Marsh Supermarkets sues former CEO

Cory Schouten
March 31, 2009
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Marsh Supermarkets Inc. has sued its former CEO, Don E. Marsh, alleging he treated the company like "a personal checkbook" to bankroll extravagant trips, maintain vacation homes and hide personal relationships with female employees.

The company claims Marsh shredded documents before he left the company in 2006 to hide his "inappropriate activities" - including personal use of petty cash and a so-called executive voucher system outside the company's normal accounting system. Those payments, along with Don Marsh's frequent use of a company plane for personal trips, have drawn the attention of the IRS.

The locally based grocery chain plans to ask the court for millions in damages from Don Marsh, the son of company founder Ermal Marsh. It also is seeking repayment of the more than $1 million per year in "salary continuation benefits," lifetime medical insurance and other perks it has been paying to its former CEO.

Marsh, who left the formerly publicly traded company in 2006 after Florida-based Sun Capital Partners took the firm private, did not return a phone message left by IBJ today at his Carmel home.

However, in a statement e-mailed by his attorney, Marsh denied the allegations.

"I am extremely proud of the home-grown company that I worked so hard to build and am especially thankful for the talented employees I enjoyed working with everyday," Marsh said in the statement. "It is very disappointing, now more than two years after my retirement, the new owner of Marsh Supermarkets would resort to such extreme misrepresentations.

"The allegations are false and it is clear the out-of-state, venture capitalist group ownership is looking for someone to blame for their own poor business practices which have severely impacted the company I once proudly led."

The current leaders of Marsh Supermarkets disagree.

"Mr. Marsh abused his position and often put his and his family's interests above those of the entity that it was his duty to serve," the company says in the suit, filed March 25 in Hamilton Superior Court. "Mr. Marsh used millions of dollars of the company's funds to travel the world, to maintain vacation homes, and inappropriately to finance personal relationships (and in some cases to keep them hidden)."

Marsh's current CEO, Frank Lazaran, said in a statement that "appropriate controls" are in place to prevent such abuses in the future.

"Unfortunately, this action became necessary after months of unsuccessful attempts to settle this matter with Mr. Marsh," Lazaran said in a statement e-mailed to IBJ today. "As CEO of Marsh Supermarkets, I clearly understand my role of protecting our company's assets, and I give the highest priority to our fiscal responsibility and understand the importance of safeguarding the interests of our owners and our associates."

The attorney who filed the case for Marsh Supermarkets, David K. Herzog of Baker & Daniels LLP, declined to comment.

It appears an audit by the IRS of Don Marsh's use of petty cash, e-vouchers and the company's jet prompted the lawsuit. The audit has yet to determine how much the grocery chain owes.

"The company is spending considerable time and money responding to the IRS audit and may be subjected to additional taxes or penalties," the suit says. "All such expenses and any losses are and will be a result of Mr. Marsh's misbehavior described above."

The suit says Marsh took more than 350 trips outside of the chain's footprint in Indiana and Ohio, using the e-vouchers or the company jet. Those trips included at least 25 international jaunts from 2000 to 2006.

Marsh began his tenure as CEO in 1978. The company was founded in 1931 in Muncie and went public in 1953.

Marsh also took trips paid for by vendors, including to the Olympics, Wimbledon and the Ryder Cup with Coca-Cola, and the Grammy Awards with Cadbury Schweppes. The suit says those extravagant freebies stripped the company of an ability to negotiate better terms with the vendors.

Marsh also used the company plane to travel to Michigan, Colorado, Florida and the Dominican Republic, where he owns condos. All told, Marsh spent more than half his time as CEO traveling outside of Indiana "for reasons that had little or no benefit to the company," the suit alleges.

In the suit, the company claims Don Marsh:

- Used the company's petty cash to make charitable donations he later deducted on his personal tax return.

- Used surveillance equipment to illegally monitor "certain individuals and activities at the company's expense."

- Charged the company to send his family's Christmas cards, at a cost of roughly $25,000 per year.

- Took his family on vacations to Africa and New Zealand at a cost to the company of $60,000 and $89,000, respectively.

- Used the company jet in 2005 to take two plane loads of family members to New York for the Macy's Thanksgiving Day Parade.

- Used the company jet to "take female employees on vague business trips to such places as Chicago or New York City. Mr. Marsh occasionally continued these 'meetings' even after the female employees involved had left Marsh Supermarkets."

- Bought the loyalty of his subordinates with "substantial salaries, trips, extravagant gifts and substantial separation packages." One of his assistants got $260,000 in severance benefits after resigning from the company.


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