Demoulas Super Markets, Inc., under the trade name Market Basket, is a chain of supermarkets in the United States, headquartered in Tewksbury, Massachusetts. , the chain had 90 locations across New Hampshire, Massachusetts, Maine, and Rhode Island.
From 1990 through late August 2014, the company was the center of a controversy over ownership and leadership, which culminated in protests receiving international media attention. On August 27, 2014, an agreement was reached between its feuding owners to sell the 50.5% stake of the company owned by the family of Arthur S. Demoulas to his cousin Arthur T. Demoulas for $1.5 billion.
History
In 1917, Greek immigrants Athanasios ("Arthur") and Efrosini Demoulas opened Demoulas Market, a grocery store in the Acre neighborhood of Lowell, Massachusetts, that specialized in fresh lamb. In 1938, the store, which operated largely on credit due to the Great Depression, was being threatened with foreclosure. The Demoulases' youngest son, Telemachus, also known as Mike, either quit or was expelled from school and went to work at the store full-time. Eventually, the family earned the money needed to avoid foreclosure.
After World War II, Mike's older brother, George, also joined the family business. Also after the war, housing projects were constructed in the Acre, which resulted in a larger customer base for the Demoulases. In 1950, the Demoulas Brothers opened a new store to replace the original market. In 1954, they purchased the business from their parents. By 1956, the market's sales had jumped from $2,000 a year to $900,000 and the brothers began expanding. Within 15 years, the two brothers had transformed their parents' "mom and pop"-style store into a modern supermarket chain consisting of 15 stores.
On June 27, 1971, George Demoulas died of a heart attack while on vacation in Greece, making Mike the sole head of the Demoulas supermarket chain. Shortly thereafter, in an effort to skirt laws limiting the number of beer and wine licenses one supermarket chain could have, Mike Demoulas began opening stores under different names. These stores, which eventually became the Market Basket chain, were controlled entirely by Mike Demoulas and his family.
Lawsuits In 1990, the widow and children of George Demoulas (including his son, Arthur S. Demoulas) sued Mike Demoulas, alleging that they had been defrauded out of their shares in the company. They claimed they had trusted Mike to take care of the family after George's death and that he exploited this trust in order to have them sell all of George's real estate and 84% of his shares in Demoulas Super Markets to members of his own family for pennies on the dollar. Mike Demoulas contended that his brother's heirs had willingly sold their shares in the company because they wanted money and their stock in Demoulas did not pay dividends. According to Mike Demoulas, George's widow, Evanthea, asked him to sell her shares so she could have money to raise her children, her son Evan sold his shares so he could begin an auto racing career in Europe, and her two daughters, Diana and Fotene, sold their shares after they saw how much money their brother received. However, once the company began paying dividends in 1988, the family saw how much money they could have made if they had kept their shares and sought to "rewrite history" in order to regain what they had sold. George's children acknowledged that they had signed many of the documents authorizing the sales and transfers, but stated they were not aware of what they were signing because they were too young to understand and trusted their uncle to take care of them. A jury found in favor of George's family.
A few weeks after the decision, George's son Arthur S. Demoulas filed a second suit, this time alleging that Mike Demoulas had diverted assets from the jointly owned family company, Demoulas Super Markets, to ones controlled by him and his children, including Market Basket. After an eighty-four-day bench trial, judge Maria Lopez found in favor of the plaintiffs. Lopez awarded George's family about $206 million for dividends on stock that had been improperly diverted and 50.5% of the company. She also ordered that all of the assets of Market Basket and the other companies controlled by Mike Demoulas and his family be transferred to Demoulas Super Markets and that Mike Demoulas be removed as president of the company.
In early September 1990, six bugs were found at the headquarters of Demoulas Super Markets. It was alleged that Arthur S. Demoulas had planted the bugs in order to listen to the legal strategy of the other side of the Demoulas family. Michael Kettenbach, the son-in law of Mike Demoulas, sued Arthur S. Demoulas, claiming that Demoulas had "invaded his privacy rights by having listening devices planted at DSM headquarters." In 1994, a jury found in favor of Arthur S. Demoulas. However, a new trial was granted after a woman came forward with new evidence—a recording of her boyfriend admitting to bugging the office for Arthur S. Demoulas. The case was damaged though when the woman admitted to being a crack cocaine addict who received about $500,000 in housing and other expenses from the family of Mike Demoulas and the man on the tape testified that he had been lying during the recorded conversation. On August 4, 1997, Arthur S. Demoulas was again cleared of wiretapping charges by a federal jury.
