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Lack of restraint caused Marsh family's downfall

February 9, 2013

Perhaps Marshes would still be running the storied grocery chain if CEO Don Marsh and other family members had learned to pinch a few pennies along the way.

It’s hard not to ponder that scenario after listening to hour upon hour of damaging testimony in the civil trial over Don Marsh’s hefty expense reimbursements. Marsh Supermarkets Inc.’s attorney, David Herzog of Faegre Baker Daniels, has been painstakingly quizzing Marsh about trips to France, England and Ireland and to innumerable destinations within the United States—from Mardi Gras in New Orleans to the Grammy Awards in Los Angeles.

Marsh, 75, seemed to label almost everything a business expense, even those with no obvious connection to the regional grocery chain. And he allowed those around him to spend big as well. For instance, Marsh Supermarkets paid for his son David, Marsh’s president at the time, to travel to South Africa and New Zealand and to go with his wife for eight days to Tahiti to verify it was a suitable locale for winners of one of the company’s customer contests.

In the jury trial, which began Feb. 4 and is expected to run at least two weeks, Fishers-based Marsh Supermarkets is seeking to recover millions of dollars in expenses it says Don Marsh improperly billed the company.

In addition to defending his expenses, Don is turning the tables and arguing the company owes him millions for improperly halting retirement payouts in 2008, two years after Florida-based Sun Capital Partners acquired the chain for $88 million in cash and the assumption of $237 million in debt. His unceremonious dumping at the deal’s closing came in a terse letter—ironically on Marsh letterhead bearing the company’s slogan at the time, “We value you.”

‘Company would crash’

What’s extraordinary about the spending spree was that it continued even as the company’s financial condition grew increasingly precarious. In a 2011 deposition, John Elbin said that within weeks of becoming the chain’s chief financial officer in 2005, he realized the company had reported negative free cash flow for nine years and counting—a trend masked by the sale of property holdings.

“Essentially, the company was being liquidated over the 10 previous years by selling off real estate to fund the negative free cash flow and pay the dividend,” Elbin, who is expected to testify during the trial, said in the deposition.

“So this company was being self-liquidated. And when the real estate ran out … the company would hit a brick wall, the company would crash, and go into bankruptcy.”

Despite such pressures—and despite the fact the company was publicly traded and thus accountable to outside investors—Marsh Supermarkets’ payroll was loaded with Marsh family members.

marsh-don-mug Marsh

A Securities and Exchange Commission filing shows that in 2005 the company had nine employees who were Marshes or married to Marshes. Don earned $1.3 million in salary and bonus, David $477,000 and the seven others collectively earned $1.6 million.

Bad blood

It’s clear that Sun runs a much tighter ship, which sometimes shows up in negative ways in its stores. Don has made no effort to hide his distaste for the “new Marsh” or its owner.

When the company launched its legal assault three years ago, he said in a statement: “It is clear the out-of-state, venture capitalist group is looking for someone to blame for their own poor business practices which have severely impacted the company I once proudly led.”

But the flip side is that Marsh today remains in business, which might not have been the case had the family continued to call the shots and continued its free-spending ways.

Elbin had tried to sound alarm bells after coming aboard—launching efforts to ground the company plane and rein in Don’s and David’s expense reimbursements, for example. But Elbin said in his deposition that he “got into it very quickly” with Don. He resigned four months after arriving, citing disagreements with other senior executives.

Elbin said in his deposition that it was bad enough that Marsh was in dire straits. But making matters worse was the fact that other senior executives did not seem to grasp that was the case.

“I thought the odds of imploding were pretty high,” Elbin said. Because he was CFO, he feared he would be legally liable. “So, yeah, I was concerned.”•

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