Bashas' to pay $1.5M to settle meat-mislabeling charges at some AJ's

2013-08-31T00:10:00Z 2013-08-31T18:32:43Z Bashas' to pay $1.5M to settle meat-mislabeling charges at some AJ'sBy David Wichner Arizona Daily Star Arizona Daily Star

Arizona grocer Bashas’ Inc. has agreed to pay nearly $1.5 million to settle charges that it mislabeled some beef as “prime” and sold it at premium prices — typically $35.99 per pound — at some of its AJ’s Fine Foods locations.

John S. Leonardo, U.S. attorney for Arizona, announced late Friday that Bashas’ agreed to execute a “nonprosecution agreement” concerning meat mislabeling practices that occurred at certain AJ’s locations between January 2010 and February 2012.

It was not clear whether the one AJ’s location in Tucson was involved. At the time, Bashas’ operated 12 AJ’s locations in the Phoenix area and the one at 2805 E. Skyline Drive in Tucson.

Under the agreement, Bashas’ has admitted and accepted corporate responsibility for “the misconduct of the employees who were responsible for the mislabeling practices,” the U.S. Attorney’s Office said.

In a prepared statement, Bashas’ Inc. President and CEO Edward “Trey” Basha said the company fully cooperated with authorities.

“This mislabeling issue serves as both a challenge and impetus for everyone in our company to adhere to the highest standards of integrity with everything we do,” Basha said.

As part of the settlement, Basha noted that the company has taken a number of remedial measures — including disciplining or firing culpable employees, retraining employees and adopting a “comprehensive compliance program” to prevent the misconduct from recurring.

Bashas’ also has agreed to provide restitution totaling $1,472,487 — the total sales generated from the sale of the misbranded meat — to be split among the Community Food Bank of Southern Arizona, St. Mary’s Food Bank, United Food Bank, the Salvation Army, St. Vincent de Paul Food Bank and the Association of Arizona Food Banks.

The U.S. Attorney’s Office said that between January 2010 and February 2012, some meat-department employees took beef tenderloin steaks that had been graded as “Choice” under the U.S. Department of Agriculture’s meat-grading system, mislabeling those steaks as “Prime” (a higher grade), and then sold them to customers.

Because “Prime” steak is usually more expensive than “Choice” steak — AJ’s typically sold “Prime” steak for $35.99 per pound and sold “Choice” steak for $25.99 a pound during the relevant time period — customers were being overcharged because of mislabeling practices, the government said.

During the same period, some AJ’s employees also mislabeled some American-style “Kobe” ground beef, a special breed of beef that was typically sold for $5.99 per pound, according to the settlement.

Specifically, these AJ’s locations followed a practice of adding trimmings from non-“Kobe” meat products — including some higher-priced cuts — to the “Kobe” ground beef mixture in an effort to improve the consistency of the grind, the government said.

“As result, the product being sold by these AJ’s locations as ‘Kobe’ ground beef was not, in fact, composed solely of ‘Kobe’ ground beef,” the settlement stated.

In total, the offending AJ’s locations sold about 17,636 pounds of mislabeled “Prime” tenderloin steaks and 139,861 pounds of mislabeled “Kobe” ground beef to customers, generating sales equal to the settlement amount.

In interviews with investigators, AJ’s meat managers offered a variety of explanations for their conduct, the U.S. Attorney’s Office said.

Some stated they felt entitled to “upgrade” the tenderloins because they disagreed with the initial “Choice” grade assigned by the USDA. Others stated they believed it was all right to label and sell certain tenderloins as “Prime,” even if those tenderloins had been delivered in a “Choice” box, as long as the individual tenderloins met “Prime” grading requirements.

Others stated they would engage in mislabeling whenever the AJ’s distribution center would run out of “Prime” tenderloins, to avoid disappointing customers. And still others said they engaged in mislabeling “because they felt pressure to satisfy their store’s profit-margin target,” even though AJ’s neither rewarded nor penalized managers based on such profit targets, the U.S. Attorney’s Office said.

The investigation by the USDA began after the agency received a tip about the mislabeling from an unidentified tipster in November 2011, the U.S. attorney said.

The U.S. Attorney’s Office said it decided to enter into the settlement based on Bashas’ cooperation; the willingness of the company to accept responsibility; the absence of any prior similar misconduct or evidence that upper management was aware of the misconduct; and the fact that the USDA concluded that the misconduct did not pose a health risk.

Basha said the company and the U.S. attorney decided the fine would be paid to food charities because of the logistical difficulty of identifying individual customers who had been harmed by the mislabeling.

Bashas’ compliance program will be monitored by the USDA for two years under the settlement.

Contact Assistant Business Editor David Wichner at dwichner@azstarnet.com or 573-4181.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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