Marsh Supermarkets, Inc. v. Marsh

• Decision Date: 29 July 2013
• 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

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.

1:09-cv-00458-SEB-TAB

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION

Dated: July 29, 2013

ORDER ON POST-TRIAL CLAIMS

This matter is before the Court for decision on several issues not resolved during the recent ten-day jury trial. On February 15, 2013, the jury returned a verdict finding (1) that Don E. Marsh ("Mr. Marsh") breached his employment agreement ("the Employment Agreement") with Marsh Supermarkets, Inc. ("the Company"); (2) that Mr. Marsh committed actual and constructive fraud against the Company;¹ and (3) that the Company did not file a false tax information claim with the Internal Revenue Service against Mr. Marsh. The jury awarded damages to the Company in the amount of $1,400,000 on its breach of contract claim and $800,000 on its fraud claim. Variousequitable issues were reserved for subsequent decision by the Court. Having thoroughly reviewed the evidence adduced at trial and the parties' post-trial submissions, we now address and resolve the remaining issues in this protracted conflict. The residual claims and counterclaims before us are the following:

(1) whether the Company is entitled to equitable relief under ERISA § 502(a)(3) (Count III of the Company's Amended Complaint);

(2) whether Mr. Marsh is entitled to equitable relief under ERISA § 502(a)(3) (Count I of Mr. Marsh's Amended Counterclaim);

(3) whether the Company breached Mr. Marsh's Employment Agreement (Count II of Mr. Marsh's Amended Counterclaim); and

(4) whether Mr. Marsh and/or the Company is entitled to recover attorneys' fees and costs under ERISA § 502(g) (Count VI of Mr. Marsh's Amended Counterclaim).

I. Findings of Fact

Despite the Court's familiarity with the parties' positions on these issues, we begin with a brief reprisal of the salient facts. The February jury trial commenced as the culmination of what had become a widely publicized standoff between the Company and its former Chief Executive Officer (CEO). Copious evidence was introduced by the Company to demonstrate that Mr. Marsh inappropriately dipped into corporate coffers for years to finance a "lifestyle of the rich and famous." To that end, the Company contended that Mr. Marsh exploited an "e-voucher" system through which he self-classified entries on his credit card statements and invoices, and received full reimbursement from the Company for expenses not earmarked by him as "personal."² Mr. Marsh's self-conducted classification system, it should be noted, was liberal in his favor. TheCompany's accounting department did not review Mr. Marsh's representations to ensure that such expenses were properly reimbursable or otherwise payable. Under this system, which afforded him virtually unfettered discretion, Mr. Marsh spent millions of Company dollars on hunting expeditions, lavish gifts, spa services, dalliances with several paramours, elaborate Christmas cards, and family vacations, most of which also included his personal uses of the Company plane.³

Mr. Marsh's extensive misappropriations eventually brought the Company to the point of financial collapse, which fact became known to the Board of Directors ("the Board") following John Elbin's installation as Chief Financial Officer (CFO) in July 2005. Mr. Elbin's investigation of the Company's financial crisis and threatened demise (and the extent to which Mr. Marsh's conduct⁴ affected this breakdown) informed two major corporate changes: (1) the sale of the Company to Sun Capital Partners, Inc., and (2) Sun Capital's installation of Frank Lazaran as the Company's new CEO. In late 2005 and early 2006, the Board first learned the details of the "e-voucher" system based in major part on a four-year expense report prepared by accountant Steve May. Former CFO Doug Dougherty discussed the contents of Mr. May's report (and his view that Mr. Marsh's expenses were exorbitant) with several members of the Board during this time. Sun Capital, with knowledge of these facts, officially acquired the Company in September 2006, and on September 28, 2006, Mr. Lazaran sent a letter terminating Mr. Marsh's employment "without cause."

