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. This is ridiculous. Most JDs not practicing law don't know squat to justify calling themselves a lawyer. Maybe they should try visiting the inside of a courtroom before they go around calling themselves lawyers. This kind of promotional BS just increases the volume of people with JDs that are underqualified thereby dragging all the rest of us down likewise.

  2. I think it is safe to say that those Hoosier's with the most confidence in the Indiana judicial system are those Hoosier's who have never had the displeasure of dealing with the Hoosier court system.

  3. I have an open CHINS case I failed a urine screen I have since got clean completed IOP classes now in after care passed home inspection my x sister in law has my children I still don't even have unsupervised when I have been clean for over 4 months my x sister wants to keep the lids for good n has my case working with her I just discovered n have proof that at one of my hearing dcs case worker stated in court to the judge that a screen was dirty which caused me not to have unsupervised this was at the beginning two weeks after my initial screen I thought the weed could have still been in my system was upset because they were suppose to check levels n see if it was going down since this was only a few weeks after initial instead they said dirty I recently requested all of my screens from redwood because I take prescriptions that will show up n I was having my doctor look at levels to verify that matched what I was prescripted because dcs case worker accused me of abuseing when I got my screens I found out that screen I took that dcs case worker stated in court to judge that caused me to not get granted unsupervised was actually negative what can I do about this this is a serious issue saying a parent failed a screen in court to judge when they didn't please advise

  4. I have a degree at law, recent MS in regulatory studies. Licensed in KS, admitted b4 S& 7th circuit, but not to Indiana bar due to political correctness. Blacklisted, nearly unemployable due to hostile state action. Big Idea: Headwinds can overcome, esp for those not within the contours of the bell curve, the Lego Movie happiness set forth above. That said, even without the blacklisting for holding ideas unacceptable to the Glorious State, I think the idea presented above that a law degree open many vistas other than being a galley slave to elitist lawyers is pretty much laughable. (Did the law professors of Indiana pay for this to be published?)

  5. Joe, you might want to do some reading on the fate of Hoosier whistleblowers before you get your expectations raised up.