How Farm Fresh went bankrupt Financial woes: Trouble at the supermarket chain can be blamed in large measure on the clash between its gruff founder and its unhappy junior partner.

THE BALTIMORE SUN

On a November day in 1994, Jack Millman, a hulking figure with a shock of white hair and an imperious bearing, strode into the office of Jesse K. Swartz for a meeting that neither man relished.

Ignoring their simmering feud, they exchanged pleasantries and moved into an adjoining conference room. Mr. Millman, the founder of Farm Fresh Supermarkets of Maryland Inc., appeared ill at ease. Mr. Swartz never enjoyed these rare encounters either. But as chief financial officer of wholesaler B. Green & Co., a partner in Farm Fresh, he had insisted on this meeting to find out how the Baltimore grocery chain was doing.

"Everything's fine," Mr. Millman said without hesitation during what is believed to be his last visit to his Farm Fresh partners.

Mr. Swartz was relieved. It was just what he had hoped to hear.

A catastrophe, however, was only beginning to unfold.

What would emerge is a tale of distrust, clashing egos, allegations of mismanagement, brown bags containing thousands of dollars in $10 and $20 bills and a check-kiting scheme involving more than $1 million.

Mr. Millman and other Farm Fresh executives declined to be interviewed for this article, but court documents, depositions and interviews with 45 principals, store employees and attorneys portray a company in collapse: There would be nasty letters, lawsuits and a wrestle for control between company executives that would jeopardize the livelihood of more than 600 employees and spark an FBI probe.

In the end, Farm Fresh, a once-thriving 10-store chain that grossed $100 million a year, would crumble under forced bankruptcy.

A street fighter

This wasn't the way Jack Millman had planned things.

The 70-year-old founder and majority owner of Farm Fresh came up the hard way, a Philadelphia street fighter who toiled for some of the toughest characters in the grocery business.

Mr. Millman plied his trade at Food Fair Inc. from the 1940s until shortly before the giant supermarket company filed for bankruptcy in October 1978, an experience that molded him into a rough-hewn businessman with a short-fuse and an implacable drive.

"One day he can chew you out in a very profane manner, and the next day he could apologize and make you feel fuzzy and warm," said Jeff Metzger, publisher of the trade newspaper Food World.

Mr. Millman's wrath and obsession with detail were legendary. He ranted at employees if a store sign was crooked. He demanded an immediate answer when something -- perhaps mushrooms -- was missing from the shelves. He set the price of crab meat and Thanksgiving turkeys, then screamed at his supervisors for not making more profit.

Yet it was Mr. Millman's in-your-face demeanor that drove Farm Fresh. It was a quality that inspired loyalty as much as hatred in a rough-and-tumble business where the margin between profit and loss is notoriously thin -- about 1 percent.

Genteel manners and an advanced college degree didn't do it for Jack Millman. Being a ferocious negotiator with vendors did. But when necessary, associates recalled, he was a charmer with a ready smile, dapper, even brilliant.

Mr. Millman created his own grocery chain -- Farm Fresh -- from the ashes of his former employer. In a 1981 bankruptcy auction, he bid successfully on three Food Fair stores in the Baltimore area, where he had supervised the supermarket chain's operations, according to Food World.

That was his launching pad -- but it required financing. So, on Oct. 21, 1981, Mr. Millman took on as a minority partner local food wholesaler B. Green & Co., then one of the nation's largest private companies.

Farm Fresh, incorporated in February 1982, flourished throughout the decade. And so did Mr. Millman's relationship with his partners.

It was a success story.

Egos, however, would get in the way.

Working retirement

Age was catching up with Mr. Millman, and he knew it. So in July 1992, against all his instincts, he retired in his late 60s. But even as he began to golf more in Florida, Mr. Millman couldn't bare to relinquish control of Farm Fresh, company managers recalled, instructing employees to continue clearing everything through him.

For Mr. Millman, it was business as usual.

But for Benjamin L. "Benjy" Green, B. Green's executive vice president, a mild-mannered foil to Mr. Millman, it was an affront. Mr. Green became president of Farm Fresh in March 1993, but Mr. Millman -- owner of 50 percent of the company stock -- ran the show.

The situation, Mr. Green said, "was horrific."

Tensions mounted as Mr. Millman continued to override Mr. Green's decisions. Yet Mr. Green, quietly tenacious, wasn't prepared to abdicate, even when Farm Fresh executives ignored his directives, or claimed ignorance about company dealings. On his own, Mr. Green conducted research about the chain and gleaned what others at headquarters already knew: Farm Fresh was in trouble.

