INDIANAPOLIS — Marsh Supermarkets Inc. has reached a settlement with the Internal Revenue Service over nearly $5.3 million in personal travel and entertainment expenses the grocery chain reimbursed to its former CEO, whom it accuses of using the company as his "personal piggy bank."
The settlement signed Tuesday came to light in a court document filed Thursday by the company in its legal dispute with former CEO Don Marsh, The Indianapolis Business Journal reported.
Marsh Supermarkets' filing said it had agreed to pay the IRS "a negligence penalty in connection with the disallowed deductions" it submitted for $5.3 million in personal expenses that Don Marsh claimed from April 2004 to September 2006 — the period covered by an IRS audit.
The company claims the 73-year-old Marsh defrauded it of millions of dollars by using the grocery chain with about 100 stores in Indiana and Ohio as his "personal piggy bank" to fund extramarital relationships. In its 2-year-old lawsuit against Marsh, Marsh Supermarkets has claimed he used the company to bankroll extravagant trips, maintain vacation homes and hide relationships with female employees.
But the allegations in Thursday's filing provide additional details. They allege that Don Marsh took a trip to Russia and decided he wanted the company to sponsor a Russian ice ballet tour in the United States.
While the tour never occurred, Don Marsh used company funds to enter into two consulting agreements with a Russian woman who was to serve as the director of the ice ballet, the document states. The company alleges that Don Marsh had a sexual relationship with her for at least a few years and used the company plane to visit her in New York City, where she had an apartment paid for by Marsh Supermarkets.
Don Marsh also used the company plane a half-dozen times to pursue a sexual relationship with a high school friend who lived in Smyrna, Tenn., the court filing said. Marsh Supermarkets contends the company has documentation for just one flight to Tennessee.
Don Marsh has a counterclaim pending against Marsh Supermarkets. He was fired in September 2006, just after Florida-based Sun Capital Partners bought the Indianapolis-based grocery chain for $88 million cash, plus the assumption of $237 million in debt.
His lawyer, Andrew M. McNeil, said the allegations are an effort to smear Don Marsh and tarnish his reputation.
"The fact is the board of directors investigated these issues in 2006, and this information was available to Sun Capital before it bought the company and terminated Don's employment without cause," McNeil said in an e-mail to IBJ.
Marsh Supermarkets said when it filed suit in April 2009 that Don Marsh's expenses, including use of the company jet and petty cash, had become the subject of an IRS audit. In a previous court filing, Marsh Supermarkets told the IRS that Don Marsh had earned $2.1 million more from 2004 through 2006 than the company previously reported. The extra income arose from expenditures he wrongly categorized as reimbursable business expenses, the filing said.
Even though all of Marsh Supermarkets' stores were located in the Midwest, Don Marsh traveled globally at the company's expense. From 2000 to 2006, according to the company, he took at least 25 international trips, visiting every continent except Antarctica. In total, he took more than 350 trips outside the region, Marsh Supermarkets alleges.
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