St. Elmo Steakhouse owner Stephen Huse found himself in a precarious position as Marsh Supermarkets Inc.'s deteriorating financial condition forced it to explore a sale in 2005.
As a director of the company, Huse needed to do what was best for shareholders. But he had known Don Marsh for years and, besides that, his daughter is married to Arthur Marsh, one of Don’s sons.
Complicating matters was the fact Don Marsh was resisting the sale to Sun Capital Partners.
“We couldn’t get his focus on the sale as much as we wanted to, and his travel was too much,” Huse recalled during Friday afternoon testimony in Don Marsh’s civil trial. “We needed him there seven days a week, 13 to 14 hours a day.”
As the sale of the company neared, directors attempted to reel in Marsh’s extensive travel by only reimbursing him for trips within Indiana and to Illinois and Ohio, where Marsh had stores.
Marsh’s frequent trips, many of them via the company jet, are at the crux of a lawsuit brought by Marsh Supermarkets. The locally based supermarket chain accuses the former CEO of using company funds to pay more than $3 million in personal expenses. Marsh, 75, spent 38 years leading the public company before it was purchased by Sun Capital in September 2006.
During his testimony, Huse said he has the utmost respect for Marsh and trusted him to reimburse the company for personal expenses. He said directors were more concerned about company revenue and profits and left management to oversee expenses.
Huse told the jury that most every trip Marsh took included some element of business.
“Don didn’t lay around beaches or go to bars,” Huse said. “Don can’t relax. It’s not in his DNA. That’s just the way he is.”
Huse's testimony showed the two men weren't always on the same page, however. One morning during the period when the grocery chain was negotiating with Sun Capital, Marsh attempted to fire Huse over the phone. Huse said he couldn't recall the reason.
“He obviously had had a few drinks,” Huse recalled. “I said, ‘You can’t fire me. I’m a board member. Only shareholders can fire board members.’”
Testimony during the trial has indicated Marsh had a tendency to threaten to fire people, especially Chief Financial Officer Doug Dougherty. Marsh eventually followed through with Dougherty's dismissal in May 2005 only to hire him back that December after his successor, John Elbin, quit.
Elbin, who testified before Huse, told jurors that he resigned because Don Marsh demanded that he cash out his severance from the pending sale to Sun Capital immediately. He refused.
“He proceeded to tell me that he was the chairman and I was a nobody,” Elbin recalled about the meeting between him and Marsh.
When asked about the tone of the meeting by Marsh Supermarkets lawyer David Herzog, Elbin described it as “profanity-laced.”
After Marsh Supermarkets sued Don Marsh in federal court in 2009, he countersued, asserting the company improperly halted his post-retirement payouts in 2008 and owes him more than $2 million of a $4.2 million severance.
Don Marsh persuaded Elbin to return, lured by a $250,000 bonus, only to see Elbin leave permanently three weeks later. A meeting with Pepsi General Bottlers, at which the supplier threatened to reduce Marsh Supermarkets’ credit terms, prompted his departure.
Elbin told the jury that Marsh Supermarkets had produced negative cash flow for nine of the previous 10 years and only turned a profit by selling company property it owned and leasing it back to the store.