David Marsh fears criminal charges from IRS probe

David A. Marsh says in court filings that an Internal Revenue Service inquiry into expenses he submitted for reimbursement when he was an executive with Marsh Supermarkets Inc may lead to both criminal and civil charges.

Both David Marsh and his father, longtime Marsh Supermarkets CEO Don Marsh, have battled the grocery store chain’s new owner, Florida-based private-equity firm Sun Capital Partners, over expenses the firm deemed improper.

Previous filings indicated that the Internal Revenue Service was investigating. But the recent filings are the first to raise the specter of criminal charges, at least in relation to expenses submitted by David Marsh.

Linda Cooley, an attorney for David Marsh, said she has no knowledge as to whether David was under criminal investigation. But after reviewing documents from the IRS and Marsh Supermarkets, "it became evident that both civil and criminal tax liabilities against David were possible," according to a filing this month by David Marsh's attorneys.

Don Marsh's attorney, Andrew McNeil of local law firm Bose McKinney & Evans LLP, said he is "not aware of any criminal investigations" involving his client.

David Marsh served as president of Marsh Supermarkets until February 2006, while Don Marsh was CEO until September of that year, when Sun completed its acquisition of the company.

David Marsh now is president of the Crystal Flash convenience store chain.

Discussion of possible criminal charges surfaced in recent filings by David Marsh seeking to prevent the grocery chain’s attorneys from deposing him in a lawsuit involving his father.

He argues that Marsh Supermarkets will gain an “inside advantage” in its suit against Don Marsh, the former CEO of the grocery chain, if lawyers from Baker & Daniels LLP are allowed to depose him.

The local law firm represented Marsh Supermarkets in David Marsh’s suit filed in 2006 charging that Sun Capital Partners shorted him about $102,000 on a $2.1 million severance package. Both sides agreed to a confidential settlement in 2007.

Marsh Supermarkets filed its own suit against Don Marsh, alleging that he treated the business “like his personal checkbook” to bankroll extravagant trips, maintain vacation homes and hide relationships with female employees.

The contentious lawsuit is set to go to trial in October.

Now, David Marsh is requesting that, if he must be deposed in Marsh Supermarkets’ case against his father, lawyers from another firm besides Baker & Daniels need to ask the questions.

At the center of David Marsh’s argument is an investigation by the Internal Revenue Service into whether he violated certain tax rules related to his employment at Marsh.  

“The fact remains that some of the issues revolving around the tax allegations, including potential civil and criminal penalties, directly relate to legal services provided to David by Baker & Daniels,” David Marsh’s lawyers wrote in a court filing.

Baker & Daniels helped David Marsh complete estate-planning documents before he sued his former employer in 2006. That legal work presents enough of a conflict that should prevent the firm from deposing him, he argued.

Marsh Supermarkets’ lawyer, David Herzog of Baker & Daniels, declined to comment on its plans to depose David Marsh. But, in a court filing, Herzog said that even if there were a conflict, David Marsh waived that argument years ago when Baker & Daniels opposed him in his own lawsuit against the company.

Herzog wants to depose David Marsh not to unearth his personal financial information but instead to question him about why Marsh Supermarkets paid for the estate-planning work, according to court documents submitted by Herzog.

“Discovery in this case, including Don’s own deposition, has revealed that Don approved payment of many of the expenses David submitted to the company,” Herzog wrote. “The company, through its counsel, wishes to depose David to gain a better understanding of Don’s approval of David’s expenditures.”
 
The IRS investigation of David Marsh stems directly from Marsh Supermarkets’ “unilateral and apparently ill-advised decision” to identify certain expenditures of Marsh’s funds as reimbursable expenses during David Marsh’s employment with the company through Feb. 8, 2006, the court filing said.

“David does not know what information still resides within Baker & Daniels,” his lawyers argued. “It is that lack of knowledge that places David at a disadvantage should Baker & Daniels be permitted to depose him in the lawsuit [against his father].”

Herzog had planned to depose David Marsh in March but was prevented from doing so after David’s attorneys sought a protective order less than three days before the deposition, Herzog said in his filing.

Don Marsh got the ax in September 2006, just after Sun Capital bought the then-publicly owned grocery chain for $88 million in cash, plus the assumption of $237 million in debt.

The issue of what is considered reimbursable expenses is at the crux of Don Marsh’s defense as well.

Even though all of Marsh Supermarkets’ groceries were in Indiana or adjacent states, 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.

The elder Marsh, the company’s CEO for 38 years, says his travels were justified. Because of his globe-trotting, “Mr. Marsh was able to identify innovations and advancements in other countries and implement them in the company’s operations,” a court filing said.

But, in depositions taken in recent months, board members said they were not aware of the extent of Don’s reimbursements, which were handled through a different system than that used for other employees, until a new chief financial officer, John Elbin, began scrutinizing company records in July 2005.

After receiving expense details, “I went ballistic,” board member Steve Huse said in a deposition. He said the payments Marsh received—in the form of cash advances before trips, reimbursement or direct payments for expenses and per-diem payments—appeared to be even greater than the amounts he claimed as expenses.

Don Marsh’s attorneys at Bose McKinney & Evans this month filed excerpts of depositions with board members that make it clear that insiders were alarmed about the massive expenses he submitted for reimbursement in the years before directors decided to terminate him “without cause” in 2006.

Having done so, the Bose attorneys argue, the company triggered a “hell-or-high-water” provision in Don Marsh’s employment agreement that released him from future company claims and allowed him to keep the millions of dollars in severance he’d already received.

Meanwhile, David Marsh’s lawsuit against the company took a toll on his finances. The company refused to cover about $300,000 in his legal bills, and the once- high-flying executive pleaded poverty.

His 11,800-square-foot mansion on Geist Reservoir fell into foreclosure last August, according to Hamilton County court filings.

David and Jodi Marsh, who divorced in 2005, built their home on 1-1/2 acres at Geist in 1999. Marsh had been trying to sell the five-bedroom, nine-bathroom home at an asking price of $2.2 million to avoid foreclosure.

He last made a payment on the mortgage in March 2008, lender Bank of America alleged in a lawsuit filed in 2009 in Hamilton Superior Court.