Some of the retailers in the dollar store category can’t seem to stay away from controversy.
Sycamore Partners’ Dollar Express operation has filed a lawsuit against its competitors Family Dollar Stores and Dollar Tree Inc., alleging claims such as fraud, deceptive trade practices and breach of contract.
A spokesman for Dollar Tree did not return a request for comment.
The Dollar Express stores were originally a part of Family Dollar but were sold to satisfy FTC concerns as Family Dollar tried to close on a planned $9.2 billion merger with Dollar Tree Inc. in 2014. In July 2015, the FTC required Family Dollar to divest 330 stores. Sycamore acquired 323 of the stores in 2015, and operated the business under the Dollar Express nameplate.
Dollar Express is in liquidation mode, and the lawsuit — filed in a Delaware Chancery Court on Thursday — charged that its two competitors set out to “kill” the Dollar Express operation. Sycamore in March sold the stores to Dollar General, which once tried to acquire Family Dollar back in 2014 through a competing bid. And while Dollar General had the higher offer at $9.7 billion, that was rejected by Family Dollar, which led to Dollar General’s then chief executive officer Rick Dreiling to state that the rejection was so Family Dollar’s ceo Howard R. Levine could keep his job post merger.
And in the latest squirmish, Dollar Tree reportedly filed an initial legal salvo against Dollar Express Thursday morning, also in Delaware. That lawsuit was filed under seal.
In the Dollar Express lawsuit, Sycamore charged that the defendants, with access to confidential information, opened 45 competing Family Dollar branded stores in the same local trade areas as its divested stores and are planning another 70 more competing stores. The competing stores have hurt Dollar Express’ business through lost sales and profitability, the court document charged, adding that the new stores were contrary to FTC orders and the defendants’ obligations under Sycamore’s purchase agreement and transition services agreement.
Further, the lawsuit charged that the defendants poached certain employees — and replaced them with underqualified store managers — in the stores being divested, which the court document said didn’t help with the transition of the business to new ownership. Other charges include issues over advertising and differentiation of product. The transition services agreement was in effect for 18 months through May 1, 2017, with an option for a six-month extension.
Sycamore is seeking unspecified compensatory and punitive damages; exemplary damages, and a rescission of the transition services agreement.