In 1991, George Demoulas's family sued Mike Demoulas, his son Arthur T. Demoulas, and Demoulas Super Markets, Inc. chief financial officer D. Harold Sullivan, alleging that the three violated the Employee Retirement Income Security Act of 1974 by using their positions as the trustees of the company's employee profit-sharing plan to make fiscally irresponsible real estate loans to friends and business associates. The United States Department of Labor filed a similar complaint six months later. On May 31, 1994, the Department of Labor announced that they had reached a settlement in which the trustees agreed to sell $22 million of the loans by July 11 or purchase them themselves as well as pay the plan $750,000 to make up for the dropped interest rates on the loans (unless the loan recipients paid the money instead). The trustees also agreed not to make any similar investments. The trustees admitted no wrongdoing in the case. Despite the heavy investment in risky real estate loans, the plan never posted a loss. In the civil case, Judge Rya W. Zobel ruled that the trustees' actions were "wrong but not corrupt" and that the settlement with the Department of Labor was "an adequate remedy". Therefore, she denied the request to have them removed.
In 1997 the Massachusetts Supreme Judicial Court upheld a lower court's ruling that Arthur T. Demoulas had presented the Demoulas Super Markets Board of Directors with “misleading, inaccurate, and materially incomplete” information in order to receive a rejection and keep his cousins from receiving any of the profits from Lee Drug, a pharmacy chain he started after the board rejected his proposal to start a pharmacy division of Market Basket.
In 1999, Mike Demoulas resigned as president due to a court order. He was succeeded by William Marsden.
Presidency of Arthur T. Demoulas By 2002, Rafaele Evans, the widow of George's son Evan, was voting with Arthur T. Demoulas due to her displeasure with her brother-in-law, Arthur S. Demoulas, after he attempted to gain control of the trust that controlled her daughter's shares. This gave Arthur T. a majority vote on the board of directors. In 2008, Arthur T. Demoulas was named president and CEO of Demoulas Super Markets, Inc. During his tenure as CEO, sales grew from $3 billion a year to $4 billion, and the number of employees grew from 14,000 to 25,000. During the same time, competitors Stop & Shop and Shaw's closed many of their stores due to financial troubles. Market Basket also faced new competition from Wegmans, which opened its first Massachusetts store in 2011. On the employee front, Arthur T. was known for his ability to remember his associates' names, birthdays, and milestones, attending many of their weddings and funerals, checking in on ill employees, and asking about the spouses and children of his workers. He was seen as a father figure by a number of his employees and compared to It's a Wonderful Life protagonist George Bailey for his willingness to put people over profit.
Demoulas's opponents criticized him for being "openly defiant" of the board of directors and having a "dictatorial" management style. In a 2010 memo to the Board of Directors, Arthur S. Demoulas accused Arthur T. Demoulas of "plundering" millions by paying millions in excessive real estate prices for new Market Basket store locations. One example cited in the memo alleged that Arthur T. had recommended that the company pay $20.9 million to purchase a property in Bourne, Massachusetts, owned by an entity in which he was a major investor. After the sale, Arthur S. had the property appraised by a Boston real estate executive, who valued the property at $9 million. He also accused Arthur T. of paying "grossly excessive fees" to Retail Development and Management Inc., a real estate firm owned by his brothers-in-law Michael Kettenbach and Joseph Pasquale that oversaw Market Basket's real estate and helped it develop new stores. He and his attorneys argued that the 7.5% of the total development costs "was far in excess" of the prevailing market rate of 2% to 3%.
Arthur T. denied his cousin's claim. He argued that Arthur S. trumped up the charges in order to take control of the company and pay himself and the other shareholders more money. Attorneys for Arthur T. noted that Cushman & Wakefield later appraised the Bourne property at $25.5 million. Arthur T. also defended his arrangement with Kettenbach and Pasquale, which he said allowed Market Basket to purchase properties without alerting its competitors, thus avoiding a bidding war and saving the company money.
In 2011, the Board of Directors hired Mel L. Greenberg, a retired judge, to investigate Arthur S.'s claims. Greenberg found that there was no wrongdoing by Arthur T. in the purchase of real estate (including the Bourne property) that the fees paid to Retail Development and Management were not excessive. However, he did find that Arthur T. and the Board of Directors had neglected their fiduciary duties by not looking into whether or not the company would have been better off if it had exercised its option to purchase its store in Somersworth, New Hampshire, instead of renting it from a company in which Arthur T. and his family owned a 55% stake.
2014 firing of Arthur T. Demoulas and protests
Decades of resentment and legal spats between cousins Arthur S. and Arthur T. Demoulas came to a head in mid-2013, when Evans switched loyalties, tipping the majority vote from Arthur T. to Arthur S. On July 18, 2013, the board did not take up a motion to remove Arthur T. as CEO after protesters gathered outside the meeting. Five days later, the board voted to distribute $250 million to family shareholders, an action opposed by Arthur T. In March 2014, two board members elected by Arthur T., William Shea and Terence Carleton, skipped a board meeting in which it was anticipated that there could be a vote to remove Arthur T. as CEO. Arthur S.'s side of the family sued Shea and Carelton, alleging they had boycotted the meeting. A Suffolk Superior Court judge ruled that Shea and Darman were required to attend the next meeting.