Many brick and mortar businesses are struggling to compete with online retailers. Because of changing market conditions, many businesses are forced to close their doors or file for bankruptcy. Texas-based Mattress Firm has recently filed for Chapter 11 bankruptcy and stated it will be closing hundreds of stores nationwide. However, the exact cause of Mattress Firm’s bankruptcy is heavily disputed. The company has filed a lawsuit against two executives for breach of fiduciary duty it claims caused the company’s financial troubles; the executives, however, point to the company’s aggressive expansion plan as the root of the issue.
Too Many Locations
To say Mattress Firm is prolific would be a bit of an understatement. In Austin, Texas, the company has three stores all within a half-mile of each other. In other locations like Schererville, Indiana, the company maintained five stores less than a block apart despite the city only having a population of 28,700 people. If you’re thinking this is a nonsensical saturation of stores, you are not alone. But exactly who is responsible for opening this many stores?
In the lawsuit filed by the company, two Mattress Firm executives are accused of accepting kickbacks for real estate deals. According to the lawsuit, the former head of real estate for Mattress Firm and a former vice president, conspired with real estate broker to open expensive locations based on inaccurate sales forecasts.
The lawsuit claims the Mattress Firm executives would tip off the real estate broker to the company’s next opening location and he would purchase the property for himself so he could reap millions in fees. In return, the Mattress Firm executives allegedly received generous gifts, such as diamonds, a Roger Dubuis watch, European vacations, stakes in other real estate deals, and one sale purportedly came with yacht.
Whether or not the blame should be assigned to the Mattress Firm executives is not so black and white. The company has been very clear about its growth strategy. In its 2011 regulatory fillings, the company stated, “We intend to aggressively open additional stores in our existing markets, which may diminish sales by existing stores in those markets.”
In hindsight, it seems clear that the company over-expanded, but exactly who is responsible for that decision? On the one hand, companies may be looking for a scapegoat or a way to blame financial decline or even bankruptcy proceedings on certain individuals. Potential targets for these accusations include officers and directors at the company. Officers, directors, and executives owe certain duties to the company, including:
- Fiduciary Duty of Disclosure
- Fiduciary Duty of Good Faith and Fair Dealing
- Fiduciary Duty of Care
- Fiduciary Duty of Obedience
- Fiduciary Duty of Loyalty
If any of these breached, the officers and/or directors may be legally responsible for a company’s financial situation, and open to litigation brought by the company and/or shareholders.
Experienced Breach of Fiduciary Duty Lawyers
Executives are required to act in the best interests of their companies, but just because a company suffers financially doesn’t necessarily mean a breach has occurred. If you suspect a breach has occurred or if you have been accused of a breach, you will need experienced representation. Contact the experienced business lawyers at MehaffyWeber today to see how we can protect you and your best interests.