The chain's older stores couldn't compete with newer, bigger supermarkets, and sales began to hemorrhage, forcing Farm Fresh to begin shutting down and selling six supermarkets in late 1992. In August 1993, Farm Fresh executives went from store to store, explaining to employees the need for union concessions, according to Local 27 of the United Food and Commercial Workers. And that September, employees agreed to accept food vouchers instead of a pay raise.

Mr. Millman and Mr. Green were less accommodating with each other when they met about a month later in a store parking lot to discuss the business. They argued, and for the first time, Mr. Green lost his temper. Before departing, he snapped: "This is a matter of respect."

Weeks later, Mr. Green, exasperated, resigned from Farm Fresh. But the relationship only got worse: By the fall of 1994, B. Green claimed it stopped receiving financial information about its Farm Fresh investment.

Growing disarray

The growing disarray didn't show inside Farm Fresh supermarkets. Under bright lights and the waft of soft music, the stores seemed like any other grocery. Bins were brimming with carrots, celery, tomatoes. The aisles were wiped to a sheen.

But problems began to seep into the grocery aisles in late 1994 when Farm Fresh's arrangement with its biggest supplier, wholesaler Richfood Inc., was changed because of a contractual obligation. Instead of purchasing food on credit and paying Richfood back in 14 days, principals said, Farm Fresh now had to pay the wholesaler in seven days.

The shorter terms had a domino effect: Farm Fresh didn't have enough money to pay Richfood for a complete order, so the chain was forced to cut back. Fewer goods on the shelves drove customers away, which meant fewer sales.

"Nobody had anything in the back rooms," a store employee recalled. "We all knew it."

Yet few employees were aware of something else that was missing: Tens of thousands of dollars in cash.

Suppliers sent reimbursement checks to Farm Fresh for coupons that shoppers had used to buy groceries. But thousands of dollars -- in small bills -- were regularly taken out of the checks and placed in a brown bag, according to the sworn deposition of Steven R. Cohen, Mr. Millman's son-in-law and a company executive.

In a B. Green lawsuit against Farm Fresh last year, Mr. Cohen testified that when a reimbursement check arrived he would go to Signet Bank to deposit part of it into Farm Fresh's account and take out the rest in cash -- in amounts as high as $23,000. This practice went on for years -- "could be 10 years," he said.

Sometimes, Mr. Cohen kept the cash overnight, stored it in a safe, or deposited it the same day in another corporate account. On occasion, Mr. Cohen said, he turned the money over to Bill Carter, another Millman son-in-law and company executive who did not give a deposition.

"OK, what did Bill Carter do with the cash once you gave it to him?" B. Green attorney E. Hutchinson Robbins asked.

"I'm not sure, I assume he deposited it," Mr. Cohen said.

But when Mr. Robbins produced bank records, he asked, "Where on these account statements do you see any record of that deposit?"

Mr. Cohen responded: "I don't."

Feuding parties

The feuding parties maintained a cordial front to keep lower-level employees out of the fray. But strained relations between Farm Fresh and B. Green had taken a bizarre twist at headquarters, a cavernous warehouse on an old industrial site on Washington Boulevard in Arbutus.

With only a hallway separating them, they started firing off letters through emissaries.

In the first missive, Jan. 15, 1995, Mr. Swartz of B. Green politely requested that Marvin I. Singer, Farm Fresh's counsel, convene a meeting to review the supermarket chain's financial performance. But when information wasn't forthcoming, the tenor of the correspondence began to sour. In a June 1 letter, Mr. Carter, Mr. Millman's son-in-law, told B. Green, "It would be appreciated if you would refrain from further intrusions into Farm Fresh business," according to a sworn affidavit by Mr. Green.

What had begun as an amicable financial partnership had turned into a test of wills. And there was no greater will than that of Jack Millman. Now B. Green -- as a 49 percent stockholder in Farm Fresh -- had the nerve to demand things. And the demands were coming from Benjamin Green -- "Benjy" -- the soft-spoken namesake of his grandfather, B. Green's founder. "So Millman's thinking is, 'What's the kid bothering me for?' " a colleague of both men said.

The "kid," a low-key 44-year-old man, was thinking business divorce. On July 11, 1995, B. Green sued Mr. Millman and Farm Fresh, accusing Mr. Millman of bilking the supermarket chain for his "personal benefit."

Without company authorization, Mr. Millman personally bought a store that Farm Fresh leased on Hamilton Avenue, terminated the lease and then rented the site back to the supermarket chain at a higher rate, according to the suit.

The Baltimore City Circuit Court suit, at a standstill since the company's bankruptcy in November, further claimed that Mr. Millman retained for his personal benefit handling fees owed to Farm Fresh by manufacturers and distributors for processing coupons used by store customers.