Because the seeds of this litigation were planted by Mr. Marsh's termination, a focal point of our rulings here is the Employment Agreement entered into by the Company and Mr. Marsh.In fact, that form of agreement was utilized by the Company for all its senior executives. Drafted in 1999 by the Company's counsel,⁵ Mr. Marsh's five-year Employment Agreement automatically renewed annually, barring either party's written notice to the other of termination or Mr. Marsh's voluntary retirement. Paragraph 3 of the Employment Agreement required Mr. Marsh to "perform all of the duties associated with" the positions of Chairman of the Board, President, and CEO of the Company. Emp't Agrmt. at 2. Although his responsibilities were "personal to the Executive," he was to report regularly to the Board and its executive committees. Id. at 3, 11. The Employment Agreement specified that Mr. Marsh was entitled to submit claims to the Company for reimbursement, but limited those claims to "up to a maximum of Ten Thousand Dollars ($10,000) per calendar year" with respect to "reasonable professional expenses" he incurred "for personal and estate tax and financial planning services." Id. at 4 (Paragraph 5.7(c)). Likewise, he was entitled to a refund for certain business expenses he incurred, but only the "ordinary and necessary business expenses, in a reasonable amount" arising from his duties under the Employment Agreement. Id. at 5 (Paragraph 6). The portion of the verdict pertaining to the Company's breach of contract claim reflects the jury's finding that Mr. Marsh breached Paragraphs 3, 5.7(c), and 6 of the Employment Agreement. Verdict Form at 2-3.

Whether classified as "for cause" or "without cause," terminations from the Company were governed by Article 7 of the Employment Agreement.⁶ Paragraph 7.3 governed termination "for cause" by the Board based on any of the grounds specified in Paragraph 8.1:

(a) the willful and continued failure of [Mr. Marsh] to perform substantially [his] duties owed to the Company after a written demand for substantial performance is delivered to [him] which specifically identifies the nature of such non-performance; (b) the willful engaging by [Mr. Marsh] in gross misconduct significantly and demonstrably injurious to the Company; or (c) conduct by [Mr. Marsh] in the course of his . . . employment which is a felony or fraud that results in material harm to the Company. No act or omission on the part of [Mr. Marsh] shall be considered "willful" unless it is done or omitted in the best interests of the Company.

Emp't Agrmt. at 8 (Paragraph 8.1, defining the term "cause"). Paragraph 7.4 permitted the Board to terminate Mr. Marsh's employment "without cause" at any time during the term, which prerogative Mr. Lazaran exercised on behalf of the Board in September 2006. Additionally, the Employment Agreement detailed the terms of any ensuing financial disbursement(s) by the Company to Mr. Marsh based on the type of termination. A "for cause" termination required the Company to pay Mr. Marsh the portion of his base salary earned through the date of termination as well as a bonus. Id. at 6 (Paragraph 7.3). By contrast, termination "without cause" involved a more generous and lucrative payout:

(1) the above-mentioned base salary and bonus payments;

(2) the "Salary Continuation Benefit"⁷ (for a period of five years from the date of termination);

(3) life, medical, dental, accident, and disability insurance coverage;

(4) lifetime medical benefits for Mr. and Mrs. Marsh;

(5) premiums due on Mr. Marsh's split-dollar life insurance policy;

(6) a "grossed-up" bonus to reimburse Mr. Marsh for any taxes attributable to his premiums and bonus payments; and

(7) the automobile listed as one of Mr. Marsh's perquisites in Paragraph 5.7(a).

Id. at 6-7 (Paragraph 7.4).

Many of the remaining provisions of the Employment Agreement were routine contractinclusions and, as such, have not been disputed by either party. The glaring exceptions—Paragraphs 11.1 and 12.7—govern the vital issues of dispute resolution and payment obligations and are hotly disputed. Paragraph 11.1 delegated the choice of arbitration or litigation to Mr. Marsh and, without qualification, stated: "All of [Mr. Marsh]'s costs and expenses of litigation or arbitration, including attorney's fees, shall be borne by the Company and paid as incurred, whether or not [Mr. Marsh] prevails in the litigation or arbitration." Emp't Agrmt. at 11-12 (Paragraph 11.1). On May 18, 2012, we issued a pre-trial ruling addressing Paragraph 11.1, holding as follows:

[W]e have a properly executed employment agreement that obligates the employer to pay the covered employee's attorneys' fees in any good faith contractual dispute as they are incurred, without regard to the ultimate outcome. . . . [T]o the extent that the Employment Agreement has ERISA provisions, such provisions trump state law claims such as breach of contract or fraud. We therefore conclude that [Paragraph] 11.1 obligates the Company to pay Mr. Marsh's past, present, and future attorneys' fees related to litigation of the ERISA portion of this dispute . . . [but only] such attorneys' fees as they are incurred.

Docket No. 146 at 9 (order granting Mr. Marsh's motion for reconsideration).

Ultimately, throughout this lawsuit, Paragraph 12.7 has been the proverbial basket into which Mr. Marsh has placed all of his eggs. This component of the Employment Agreement, characterized as a "hell or high water" provision by Mr. Marsh, was similar to Paragraph 11.1 in terms of its unequivocal, unambiguous terms:

The Company's obligation to make the

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