Hostess, Papa Pita reach tentative settlement agreement

by Eric Schroeder
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NEW YORK — Old HB, Inc. (Hostess Brands, Inc.) and five affiliated debtors and debtors in possession on Oct. 16 asked the U.S. Bankruptcy Court for the Southern District of New York to approve a settlement with Salt Lake City-based Papa Pita Bakery.

In the filing, Old HB Inc. and its affiliates said Papa Pita Bakery had agreed to pay $145,000 to settle the suit, which originally was filed on Aug. 7.

The lawsuit stemmed from Old HB’s allegations of defects in Papa Pita’s manufacturing, baking and/or packaging of product that led to a recall of 43,695 units of bread and losses of nearly $158,000 for Old HB.

According to the Aug. 7 filing, Old HB and Papa Pita entered into a one-year agreement on Feb. 8, 2012, under which Papa Pita agreed to bake Kirkland Signature Multigrain Rounds for Old HB to be resold to Costco stores. Kirkland Signature is the house brand of Costco.

Old HB said Costco lodged several complaints regarding the delivered packages of bread, citing defects such as “dark, burnt, thin, cracking, crumbling and tearing multigrain bread.” Costco’s complaints also related to Papa Pita’s failure to seal the internal packaging, which could dry out the bread and cause it to crumble, Old HB said in the lawsuit.

In total, Old HB said it suffered at least $131,521.95 in direct losses. The company said it paid Papa Pita for the products but was unable to obtain payment from Costco due to the defective nature.

Barring any objections, the settlement is expected to be approved at a hearing on Oct. 31.
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