The former employee-owners of Tidyman’s have won a $29 million judgment against the defunct grocery chain’s insurer. It’s a major victory and could restore at least some lost retirement savings for perhaps as many as 1,000 people who worked for the Spokane-based grocer until it went out of business in 2006. As Tidyman’s failed, the value of its employee-held stock plummeted until executives declared it worthless. That stock was the largest source of retirement savings for most employees.
Accusations of mismanagement were made, and the employees sued in 2007.
The case bounced from federal court to state court in Montana, where many Tidyman’s stores were located. The chain also had stores in Eastern Washington and Idaho.
A judge in Missoula last week ordered National Union Insurance Co., which operates as part of international insurance conglomerate AIG, to pay.
The insurers are expected to appeal the case to the Montana Supreme Court.
The case is rooted in a grocery industry upheaval that occurred in the 1990s, said Missoula attorney Patrick Hagestad, who represented the employees.
Tidyman’s executives, faced with financial challenges, hired an investment banker to advise whether the company should seek a buyer or attempt to grow through acquisition or merger.
When executives, including Mike Davis and John Maxwell, proposed folding Tidyman’s into a new company along with assets contributed by grocery giant SuperValu, the investment advisers warned against the deal, according to the lawsuit.
The proposal, however, was approved in 1998. The new company gave Tidyman’s a 60 percent stake. SuperValu held 40 percent.
While Tidyman’s contributed all of its stores, SuperValu contributed only its Country Market retail stores, many of which were in Montana, along with a food distribution contract for all stores for seven years.
Eight years after the deal, in 2006, the Tidyman’s/SuperValu grocery group faced insolvency.
Davis and Maxwell were never found responsible for mismanaging the company, said attorney Jim King, who represented Davis.
Instead, National Union Insurance decided to quit paying the legal bills for the two Spokane men, leaving them on the hook for litigation that would have bankrupted both. So they forged an agreement with former employees, promising not to try to defend themselves against the claims as long as the employees wouldn’t pursue their personal assets.
The result was that executives Davis and Maxwell would no longer fight the $29 million claim, clearing a shortcut for the employees to collect a judgment against the insurer, said John Amsden, a Bozeman attorney for the employees.
“The stories of hardship and broken dreams made this case worth pursuing,” he said.
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