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. Especially I would like to see all the republican voting patriotic good ole boys to stop and understand that the wars they have been volunteering for all along (especially the past decade at least) have not been for God & Jesus etc no far from it unless you think George Washington's face on the US dollar is god (and we know many do). When I saw the movie about Chris Kyle, I thought wow how many Hoosiers are just like this guy, out there taking orders to do the nasty on the designated bad guys, sometimes bleeding and dying, sometimes just serving and coming home to defend a system that really just views them as reliable cannon fodder. Maybe if the Christians of the red states would stop volunteering for the imperial legions and begin collecting welfare instead of working their butts off, there would be a change in attitude from the haughty professorial overlords that tell us when democracy is allowed and when it isn't. To come home from guarding the borders of the sandbox just to hear if they want the government to protect this country's borders then they are racists and bigots. Well maybe the professorial overlords should gird their own loins for war and fight their own battles in the sandbox. We can see what kind of system this really is from lawsuits like this and we can understand who it really serves. NOT US.... I mean what are all you Hoosiers waving the flag for, the right of the president to start wars of aggression to benefit the Saudis, the right of gay marriage, the right for illegal immigrants to invade our country, and the right of the ACLU to sue over displays of Baby Jesus? The right of the 1 percenters to get richer, the right of zombie banks to use taxpayer money to stay out of bankruptcy? The right of Congress to start a pissing match that could end in WWIII in Ukraine? None of that crud benefits us. We should be like the Amish. You don't have to go far from this farcical lawsuit to find the wise ones, they're in the buggies in the streets not far away....

  2. Moreover, we all know that the well heeled ACLU has a litigation strategy of outspending their adversaries. And, with the help of the legal system well trained in secularism, on top of the genuinely and admittedly secular 1st amendment, they have the strategic high ground. Maybe Christians should begin like the Amish to withdraw their services from the state and the public and become themselves a "people who shall dwell alone" and foster their own kind and let the other individuals and money interests fight it out endlessly in court. I mean, if "the people" don't see how little the state serves their interests, putting Mammon first at nearly every turn, then maybe it is time they wake up and smell the coffee. Maybe all the displays of religiosity by American poohbahs on down the decades have been a mask of piety that concealed their own materialistic inclinations. I know a lot of patriotic Christians don't like that notion but I entertain it more and more all the time.

  3. If I were a judge (and I am not just a humble citizen) I would be inclined to make a finding that there was no real controversy and dismiss them. Do we allow a lawsuit every time someone's feelings are hurt now? It's preposterous. The 1st amendment has become a sword in the hands of those who actually want to suppress religious liberty according to their own backers' conception of how it will serve their own private interests. The state has a duty of impartiality to all citizens to spend its judicial resources wisely and flush these idiotic suits over Nativity Scenes down the toilet where they belong... however as Christians we should welcome them as they are the very sort of persecution that separates the sheep from the wolves.

  4. What about the single mothers trying to protect their children from mentally abusive grandparents who hide who they truly are behind mounds and years of medication and have mentally abused their own children to the point of one being in jail and the other was on drugs. What about trying to keep those children from being subjected to the same abuse they were as a child? I can understand in the instance about the parent losing their right and the grandparent having raised the child previously! But not all circumstances grant this being OKAY! some of us parents are trying to protect our children and yes it is our God given right to make those decisions for our children as adults!! This is not just black and white and I will fight every ounce of this to get denied

  5. Mr Smith the theory of Christian persecution in Indiana has been run by the Indiana Supreme Court and soundly rejected there is no such thing according to those who rule over us. it is a thought crime to think otherwise.