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Sun Capital execs 'shocked' by Marsh financials

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Any feelings of satisfaction that executives of Sun Capital Partners had after completing its acquisition of Marsh Supermarkets Inc. quickly turned to “shock and surprise,” a managing director of the private-equity firm told jurors Tuesday.

Sun Capital bought the locally based supermarket chain in 2006 and began paying longtime CEO Don Marsh a $4.2 million severance after the two parties agreed he would no longer remain with the business.

But Marsh Supermarkets, under the direction of Sun Capital, stopped paying Marsh after it says it discovered millions of dollars of travel expenses, some related to visits to mistresses, that he billed to the company.

Marsh’s trips, many of them via the company jet, are at the crux of a civil lawsuit brought by the supermarket chain. It accuses him of using company funds to pay more than $3 million in personal expenses. Marsh, 75, spent 38 years leading the public company before Sun bought it.

“We said, ‘This can’t be true that this went on,’” recalled Scott King, a managing director of Sun Capital. ‘What do we do?’”

What Marsh Supermarkets did was terminate its agreement with Don Marsh about 18 months after the sale, paying him just half his severance. After Marsh Supermarkets sued Don Marsh in federal court in 2009, he countersued, asserting the company improperly halted his post-retirement payouts in 2008.

The decision to halt payment weighed on Marsh Supermarkets, which spent more than a year investigating the company’s finances while worrying about any backlash it might suffer from bad press.

At the time, the iconic chain, founded by Don Marsh’s father in 1931, had more than 100 stores in Indiana, Illinois and Ohio. Moreover, Marsh was one of Indiana’s highest-profile executives for decades and frequently appeared in the company’s TV advertising.

“His last name’s on the building,” King said. “It could harm the business from a PR standpoint to have this out in the papers.”

Marsh Supermarkets ultimately chose to attempt to recoup the expenses from Marsh in court, because “it was not his money to spend; it was the shareholders',” King said.

Sun Capital, which specializes in acquiring companies with $50 million to $500 million in annual revenue, previously had not acquired a company as large as Marsh.

During cross-examination of King, Andrew McNeil, Don Marsh’s lawyer, questioned whether the acquisition was too big for Sun Capital. It took several months for the deal to close, rather than the 30 days it typically takes the private-equity firm to conclude a purchase.

Without Sun Capital, Marsh Supermarkets likely would have ended up in bankruptcy, King said. A former Marsh CFO told jurors Friday that he sought out bankruptcy lawyers for advice.

Sun Capital replaced Don Marsh with Frank Lazaran, a veteran supermarket executive who arrived to a CEO's office devoid of documents or files. He testified via deposition Tuesday that he didn’t understand Marsh Supermarkets’ e-voucher system used to track Don Marsh’s expenses.

“I'd never seen anything like it,” Lazaran said in his deposition.

Attorneys for Don Marsh defend the expenses, saying they were within the boundaries of his employment contract. And they say his extensive travels were justified to promote the company and stay on top of trends in food retailing.

Also testifying Tuesday morning was Patrick Calhoun, a former IRS special agent hired by the supermarket chain to look into Don Marsh's expenses from 1999 to 2006 and determine whether they were "ordinary and necessary."

Among the discoveries he discussed on the stand:

— $927,210 in "non-deductible outings" that were improperly expensed. Examples include taxidermy services and hunting licenses.

— $804,141 in costs for personal use of the company airplane, versus $906,997 for business use. After reviewing aircraft records, Calhoun determined that 47 percent of the flights were for personal business, far more than the 10 percent that Don Marsh reported.

Lawyers for Marsh Supermarkets are expected to wrap up their case against Don Marsh on Tuesday afternoon and could call David Marsh, Don Marsh’s son, as their last witness. David worked under his father as company president.

Marsh Supermarkets launched a legal fight against David in 2006 after he sued the company, alleging it shorted him $102,000 on his $2.1 million severance package. The company shot back that he had used the company “as his personal checkbook,” submitting expenses from family trips, and must repay more than $750,000. The parties reached a confidential settlement in 2007.

Don Marsh’s trial is expected to last two weeks and should conclude Friday.
 

Originally published in IBJ Daily, a sister publication of Indiana Lawyer.

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  1. Applause, applause, applause ..... but, is this duty to serve the constitutional order not much more incumbent upon the State, whose only aim is to be pure and unadulterated justice, than defense counsel, who is also charged with gaining a result for a client? I agree both are responsible, but it seems to me that the government attorneys bear a burden much heavier than defense counsel .... "“I note, much as we did in Mechling v. State, 16 N.E.3d 1015 (Ind. Ct. App. 2014), trans. denied, that the attorneys representing the State and the defendant are both officers of the court and have a responsibility to correct any obvious errors at the time they are committed."

  2. Do I have to hire an attorney to get co-guardianship of my brother? My father has guardianship and my older sister was his co-guardian until this Dec 2014 when she passed and my father was me to go on as the co-guardian, but funds are limit and we need to get this process taken care of quickly as our fathers health isn't the greatest. So please advise me if there is anyway to do this our self or if it requires a lawyer? Thank you

  3. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  4. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  5. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

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