and Wild Oats co-founder Randy Clapp. Pat Gilliland also sold his 10-percent interest in the two businesses, according to Mike Gilliland.

Clapp was not bound by a non-compete agreement because he was “never involved with Wild Oats in an internal management capacity,” OATS spokeswoman Sonja Tuitele told LOHAS Journal in October.

Gilliland, whose non-compete contract with OATS was slated to expire in March 2003, says that Wild Oats has since terminated the contract, “which was quite kind of them,” he says.

“We want to have an amicable relationship with Mike Gilliland. He founded our company. Since the non-compete was expiring soon anyway, we decided to release him from it and stop paying severance,” says Tuitele. “Now he is free to do what he wants.”

Until OATS negated the non-compete contract, Gilliland was barred from “directly or indirectly owning, managing, controlling or participating in, consulting with, rendering services for, or in any manner engaging in any supermarket, food store or retailer of health and beauty aids located within a 10-mile radius of any Wild Oats store,” according to court documents. The café and liquor store are within 10 miles of three Wild Oats stores, two of which sell beer and wine and all of which have a café.

The court didn't award monetary damages to Wild Oats, stating that “money damages would be an inadequate remedy.” Nonetheless, Tuitele says that OATS was obligated to its shareholders to protect their interests by pursuing legal action. She said that other than the loss of OATS' employees who now work for Sun Flower, Wild Oats has not experienced any discernable decline in sales since Clapp's store opened in October.

Gilliland resigned his CEO position with OATS in March 2001. He and Elizabeth Cook—a Wild Oats co-founder and Gilliland's wife—sat on the OATS board until December 2001. In August of 2002, Gilliland told LOHAS Journal that he intended to open a natural grocery chain in the Southwest after the expiration of his non-compete agreement.