Suit against Tidyman’s executives tossed

A federal judge dealt former Tidyman’s grocery workers a stinging defeat, dismissing their lawsuit seeking recovery of lost retirement savings.

The Spokane-based grocery was an employee-owned business with about 1,300 people at work in 21 stores across Eastern Washington, Idaho and Montana.

When it went out of business in 2006, company executives sold the stores and other assets to pay lenders. The actions wiped out jobs and zeroed out the funds accrued in the Employee Stock Ownership Plan.

The workers sued management in U.S. District Court in Missoula two years ago, alleging retirement funds were wrongly drained and that executives had breached their fiduciary duties to manage the company for the benefit of employees.

The employees also accused executives of mismanaging the company – specifically by entering into a merger with Supervalu in the 1990s over the warnings of a financial adviser hired to help it avoid a looming cash crunch.

But the judge ruled that the employees lacked standing to sue and that their claims citing Washington state law were pre-empted by federal laws.

“This should clear the good name of these gentlemen,” Spokane attorney John Munding said of the judge’s order to dismiss the lawsuit and cancel trial. He represented Spokane businessman Ric Odegard and worked closely with other attorneys defending former executives named in the lawsuit.

The executives, including Michael Davis, John Maxwell, Chris Schnug and Joe Custer, attempted to keep Tidyman’s as a competitive grocer, Munding said.

The former workers did settle several allegations against executives, netting about $575,000 from insurance policies. That’s far from the approximately $30 million they had hoped to win at trial next month.

The executives defended decisions to merge with Supervalu and were prepared to offer expert testimony that their actions were prudent.

In a brief last week, Maxwell and Davis said they used their best business judgment. Further, the employee-owners ultimately approved the merger.

The County Market grocery stores that Supervalu contributed to the merger failed, and the Tidyman’s stores, rebranded as Northwest Fresh, couldn’t keep pace with changes in the retail grocery business.