Marsh Supermarkets, Inc. v. Marsh
| Decision Date | 08 March 2012 |
| Docket Number | 1:09-cv-00458-SEB-TAB |
| Parties | MARSH SUPERMARKETS, INC., Plaintiff/Counterclaim Defendant v. DON E. MARSH, Defendant/Counterclaim Plaintiff. DON E. MARSH, Third Party Plaintiff v. EMPLOYMENT AGREEMENT BY AND BETWEEN DON E. MARSH AND MARSH SUPERMARKETS, INC., Third Party Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
This matter comes before the Court on the Motion for Summary Judgment [Docket No. 95], filed on April 18, 2011 by Defendant, Don E. Marsh ("Mr. Marsh").1 Marsh Supermarkets, Inc. has brought this lawsuit against Mr. Marsh, its former Chairman and Chief Executive Officer (CEO), asserting breach of contract, fraud, and a claim under ERISA § 502(a)(3)(B)(ii). Mr. Marsh now moves for summary judgment on all counts of Plaintiff's First Amended Complaint. Further, he seeks summary judgment with respectto three counts contained in his Amended Counterclaim: Count I, which asserts violations of ERISA, 29 U.S.C. § 1132(a)(1); Count Two, which asserts breach of contract by Marsh Supermarkets; and Count VI, which requests a declaratory judgment pursuant to 28 U.S.C. § 2201. Having considered the parties' briefing and documentary evidence filed in connection with this motion, the Court now DENIES Defendant's Motion for Summary Judgment.2
Marsh Supermarkets ("the Company") is an Indiana corporation with its principal place of business in Indianapolis, Indiana. First Am. Compl. ¶ 5. The Company does business as a regional grocery chain headquartered in Indianapolis; it also has satellite locations throughout Indiana and Ohio. Id. ¶ 2 & n.1. Mr. Marsh is a resident of Hamilton County, Indiana and was formerly the Chairman and CEO of the Company. Id. ¶¶ 1, 6. He assumed these roles with the Company in 1968 and continued to serve in such capacity until September of 2006. Id. ¶ 7; Def.'s Br. at 3.
This lawsuit reflects the Company's efforts to recoup the allegedly substantial financial losses caused by Mr. Marsh during his term as CEO of the Company. Mr.Marsh is accused of an ongoing pattern consisting of literally hundreds of instances extending over several years whereby he essentially treated the Company's coffers as his personal wallet to finance a lavish lifestyle. The Company contends that Mr. Marsh was able to perpetrate these excesses and secure reimbursement for them by relying on an "e-voucher" system4 that permitted him to self-classify his expenses and obtain reimbursement without any review or necessary approval by other corporate officers or the Board of Directors (the "Board"). Through this system, the Company alleges that Mr. Marsh defrauded it out of millions of dollars and placed it at risk with the Internal Revenue Service (IRS) for improper deductions, which the Company later repaid with penalties. For purposes of the summary judgment motion filed by Mr. Marsh, the factual details constituting his "bad acts" are not disputed.
In August 1999, the Company's Compensation Committee entered into new employment contracts with Mr. Marsh and other senior executives. Def.'s Br. at 6. The employment agreement between Mr. Marsh and the Company (the "Agreement") had a term of five years, with automatic yearly extensions unless either party gave written notice to the other of termination. In any event, the term of the Agreement was to end on the date of Mr. Marsh's voluntary retirement from the Company. Agrmt. at 2. The lawfirm of Faegre Baker Daniels LLP, counsel for the Company, prepared the Agreement, and the Compensation Committee "relied on [counsel] . . . to guide it on the [A]greement." Def.'s Br. at 6-7.
The Agreement required Don Marsh to act as Chairman of the Board, President, and CEO of the Company. In performing the duties associated with these positions, which were explicitly deemed "personal to the Executive," Mr. Marsh was subject to the direction of the Board. Thus, he was to report regularly to the Board and any of its executive committees. Agrmt. at 2-3, 11. He further "agree[d] to devote substantially his full time, attention and energies to the Company's business," although he was permitted to participate in charitable activities "as long as such activities [did] not materially interfere with his work for the Company." Id. at 3.
