September 07. 2013 6:57PM

Demoulas cousins continue the battle

New Hampshire Union Leader

Employees and others hold signs in support of Market Basket president Arthur T. Demoulas at a rally outside the Epping supermarket in July. UNION LEADER FILE 

BOSTON - The warring Demoulas family continues its battle over control of its $4 billion privately held Market Basket supermarket chain.

One side wants to maintain its business plan for the highly successful company with 22,000 employees and 71 stores in Massachusetts and New Hampshire; the other wants $300 million in dividends to be distributed to the nine wealthy family shareholders and to establish a line of credit (the company is debt-free). It also wants its popular president fired.

Arthur T. Demoulas, president and CEO of the Demoulas Super Market (Market Basket) chain, filed a lawsuit Thursday, alleging his cousin stacked the company's board of directors so that $300 million could be distributed to the family's nine shareholders.

Until recently, he had the controlling majority of the board over his cousin, Arthur S. Demoulas, whom he has battled for more than 20 years over the direction and management of the company.

Arthur S., his cousin contends, was behind the move to have him booted out as president. The move backfired, however, when hundreds of employees lined the streets of Andover, Mass., on the day of the board meeting in support of the popular company executive.

Arthur T. remains as president, but that might not be for long since the board voted recently to hire an executive search firm.

The next board meeting is slated for Thursday, Sept. 19, the same day a hearing is set for the lawsuit filed in Suffolk County Superior Court.

Arthur T. alleges in the lawsuit that Arthur S. handpicked a board member who, by court order, was supposed to be "disinterested and independent," to do his bidding.

The $4 billion company has no debt, according to the lawsuit. Arthur T. contends distributing $300 million, along with establishing a line of credit, could slow the company's growth and affect the employees' profit sharing plan.

The New Hampshire Union Leader was unable to reach attorney Thomas Fitzpatrick, who represents Arthur S. Demoulas' shareholders, for comment.

According to the lawsuit, a court order requires both sides of the Demoulas family to select two directors each to the seven-member board. The other three non-family directors must be "disinterested" and "independent" of the others.

"The carefully crafted balance, in place for 15 years, has let the company thrive," Arthur T. said in the lawsuit.

He contends his cousin violated that order by orchestrating the election of Keith O. Cowan, formerly one of the Arthur S. Demoulas' designated family directors on the board, to a position as a "disinterested" director. "Seeking to control another seat, the defendants simply rebranded him 'disinterested,'" and voted him on to one of the seats, said Arthur T.. Then, Arthur S. replaced Cowan as one of his family's directors on the board.

Cowan, current interim board chairman, was put on the board in August 2012.

Arthur T. contends Cowan is biased in favor of the Arthur S. Demoulas' shareholders and should not be allowed to remain as a "disinterested" director.

The lawsuit asks the court to set aside the board vote to distribute the $300 million until a ruling is issued concerning whether Cowan can remain as a director.The selection of Cowan, who resides in Georgia, was curious, Arthur T. said. Cowan is a lawyer unknown to anyone at Demoulas Super Market. He last worked for Sprint-Nextel where he earned about $3.4 million in compensation and other benefits.

He retired to take the grocery company's director's position, which pays $170,000 a year.

At the July 18 board meeting, Cowan was nominated by Arthur S. and was made "interim" chairman.

Cowan said then it was his belief that "it is incumbent on the board to help shareholders find the path to liquidity if that is the desire of the shareholders."

Cowan created a special committee tasked with evaluating the president's performance and recommending what action to take with respect to the future employment or removal of the president.

"Arthur S. Demoulas showed little doubt that with the board reconstituted, his vengeance was at hand," Arthur T. alleged in the lawsuit.

Arthur T. also said it was his cousin's shareholder group that fed the story to the media that it had filed for injunctive relief with the court.

The court documents included a copy of the agenda calling for his cousin's firing.

"Despite the fact that they were responsible for the publication of the board's agenda, and therefore the subsequent public backlash, at the July 18 board meeting, both Mr. Cowan and Arthur S. Demoulas, among others, suggested that DSM's management should have done more to prevent the public outcry which resulted from the publication of the item on the agenda labeled 'Motion for the removal of the President,'" the lawsuit said.

Market Basket employees turned out by the hundreds on July 18 to show their support for Arthur T.