Trustee sues to recoup thousands paid to 80-year-old Dahl's retiree

The letter last week came as such a jolt that Harriet Henderson, a devoted employee of Dahl's Food Inc. for 43 years, couldn't sleep.

A Chicago-based trustee had filed numerous notices in federal court that he was seeking to recover thousands of dollars he claims the bankrupt grocery chain “fraudulently” paid to members of Dahl's employee stock ownership plan. Henderson, who retired in 2009, was one of those sued.

“I understand the trustee is attempting to find resources to pay Dahl's creditors,” Frank Henderson wrote the Reader's Watchdog on his wife's behalf.

But “to attempt to take the retirement monies of an 80-year-old woman, which permits her to live a modest life, who worked for them into her mid-70s, forcing her to hire an attorney to protect her interests, is, to say the least, unforgivable,” he wrote.

The action filed against Henderson alleges that Dahl's management "engaged in fraud by misrepresenting and overvaluing the price of the shares held by the ESOP," or employee stock ownership plan, from 2010 to 2014.

Similar lawsuits filed at the same time targeted those considered company "insiders" under bankruptcy law, but not retirees such as Henderson.

After 83 years in business, Dahl’s filed for Chapter 11 bankruptcy in November 2015, reporting $41 million in debt and about $45 million in assets.

It quickly sold two of its 10 stores, closed another, and then sold the remainder to Associated Wholesale Grocers Inc. of Kansas City, Kan., which now operates five Price Choppers and two Cash Savers in the Des Moines metro area.

The job of the liquidating trustee in a bankruptcy case is to “prosecute, defend, compromise, adjust, arbitrate, abandon or otherwise deal with and settle” the company’s assets afterward in accordance with state law and federal code.

Trustee Barry Chatz, of the firm Arnstein and Lehr in Chicago, also has filed separate, unrelated protective actions in the case affecting roughly 40 vendors of the grocery chain, including Anderson Erickson Dairy, Rotella’s, the Kellogg Co., Iowa-Des Moines Supply and Martin Brothers Distributing Co.

Harriet Henderson, of West Des Moines, said Dahl's practice when she retired was to make one lump-sum payment to employees from the stock ownership plan.

But those running the plan told her at the time they did not have the money to pay her in full. So she received payments over five years.

Henderson didn't want to disclose her benefit publicly, but the lawsuit seeks to recoup about two-thirds of what she was paid.

A courtesy counter clerk while she worked at the former Dahl's store at 1208 Prospect, Henderson made $10.50 an hour when she retired after more than four decades. The stock option plan was her only retirement, other than Social Security.

Still, she fared better than other employees did at the time the chain went under.

"How many people have never gotten a dime?" she asked.

Harriet Henderson said she started working at Dahl's so she could tile the basement in her West Des Moines house. But she continued to work there because she loved it, staying so long that she came to know her customers' children and grandchildren.

In court filings, Chatz contends that Dahl’s was “slow to recognize the threats to its business model, and did not make the operational changes necessary to remain competitive.”

He argues that transfers were made out of the employee stock ownership plan, even though the company lacked the cash to redeem in full the stock held by the plan.

Dahl’s leaders, the lawsuit claims, transferred funds into the employees’ stock ownership plan to prevent them from being collected by creditors.

Chatz and Joseph Peiffer, the Cedar Rapids attorney acting as Iowa counsel in the liquidation, wouldn't comment publicly on the court action.

But Jeffrey Goetz, who represented Dahl’s in the initial bankruptcy, explained why the liquidation trustee filed the claims:

Bankruptcy law, he said, attempts to balance the rights of debtors and creditors. Any transactions made 90 days before a company files for Chapter 11 can be scrutinized, because the debtor is considered insolvent.

“It’s not uncommon for those creditors with the most leverage and persistence to receive preferential payments before bankruptcy,” Goetz said.

When trustees get to the point where they can’t negotiate any further, there’s a 90-day deadline to file an action to reserve the right to pursue a debt legally. If individuals are deemed “insiders,” that deadline to file is extended to a year.

“That’s why you saw a slew of these filed in the past month,” Goetz said.

The liquidation trustee and the trustee of the employee stock ownership plan also are in litigation over the way payments from the stock ownership plan were made to employees.

A year before Dahl’s bankruptcy, the chain told former workers they would not receive scheduled retirement plan payments. At the time, Craig Moore, the new chief executive, said the company wasn't able to fund distributions for the 2014 plan year.

The store Harriet Henderson worked at as a courtesy counter clerk in West Des Moines was closed in November 2014, after two others were closed in Ankeny and Ames. At the same time, Moore set out to remodel what stores remained to try to better compete with Hy-Vee, Wal-Mart, Target, Costco, Fareway and Aldi.

A bankruptcy judge approved the sale of Dahl's assets, including seven of the chain's 10 locations, to AWG on Jan. 30, 2015.

Allegations were made that retirees were being paid on false assumptions about company stock.

“If those assumptions were wrong, maybe they were paid too much,” Goetz said.

All one-time employees affected by the recent court filings have the right to represent themselves, but they would likely want to seek expert legal advice, given the nature and complexity of the case. The Iowa bar can make recommendations, and attorneys take free legal work for those who qualify, Goetz said.

“It is distinctly possible (Harriet Henderson) and others like her have defenses,” Goetz said.

“The vast majority of all preference actions and/or avoidable transfers are settled. And they are often settled for less than the amount requested. An 80-year-old woman is likely to receive an accommodation, if she doesn’t have that much in her bank account."

Other bankruptcy experts I talked to this week said if Henderson was not a company insider — such as an officer or manager — and she retired before the alleged fraud, it's very likely she might not have to pay anything.

The Hendersons were elated to hear that news. As of Thursday evening, they were gathering paperwork to prove when Harriet retired so they could contact the trustee.

Lee Rood's Reader's Watchdog column helps Iowans get answers and accountability from public officials, the justice system, businesses and nonprofits. Contact her at lrood@dmreg.com, 515-284-8549 on Twitter @leerood or at Facebook.com /readerswatchdog.