Article 5 of the Agreement set out the terms of Mr. Marsh's compensation and related employment benefits. Id. at 3-5. In particular, Section 5.7 detailed the perquisites the Company agreed to provide him, which included a car. Id. at 4. Further, Section 5.8 reserved the Company's right to change or discontinue any "bonus, incentive, or benefit plan or perquisite" as long as it was considered standard practice and did not "adversely affect any vested right of the Executive thereunder." Id. at 5. Article 6 contained the Company's promise to reimburse Mr. Marsh "for all ordinary and necessary business expenses, in a reasonable amount, which the Executive incur[red] in performing his duties under this Agreement," in accordance with then-existing policies. Id.
Article 7 of the Agreement covered terminations of employment by death and/ordisability, as well as "for cause" terminations by the Board based on any grounds specified in Section 8.1, to wit:
(a) the willful and continued failure of the Executive to perform substantially the Executive's duties owed to the Company after a written demand for substantial performance is delivered to the Executive which specifically identifies the nature of such non-performance; (b) the willful engaging by the Executive in gross misconduct significantly and demonstrably injurious to the Company; or ©) conduct by the Executive in the course of his or her employment which is a felony or fraud that results in material harm to the Company.
Agrmt. at 8. The Company could also terminate Mr. Marsh's employment "without cause," and Mr. Marsh had the reciprocal power to terminate the Agreement "for good reason." Id. at 6-7. Additionally, Mr. Marsh had the right to terminate the Agreement upon his retirement. Id. at 7.
The terms of any ensuing financial payout by the Company to Mr. Marsh based on each type of potential termination of his employment were also detailed in the Agreement. One term to which the parties have attached particular significance is Section 8.7 of the Agreement, which defined the Salary Continuation Benefit in relation to Mr. Marsh's base salary and annual bonuses during the ten years prior to the termination date. Agrmt. at 10. Various methods of termination under the Agreement required the Company to pay Mr. Marsh this benefit. Notably, the Salary Continuation Benefit accompanied termination "without cause" but was unavailable in a "for cause" termination. Id. at 6.
Several other provisions in the Agreement were routine inclusions and are not in apparent dispute in this lawsuit. The section on which Mr. Marsh relies in seekingsummary judgment is Section 12.7, entitled "Payment Obligation Absolute." Section 12.7, which Mr. Marsh characterizes as a "hell-or-high-water provision," provides in its entirety as follows:
Agrmt. at 13; see Def.'s Br. at 1.
In May 2005, Mr. Marsh fired the Company's Chief Financial Officer and hired John Elbin in July of that year as a replacement. Mr. Elbin investigated the Company's financial situation and reported to the Board shortly thereafter that expenses—including executive expenses and those involving the Company's airplane—needed to be reduced. Elbin Dep. at 29-30; Def.'s Br. at 9. Following the Board's discovery of Mr. Marsh's pervasive and extensive misappropriations of Company funds for his personal gain, and of his son David's similar patterns of financial abuses utilizing the e-voucher system, the Company was made aware that their abuses had brought it to the point where the Company "was being self-liquidated" such that it "would crash." Elbin Dep. at 19-21; Def.'s Br. at 8. Facing possible insolvency, the Board decided to sell the Company. Elbin Dep. at 19-21; Def.'s Br. at 8-9.
When David Marsh refused a modification to his Agreement with the Company, his employment was terminated "without cause" in February of 2006. See Def.'s Br. Ex. 1 Tab A (Huse Dep.). David rejoined by suing the Company for severance benefits to which he claimed was entitled.5 The Company classified this action as "termination without cause" but advised David by letter as follows:
[A] former officer . . . has recently advised the Board that "corporate irregularities" have occurred . . . . If you have been involved in any such regularities that would constitute "Cause" . . . or if you have concealed those irregularities from the Board in violation of your fiduciary duties, such concealment would have effectively prevented the Board from proceeding with termination procedures...
To continue reading
Request your trial