Two retailers in the dollar store category — the Dollar Tree stores and Dollar Express — are now battling out claims that could be worth more than $50 million.
Each filed claims against the other that include allegations of fraud.
Family Dollar Stores tried to close on a planned $9.2 billion merger with Dollar Tree Inc. in 2014, but needed to divest 330 stores to satisfy Federal Trade Commission concerns. Private equity firm Sycamore Partners acquired 323 of the stores in 2015, and operated the units under the banner Dollar Express. The two entered into an agreement for certain goods and services, but legal documents suggest that the relationship went downhill from there. Family Dollar and Dollar Tree have since merged operations.
Dollar Tree Inc. and Family Dollar filed a lawsuit last week against Dollar Express and Sycamore Partners in a Delaware Chancery Court that was unsealed late Tuesday. Prior to the lawsuit’s unsealing, Dollar Express and Sycamore also last week fired a volley with a lawsuit of its own. Dollar Express has since liquidated and Sycamore in March agreed to sell the stores to Dollar General Corp., which once tried to acquire Family Dollar in 2014 through a competing bid.
Dollar Tree in its lawsuit is seeking the appointment of a receiver. Dollar Tree said in the court document that one is needed because the defendants allegedly agreed to purchase tens of million of dollars’ worth of goods and services without paying for them, while taking cash from the Dollar Express business that should have been used to satisfy the payments due under the terms of the agreement. It is also accusing the defendants of “engaging in a surreptitious plan” to exit the dollar store business through the liquidation and sale of the stores. The so-called transition services agreement required Sycamore to provide $50 million in funding, with $20 million to be paid immediately in 2015 and the balance via a debt facility for three years to be paid over time to Dollar Tree and for general corporate purposes.
Supposedly Dollar Express failed to complete its re-branding and allegedly continued to operate some stores under the Family Dollar nameplate, according to the Dollar Tree complaint. It also said Sycamore applied for FTC permission, which it received, to sell the stores to Dollar General since it intended to liquidate the Dollar Express operation. The complaint alleged that the private equity firm began siphoning some of the cash from Dollar Express and failed to meet the terms of the funding commitment, which in turn “guaranteed that Dollar Express would be unable to become self-sustaining or meet its financial obligations.”
Dollar Tree is asking for an injunction to bar Sycamore and Dollar Express access to the proceeds from the liquidation of the business and sale of stores to Dollar General until after the obligations under the transition agreement are satisfied. It is also seeking at least $58.9 million for breach of the agreement.
From Sycamore’s point of view, as detailed in its lawsuit, the private equity firm charged that Dollar Tree and Family Dollar breached the contract, in part by opening 45 competing Family Dollar branded stores in the same local trade areas as its divested stores, and are planning another 70 more competing locations. The lawsuit also charged that certain employees were poached before the private equity firm acquired the stores, leaving it with underqualified store managers.
Sycamore in turn is seeking unspecified compensatory and punitive damages, as well as a rescission of the transition services agreement.
Following the unsealing of the Dollar Tree complaint, Sycamore and Dollar Express said they “believe that the allegations made by Dollar Tree in its lawsuit are without merit.” Sycamore added that the liquidation of all remaining Dollar Express store locations has been completed and are now “expected to be transferred to Dollar General during June 2017.”
Dollar Tree in turn said that “Sycamore’s lawsuit is a disingenuous attempt to deflect attention away from their refusal to pay Dollar Tree over $50 million dollars for goods and services and to shift blame for another of their retail failures.” The dollar chain said it “will vigorously defend ourselves” and pursue its claims against Sycamore and Dollar Express in court.