What it all amounted to, according to B. Green, was "Millman's misappropriation" of funds for which Farm Fresh should be compelled to pay at least $2.86 million in damages. But according to Mr. Millman's lawyers, what it amounted to was a stack of false charges. Asked for comment, his attorney, Aron U. Raskas, said in a written statement, "There is no merit whatsoever to these allegations. Such self-serving claims, made a certain few individuals, are completely false and unfounded."

And so went the legal jockeying. Not that customers noticed. On Oct. 11, the Smith Avenue store, Farm Fresh's marquee site, celebrated a "Grand Reopening" to mark the completion of a remodeling that cost nearly $1 million. As it turned out, it was window dressing.

Problems emerge

Less than a month later, on Thursday, Nov. 9, a hint of the problems at Farm Fresh emerged when Glenn D. Solomon, a 36-year-old attorney with wire-framed glasses, picked up the phone in his Owings Mills office.

On the line was a concerned client, the controller of Watkins Security Agency Inc., which provided Farm Fresh with store guards. The grocery chain hadn't paid the agency since April, running up a six-figure bill. "We've called them and left messages," the Watkins controller said, "and they haven't called back."

Mr. Solomon was taken aback not only because of the amount of money involved, but because it hit home. "I'm thinking, 'My God, Farm Fresh, this is where I shop.' I find it hard to believe they're having a big financial problem, but then I remember a couple of shelves were missing things."

He didn't think much of it then, just a dearth of fruit and vegetables. But now, an alarm went off. "Get all the documents together," he told his client, "and send them to me."

Allegations of fraud

The next Monday, Nov. 13, was not the kind of morning Michael D. Colglazier expected to be trudging the streets of downtown Baltimore, chilly and overcast. But an urgent phone call from his client, Signet Bank, had roused the stout 47-year-old attorney from his paper work on the 16th floor of the green-tinted Legg Mason Tower.

Three blocks away, they were waiting for him at the threshold of the fourth-floor conference room at Signet Tower -- bankers and lawyers in dark suits seated around a simple rectangular table behind closed doors.

Mr. Colglazier recalled listening dispassionately as attorneys revealed that senior executives of Farm Fresh had orchestrated a million-dollar fraud in a desperate attempt to keep the cash-strapped company afloat.

The attorneys explained that supermarket executives had kited checks -- transferring funds back and forth between Farm Fresh's accounts at Signet and Nations Bank, playing off the time it takes for the bank of deposit to collect from the paying bank.

By manipulating the accounts, it looked like Farm Fresh had more funds than actually were there. Then, the attorneys said, the grocery executives sent out bad checks to pay for the company's bills -- aware that they didn't have enough money to cover them.

The attorneys assured Signet that stop-payments were being ordered on outstanding checks and money was being wired from NationsBank to Signet to cover any shortfall created by the check-kiting scheme.

Frozen accounts

The next day, Tuesday, Farm Fresh attorneys called a meeting with B. Green at the downtown offices of the grocery chain's accountants. When Mr. Green walked into the conference room that morning, he hoped it meant that his adversary, Jack Millman, was finally ready to make peace.

But Mr. Millman wasn't there. Instead, seated at a long table, a Farm Fresh attorney told Mr. Green, "There's some problem -- the banks have frozen the accounts." The check-kiting accusations were then disclosed.

Mr. Green was speechless.

The next day, Wednesday, Nov. 15, Mr. Carter and Mr. Cohen, both Millman sons-in-law, announced their resignations as top executives of Farm Fresh, effective Thursday, according to a fax to store managers and the chain's more than 600 employees.

"It has been a pleasure to be associated with all of you and I wish you health and happiness in years to come," Mr. Carter said in his brief farewell address.

Mr. Carter, described by associates as an aloof, well-tailored man in his early 40s, ran the chain's day-to-day operations. His wife referred questions to his attorney, who declined to comment.

Mr. Cohen, 42, was known as an affable man who managed the company's cash receipts, cashier schedules and office staff. Asked for comment, Mr. Cohen said that his attorney had advised him not to talk, adding, "not that there's anything I have to say that can be of any use." His attorney, Price O. Gielen, declined to specify the reasons for Mr. Cohen's resignation, but he said, "He absolutely was not involved in any check-kiting scheme, if there was such a scheme."

The abrupt departure of Mr. Millman's two sons-in-law was followed at about this time by those of Kathy Sachs, head of Farm Fresh's computer operations, and Mr. Singer, Farm Fresh's lawyer who was also a director. Ms. Sachs declined to comment, but said that when she was laid off a week before Thanksgiving, "I wasn't really given a reason." Mr. Singer also declined to comment, saying, "This matter is in the courts."

