Marsh Supermarkets settles IRS issue in suit against ex-CEO

Marsh Supermarkets Inc. has reached a settlement with the Internal Revenue Service regarding nearly $5.3 million in personal travel and entertainment expenses reimbursed by the company to former CEO Don Marsh.

The settlement, signed on Tuesday, came to light in a court document filed Thursday by the grocery chain in its ongoing legal dispute with Don Marsh. The company claims he defrauded it of millions of dollars by using the grocer as his “personal piggy bank” to fund extramarital relationships.

In its 2-year-old lawsuit against Don Marsh, 73, Marsh Supermarkets has claimed before that 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, more salacious details.

Marsh Supermarkets said it agreed to pay the IRS “a negligence penalty in connection with the disallowed deductions” it submitted for the $5.3 million in personal expenses Don Marsh wracked up from April 2004 to September 2006, the period covered by an IRS audit.

Don Marsh was terminated 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.

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 stemmed from expenditures Don Marsh wrongly categorized as reimbursable business expenses, the filing said.

Even though all of Marsh Supermarkets’ stores were located in Indiana, Ohio and Illinois, 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.

New details revealed in Marsh Supermarkets’ Thursday filing allege Don Marsh took a trip to Russia and decided he wanted the company to sponsor a Russian ice ballet tour in the United States.

Though 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, according to the document.

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.  

Yet, the company has documentation for just one flight to Tennessee, Marsh Supermarkets contends.

Don Marsh’s lawyer, Andrew M. McNeil of Bose McKinney & Evans LLP, said the allegations are an effort to smear his client 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.

Don Marsh has a counterclaim pending against Marsh Supermarkets.

Marsh Supermarkets operates about 100 stores in Indiana and Ohio.