Marsh sues Roche over sublease deal

July 28, 2008

Two giants of local business are preparing to slug it out in court over a soured sublease deal.

Marsh Supermarkets filed suit in Hamilton County this month to enforce a deal with Swiss pharmaceutical and medical-equipment powerhouse Roche to sublease the grocer's entire 148,000-square-foot headquarters in Fishers. The deal, worth more than $47 million over 18 years, is one of the largest of its kind in central Indiana in years.

Roche, which has its North American headquarters and 2,800 employees spread over several buildings along I-69 near 96th Street, announced the lease of Marsh's headquarters in March but then in late May said it was backing out.

But Marsh, which has occupied the building since 1991, said not so fast.

"This was not merely a handshake agreement," Marsh spokeswoman Connie Gardner said in a statement. "We have a signed lease, and we have met all the terms. We think that Roche has an obligation, under the lease, to do the same."

The lawsuit, filed July 8, details how far the deal had traveled before Roche pulled the plug. Marsh had vacated most of the building and Roche employees already were moving in and conducting meetings in the auditorium, the suit claims. Roche security guards were monitoring the facility, and tech staffers were installing fiber-optic lines and electronic equipment.

"Roche's abrupt turnaround was a complete shock to Marsh which can only be attributed to an attempt by Roche to manufacture an excuse to extricate itself from the sublease for unknown and unrelated business reasons," the suit claims.

Plenty of big changes were going on at Roche the month it canceled the sublease deal. On May 5, the company said it would transfer 300 local jobs to Germany. And on May 20, the company's North American CEO, Tiffany Olson, resigned abruptly for "personal reasons." Roche's Asia-Pacific chief, Michael Tillmann, took over the local post about a week before the firm told Marsh it was pulling out of the deal.

Roche said it had a right to terminate the deal because Marsh failed to deliver in a timely fashion documents, including a so-called subtenant non-disturbance agreement-standard paperwork that protects sublease tenants in many of the same ways primary tenants are protected, including from eviction if the building owner (in this case, Marsh) defaults on a mortgage.

The sublease deal, signed March 28, allowed about 30 days for Marsh to deliver the non-disturbance agreement signed by its mortgage lender, Bank of America. When the deadline arrived, the parties agreed to a roughly two-week extension, then another extension.

As Marsh sought a third delay, Roche officials grew impatient.

"Once again, we come against a deadline for the SNDA from your landlord's lender and we have nothing as of today," attorney Jeffrey Abrams of locally based Dann Pecar Newman & Kleiman PC wrote in an e-mail May 28. "We probably need another extension but not sure how much longer Roche can keep going in limbo, spending money and moving people etc. if they do not have deal that works for them."

The next day, May 29 Roche General Counsel Steve Oldham sent Marsh a letter informing the company of its decision to terminate the deal. Roche's move apparently lit a fire under Marsh, which finally delivered the nondisturbance agreement at about 4:30 p.m. May 30.

The grocery chain claims the extension agreements, which pushed back the deadline for the non-disturbance agreement to May 30, did not also push back Roche's May 15 deadline for opting out. Roche, of course, claims otherwise.

Marsh is asking the court to force Roche to pay rent until Marsh can find another company to sublease the space and pay the difference between what a new tenant is willing to pay and what Roche had agreed to pay.

The agreement with Roche called for base rent of $2.5 million per year for the first five years and $2.7 million in the final eight years, through 2026. The firm had agreed to pay for its own improvements to the space.

Marsh also is seeking reimbursement of legal expenses and real estate commissions.

Representatives of locally based NAI Olympia Partners represented both sides in the sublease deal. That firm has placed a lien on the property to collect a commission of $1.3 million. Marsh has asked the court to waive the fee if the lease is deemed unenforceable.

NAI Principal Drew Augustin could not be reached by IBJ's deadline. Attorneys for Roche also could not be reached.

Marsh moved its headquarters from Yorktown after it built the four-story building in the Crosspoint commercial park in 1991. The company has since moved several employees to offices at its warehouses on Franklin Road in Indianapolis and in Yorktown. It wasn't clear how many employees remain in the Fishers building.

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