SAN FRANCISCO -- Interstate Brands Corp. has no employment practices liability insurance to cover the nearly $130 million in damages that the wholesale bakery was ordered to pay last week to 21 employees who brought racial discrimination charges against the company.

Kansas City, Mo.-based IBC, a wholly owned subsidiary of Interstate Bakeries Corp. and the producer of Wonder and Home Pride breads and Twinkie snack cakes, denied all the allegations and said it would appeal the verdict -- which included a punitive award of $120 million.

Judge Stuart Pollack of the San Francisco Superior Court cut the original $11 million compensatory award to $5.8 million last Wednesday but denied a stay of the judgments, IBC said.

Of the 21 African-American plaintiffs at three IBC operations in California, the jury found that IBC had acted with malice and oppression toward 17 of them, who will subsequently share the punitive award. All 21 will share the compensatory award.

In a statement, IBC said, "We believe that plaintiff's counsel failed to produce any evidence upon which punitive damages could be granted." The company also said that it believes the verdict "was not supported by the company's record and that the allegations are unsubstantiated."

IBC "has a strong record of ensuring that every employee works in an environment free from discrimination," according to the statement. "We are committed to equal opportunity and diversity and, therefore, we cannot and will not tolerate discrimination under any circumstances. IBC takes all allegations of discrimination seriously, and we have policies and procedures in place to address workplace allegations quickly and fairly."

Angela Alioto, the San Francisco-based attorney who represented 17 of the 21 plaintiffs, described IBC's employment practices as "insidious" and called the punitive damage award "reasonably based."

"This verdict is going to deter discrimination in the corporate workplace," predicted Ms. Alioto, of the law offices of Joseph L. Alioto & Angela Alioto. "There couldn't be a more-precise way of deterring this type of conduct."

"Discrimination in the workplace is totally out of control," Ms. Alioto added. "Human resource departments of huge corporations are not doing what they should be doing, and that is responding to (discrimination) complaints."

The plaintiffs wrote "letter after letter" to IBC's human resources department and to management complaining about the discrimination, but to no avail, Ms. Alioto said.

Most of the plaintiffs work or worked in IBC's San Francisco-based Wonder Bread plant. They allege, among other complaints, that they were subject to ongoing racial slurs and unfair working conditions for more than 30 years. They also alleged in their lawsuits that IBC hires African-Americans only for entry-level and low-level positions and consistently fails and refuses to promote them.

According to the two complaints filed in 1998 and 1999 that were later consolidated, IBC has roughly 600 employees at its San Francisco plant, of whom 25 are African-American. Court papers said that, at the San Francisco location, only two African-American foremen hold positions above entry level.

The complaints note that, of the 48 salesmen in the San Jose, Calif., distribution plant, two are African-American, and of the 35 salesmen operating out of the Oakland, Calif., distribution plant, four are African-American. According to the court papers, no African-American in any of the three locations, some of whom have been with the company more than 20 years, holds a management position.

Gerald L. Maatman Jr., a partner at law firm Baker & McKenzie in Chicago, stressed the importance of having a diverse workforce, having African-Americans in management positions and having a workplace where everyone has equal opportunity. When a racial minority ends up on the negative end of the equation, Mr. Maatman said, the costs can be catastrophic.

"Texaco proved it three years ago," he said, referring to the $176.1 million settlement of a race discrimination suit agreed to by the White Plains, N.Y.-based oil company in late 1996. "Race discrimination cases are a real danger for Fortune 500 companies."

Mr. Maatman, who serves as chairman of Baker & McKenzie's global labor, employment and employee benefits practice group, called the verdict a wake-up call for Fortune 500 risk managers who haven't purchased employment practices liability insurance. Still, he said, he does not believe that the punitive damage award will stand.

"The trial court judge will cut damages by 25% to 50% before the case gets up to the appellate court," Mr. Maatman predicted.

Allegations of race discrimination against IBC are not limited to California. Currently, the company is defending itself against three race discrimination suits, in Denver, New York and Orlando, Fla., an IBC spokesman confirmed. The spokesman also noted that a race discrimination suit in Indianapolis is on appeal after a judgment against the plaintiffs was rendered earlier this year.

Carroll et al. vs. Interstate Brands Corp. et al.; Superior Court of the State of California in and for the City and County of San Francisco, Case No. 995728.

Bryant et al. vs. Interstate Brands Corp. et al., Superior Court of the State of California in and for the City and County of San Francisco; Case No. 304142.

Endtext