Forced bankruptcy

Before the week was out, the principals of Farm Fresh and B. Green failed to reach an accord to avert a bankruptcy filing.

Mr. Millman was willing to relinquish his shares in the company as long as he was not held liable for any wrongdoing, sources said, but the value of his stock was shaky at best, and B. Green wouldn't go along. With a 50 percent stake in the company, Mr. Millman could have forced the issue because B. Green held 49 percent. But there was only one problem. Louis Gallant, a retired B. Green buyer and Mr. Green's uncle, owned the remaining 1 percent of Farm Fresh. And loyal to the end, he was siding with family.

They were deadlocked.

That is, until Friday, Nov. 17, seconds before 5 p.m., when B. Green and two other creditors, Browning-Ferris Inc., the trash removal company, and Schmidt Baking Co., forced Farm Fresh into involuntary bankruptcy proceedings.

Emergency financing

Joel I. Sher, a no-nonsense attorney, was following his Saturday morning routine, heading to the office with a pit-stop for bagels, when his car phone rang just south of Ruxton Road.

"I need to see you," said Terry L. Musika, who had just been named Farm Fresh's bankruptcy trustee.

Within a half hour, the two men were sitting alone in Mr. Sher's office on the 21st floor of Charles Center South. Mr. Musika, a polished gray-haired man, looked like he hadn't slept much the night before. And for good reason. Farm Fresh, like a patient on life support, needed emergency financing to keep more than 600 employees from losing their jobs.

The two professionals wasted no time, reviewing the facts of the case before departing. Mr. Sher, retained as the trustee's attorney, went off to talk with Richfood's counsel about financing, while Mr. Musika worked on cash flow projections.

On Sunday, Nov. 19, the pace picked up as Mr. Sher hurried to wrap up the Farm Fresh financing.

"Everything," he recalled, "was happening simultaneously."

Mr. Sher called U.S. Bankruptcy Court Judge James F. Schneider at home -- not a brazen act under the circumstances -- to request an immediate hearing on Richfood's emergency loan to Farm Fresh.

By 9 p.m., a circle of lawyers laid out the facts of the case before Mr. Schneider as he held court from his living room couch, minus the black robe, but in a jacket and tie. Beyond the fine legal points, the urgency was compelling: Farm Fresh was desperate to restock its shelves and Richfood was protecting its own interests -- Farm Fresh already owed $3.5 million to the wholesaler, which had provided the chain with 80 percent of its merchandise, sources said.

All that remained was the judge's signature.

After 10 p.m., Mr. Schneider checked his watch, signed the order approving a $1.25 million loan, and that night, Richfood began sending out its trucks to Farm Fresh stores.

The demise

On Monday, Nov. 20, Louis Denrich, a slender 45-year-old man, opened his front door, walked out to the driveway in his bathrobe and slippers and picked up a bundled newspaper. But before he reached the breakfast table, his eyes fell on a front page story about the sudden disarray at Farm Fresh.

He felt empty.

Mr. Denrich, president of Valu Food, a thriving local supermarket chain, was looking at the demise of one of his peers and competitors, and it didn't sit well.

He couldn't understand why company executives could be accused of a check-kiting scheme. Farm Fresh could have approached its chief creditors for relief, or new credit terms. What's more, he said, Farm Fresh could have sold or closed its unprofitable stores to raise cash.

Instead, he thought, Farm Fresh now was on the verge of extinction. When Mr. Denrich arrived at the office that morning, real estate brokers deluged him with phone calls, wanting to know which Farm Fresh properties he might want to acquire. Other supermarket chains picked up the scent, looking to buy Farm Fresh stores at a discount.

The situation was attracting others as well. The FBI confirmed on Nov. 22 that it had begun a "preliminary inquiry" into Farm Fresh. U.S. postal inspectors declined to confirm or deny that they also are looking into the matter.

Meanwhile, the warring parties -- Jack Millman and Benjy Green -- finally found common ground, co-signing a Dec. 4 resolution acquiescing to bankruptcy.

And on Dec. 12, Mr. Millman resigned as a member of the board of directors of Farm Fresh, his brainchild. His departure was quiet, stated matter-of-factly in a letter to his B. Green associates, an uncharacteristic move by a man who had always made his commanding voice heard.

Then, earlier this month, Richfood, which had already come through with emergency financing for the chain, stepped in again. The wholesaler agreed to buy eight Farm Fresh groceries for $6.75 million, pending a hearing Friday in Bankruptcy Court.

Even the right to use the Farm Fresh name will be sold to Richfood.

This wasn't the way Jack Millman had planned things.

"It's very difficult to talk," he said in November as the scandal began to unfold publicly. "I don't want to even think about this."

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad
28°