“Hell or High Water” or Fraud: Court Rules That Supermarket Scion Was Entitled To Post-Termination Benefits Despite Misconduct
The ongoing court drama between Marsh Supermarkets and Don Marsh, its former CEO, has taken another twist. As we previously covered here, in February of this year, a jury in the U.S. District Court for the Southern District of Indiana found that Marsh, the son of the company's founder, defrauded the supermarket chain and breached his employment agreement by misusing company assets to pay for personal expenses. It awarded Marsh Supermarkets $2,200,000 in damages.
Now, however, that damages award has effectively been zeroed out by the district court judge, who has found that Don Marsh is entitled to $2.1 million plus attorneys’ fees from the company based on a separate provision in his employment contract. Order, Marsh Supermarkets, Inc. v. Marsh, No. 09-cv-00458 (S.D. Ind. Jul. 29, 2013). The court accepted Marsh’s argument that the provision entitled him to payment come “hell or high water” – or fraud.
Marsh’s employment agreement provided that upon termination, he would be entitled to benefits. Under the employment agreement, the payout for a “without cause” termination was much more lucrative than it would have been for a “for cause” termination. When Marsh Supermarkets fired him in 2006 – after learning of his misuse of company expense accounts – it told him that the termination was “without cause.”
The supermarket chain soon developed a case of buyer’s (firer’s?) remorse, and claimed that it had been “snookered” into firing Marsh “without cause.” It asked the court to exercise its equitable authority under ERISA and retroactively deem Marsh’s firing as “for cause.” (The court had previously decided that the termination payment provisions of the employment agreement implicated ERISA (the Employee Retirement Income Security Act) because they were part of an “employee benefit plan.”)
Marsh, however, insisted that once the company had decided to terminate him “without cause,” the decision was irreversible and the company was required to pay him benefits come “hell or high water.” For this argument, he relied on a provision of his employment agreement stating that “[t]he Company’s obligation to make the payments and the arrangements and benefits provided for or referred to herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against [Mr. Marsh] . . . .” The court agreed with Marsh that once the company had terminated him “without cause,” his termination benefits were vested and non-forfeitable, and could not be limited by general equitable principles under ERISA.
Therefore, despite “the unsavoriness of the underlying circumstances,” including the “[c]opious evidence . . . demonstrat[ing] that Mr. Marsh inappropriately dipped into corporate coffers for years to finance a ‘lifestyle of the rich and famous,’” Marsh Supermarkets had to pay the “without cause” termination benefits. Further, because ERISA includes a fee-shifting provision for a prevailing party and Marsh prevailed on the ERISA issues, the court ordered the company to pay his fees for litigating those claims.
The district court was not happy about this outcome, calling Marsh “cavalier, irresponsible, greedy, and deceitful,” but it still found that the clear contractual language controlled over concerns of equity and fairness. It also pointed out that “the Company’s Board was well aware of Mr. Marsh’s alleged misconduct at the time it was occurring and prior to his termination, yet opted to terminate his employment ‘without cause.’” Thus, the company had to live with its decision not to pursue a for-cause determination at the time it cut Marsh loose.