Business

Family Dollar legal fight spurs new $50 million lawsuit

Shoppers wait in line at a Family Dollar Stores Inc. store in Belleville, New Jersey, U.S., on Thursday, Jan. 3, 2013.
Shoppers wait in line at a Family Dollar Stores Inc. store in Belleville, New Jersey, U.S., on Thursday, Jan. 3, 2013. Bloomberg

In the latest legal snarl in an ongoing dollar-store drama, Virginia-based Dollar Tree alleges Charlotte-based discount chain Dollar Express and its owners siphoned off funds and failed to pay Dollar Tree over $50 million for goods and services.

Private equity group Sycamore Partners started the Dollar Express chain when it bought roughly 330 stores from Matthews-based Family Dollar in 2015. Virginia-based Dollar Tree was required to sell the Family Dollar-branded stores for antitrust reasons in order to buy the local chain.

Dollar Tree filed its lawsuit last week in Delaware Chancery Court but it wasn’t unsealed until this week.

In another legal volley, Dollar Express filed its own suit last week in which the company alleged Dollar Tree and Family Dollar sabotaged Dollar Express’ business by hiring and promoting unqualified workers, and opening new Family Dollar-branded stores in close proximity to Dollar Express.

In a statement sent to the Observer, Dollar Tree said that it “had nothing to do” with Sycamore’s failure to make Dollar Express a viable business.

“Sycamore breached material terms of the parties’ agreements and used Dollar Express as its personal cash cow by siphoning off tens of millions of dollars to secure a quick profit soon after acquiring the business,” Dollar Tree said in the statement.

In its complaint, Dollar Tree accuses Sycamore and Dollar Express of trademark infringement, breach of contract and unfair competition, among other grievances. Dollar Tree says Sycamore Partners engaged in a “surreptitious plan” to use Dollar Tree’s intellectual property by liquidating Dollar Express stores, then selling the chain off to a third party.

Dollar Tree said that as part of an agreement when it divested the Family Dollar-branded stores to Sycamore Partners in October 2015 that Sycamore would rebrand the stores into Dollar Expresses within one year.

But in late March this year, Sycamore abruptly laid off Dollar Express’ store-level and corporate employees and sold the stores to Tennessee-based Dollar General, saying it could “no longer operate as a viable standalone business.”

In its complaint, Dollar Tree said it dealt “in good faith” with Dollar Express and refrained from enforcing the asset purchase agreement’s one-year restriction on use of Family Dollar’s intellectual property because Dollar Express had said it planned to extend the agreement.

Dollar Tree said that under Sycamore’s management Dollar Express tallied debts to Dollar Tree of more than $50 million for goods and services delivered, including the use of Family Dollar’s intellectual property since the agreement expired on Oct. 31, 2016.

In a statement to the Observer, a spokesman for Sycamore Partners said that the allegations in the Dollar Tree suit were “without merit.”

“Sycamore Partners formed Dollar Express in 2015 to acquire 330 Family Dollar branded stores to provide a much-needed business solution to the (Federal Trade Commission’s) challenge to the 2015 merger of Dollar Tree and Family Dollar,” the spokesman said.

“Dollar Express has completed the liquidation of all of its remaining store locations, which are expected to be transferred to Dollar General Corporation during June 2017.”

Katherine Peralta: 704-358-5079, @katieperalta

Dollar-store Drama

▪ July 2014: Virginia-based Dollar Tree makes $8.5 billion bid for Matthews-based Family Dollar Stores.

▪ August 2014: Tennessee-based Dollar General makes rival offer for Family Dollar.

▪ January 2015: After bidding war, Family Dollar shareholders approve sale to Dollar Tree for $9.1 billion.

▪ May 2015: Dollar Tree reaches an agreement to sell 330 Family Dollar locations to private equity firm Sycamore Partners to receive regulatory approval for its Family Dollar deal. The sold-off stores are to be run by a company called Dollar Express, based in Charlotte.

▪ July 2015: Dollar Tree officially completes its purchase of Family Dollar.

▪ November 2015: Sycamore completes deal to buy 330 Family Dollar stores, which are eventually to be renamed Dollar Express.

▪ March-April 2017: Dollar Express says it’s closing its stores, which never opened under the Dollar Express name. The company also says it’s laying off its employees and selling the chain to Dollar General.

▪ June 2017: Dollar Tree sues Dollar Express for “non-payment of goods and services provided and other matters.” Dollar Express sues Dollar Tree and Family Dollar for an alleged “scheme to kill” the company.

▪ November 2017: Dollar Express stores acquired by Dollar General expected to open under the Dollar General name.

Rick Rothacker

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