Menard lawsuit entangles businessmen Hilbert, Dick

Menard

Former Conseco executives Steve Hilbert and Rollin Dick are caught in a bitter legal battle between hardware king John Menard and his ex-fiancee.

Debra Sands, a lawyer from Eau Claire, Wis., says the billionaire promised her a big ownership stake in his business empire—including a 20-percent interest in MH Equity, the $500 million, Menard-funded private equity firm that Hilbert and Dick run.

Hilbert

In a lawsuit filed two years ago in Wisconsin, Sands claims she was Menard’s “primary” business adviser. She says she was extensively involved in everything from his chain of 215 hardware stores and IndyCar team ownership to his big stake in locally based Haverstick Consulting, an IT and military contracting firm also owned by Hilbert and Dick.
Sands, who is in her late 40s, and Menard, who is at least 70, lived together for eight years before splitting in 2006.

Dick

“Sands was involved with virtually every aspect, and at virtually every level, of Menard’s various enterprises and holdings,” the suit says.

Menard denies Sands played such a large role.

“She was my girlfriend and is now my very disgruntled ex-girlfriend,” Menard said in a statement e-mailed by his spokesman. “I’m sure the courts will work it out in due course.”

The case has led to disputes in Indiana courts with Dick and Hilbert.

An MH Equity affiliate sued Sands in Marion County in 2009, saying she wasn’t licensed to practice law in Indiana when she worked for the firm, and seeking to recover $170,000 in fees.

Dick’s holding company, Helen HCI, sued Sands in Boone County in March 2009, saying her Wisconsin case caused “collateral damage” to it and other Haverstick Consulting shareholders.

Settlement talks in the two cases broke down, and both ended up before the Indiana Court of Appeals.

Hilbert, who co-founded Conseco and is now CEO of MH Equity, could not be reached for comment. Sands also could not be reached. Her attorney, Daniel Shulman, declined to discuss the case.

Self-made billionaire

Hilbert and Menard, the “M” in MH Equity, met through IndyCar racing. Menard owned a team until 2004, and at one point Conseco was a sponsor.

Menard, a self-made billionaire, grew up on a dairy farm and started the business by building and selling pole barns to pay for college. He ranks 136th on Forbes’ list of the world’s top billionaires, with a net worth of $5.5 billion.

Sands met Menard in 1997 at an event for then-Wisconsin Gov. Tommy Thompson. She and her sister, Dawn, were living in St. Paul, Minn., and running several Wisconsin-based businesses, including a coffee importer and their family business, Eagles Printing & Label Co.

The two began dating after a meeting to talk about putting coffee shops in Menard’s stores. Sands moved into Menard’s Eau Claire residence in August 1998, and four months later they were engaged.

Sands claims that Menard insisted she abandon her own businesses and work solely for him.

“Menard repeatedly stated that he wanted Sands to take over as CEO of Menard Inc. upon his retirement or death, and that their work together was intended to prepare her for this position,” the lawsuit claims.

Menard denies making such a promise.

According to her lawsuit, Sands became involved in a dizzying array of activities.

For Menard’s stores, she did “extensive” product and market research, advised on site selection, merchandising and store organization. She worked with buyers, attended trade shows and in-house merchandise reviews.

She helped make Menard’s stores appealing to women, developing garden centers and a coffee bar. She also provided advice on the selection of cars and trucks for the corporate fleet, airplane purchases and worked with manufacturers to “design the interior and exterior of Menard planes.”

Sands says her work extended to Menard’s IndyCar team, engine-development companies in England, and Indianapolis firms. According to her suit, she also oversaw Menard’s $13 million investment in 31 thoroughbreds, for which she was promised a 50-percent stake.

In 2002 and 2003, Menard invested millions in Hilbert’s and Dick’s Haverstick Consulting.

The firm grew rapidly, and in late 2007, San Diego-based Kratos Defense and Security Solutions bought it for $90 million in cash and stock.

According to Sands’ lawsuit, she handled “all negotiations and legal work” for Menard’s Haverstick investment. She also worked on a loan that Menard Inc. made to Haverstick for its 2004 acquisition of an Arlington, Va., firm, DTI Associates. Sands served on Haverstick’s board from 2003 until October 2007.

Sands played a similar role at MH Equity, which, according to her lawsuit, Menard Inc. backed with $400 million.

Among other firms, MH Equity invested in Virginia-based Orbcomm, which sells global satellite and cellular tracking systems; Indianapolis-based Sunshine Holdings, a maker of tanning products; and Illinois-based United Marketing Group, a direct marketer.

Sands worked on all those deals. She claims that Menard promised her 20 percent of his stake in MH Equity for her work, and that she created Merchant Capital LLC as a holding company for those shares.

The lawsuit in Wisconsin is gearing up for trial. Sands is seeking damages equal to the shares she says Menard promised.

Counterattack

Menard and his business partners don’t deny Sands did legal work for their companies. In fact, that’s become fodder for their claims against her.

In his countersuit, Menard alleges that Sands, who is licensed in Minnesota, was not authorized to practice law in Wisconsin and that she breached her fiduciary and professional duties in other ways. He’s asking the court to make her repay $152,105 in legal fees for work she did from April 2003 through June 2004.

The MH Equity affiliate says Sands performed due diligence on several investments from September 2005 through February 2007 without informing anyone she wasn’t licensed in Indiana.

Helen HCI’s suit alleges that Sands used information she gleaned while on Haverstick’s board to interfere with payments that shareholders were set to receive from Kratos in 2009.

Under terms of the $90 million acquisition, Haverstick shareholders would get two deferred payments—$1.8 million in cash plus stock worth an estimated $7.8 million, if no indemnity claims arose before 2009.

Sands’ suit in Wisconsin at first named Menard, plus 15 business entities, Haverstick and Kratos among them. That triggered an indemnity claim by Kratos.

“There was no reason to include Haverstick and MH in the case to begin with,” Dick told IBJ. He added that Kratos later followed through on its payments.

Dick instructed his and Hilbert’s legal team, Richard Kempf and Steven Shockley at Taft Stettinius & Hollister, to start working on a settlement for both the Marion County and Boone County cases before Thanksgiving in 2009, according to Marion Superior Court documents.

The settlement called for each side to drop its cases.

But then Hilbert, who was informed late about the talks, decided he didn’t want to settle.

Sands asked the judges in Marion and Boone counties to enforce the settlement. The Marion County judge obliged, and MH Equity appealed. The Boone County judge sided with Helen HCI and Sands appealed.

The Indiana Court of Appeals on Nov. 30 affirmed the Marion County decision. The case from Boone County remains pending.

The split

Sands and Menard split in 2006, around the time her sister started her own legal battle with the company.

Menard personally marched Dawn Sands, his general counsel since 1999, out of company headquarters in March 2006 after contentious talks about her compensation, according to the resulting Wisconsin Supreme Court case.

Debra Sands says she moved out of their shared home that spring because Menard threatened her with physical violence after she refused to denounce her sister.

Menard denies those events.

According to Debra Sands’ lawsuit, she later spent five months preparing $900,000 worth of invoices, but Menard refused to pay them unless she released him from future claims.

Although Sands and Menard lived together, their case is more like a business dispute, rather than palimony, Indiana University law professor Aviva Orenstein said.

“Nowadays, a relationship of a couple living together can be multi-faceted,” she said. Despite the “family-like” atmosphere, “it’s basically a contract dispute.”•