Posted 5/28/2009 10:47 am
Updated 2 years ago
A Dillard's Inc. shareholder has filed a lawsuit against the Dillard's family and company's board members charging that they breached their fiduciary duties and wasted the company's assets.
The shareholder, Steven Harben of Georgia, has accused the members of the Dillard's family of using the Little Rock department store chain as "if it were a private company," according to the shareholder derivative lawsuit filed in U.S. District Court in Little Rock on Wednesday. Harben is representing the interest of Dillard's Inc. and any money recovered in the lawsuit will go to the company.
As holders of the Class B stock, the Dillard family gets to elect eight of the 12 directors. And five of board of directors are members of the Dillard family.
Harben's allegations are similar to those of the hedge funds, Barington Capital Group of New York, led by James A. Mitarotonda, and the Clinton Group. Those investment groups have recently lowered their holdings in Dillard's.
Harben also questioned the relationship between Dillard's and board member Warren Stephens, who is the chairman, CEO and owner of Stephens Inc. of Little Rock. Harben also questioned the arrangement that allowed Stephens Inc. to advise Dillard's on what to do with its 50 percent ownership of CDI Contractors Inc. Dillard's hasn't said what it paid Stephens Inc. for its work, the lawsuit said, but Harben said he believes it was more than $120,000.
"It appears that the members of the Dillard family unilaterally decided to retain Stephens Inc., and thus to provide defendant Stephens with lucrative investment banking fees, and the other members of the Board did absolutely nothing to ensure that the retention of Stephens Inc. was legitimate, proper, and fair to the Company," Harben said in the lawsuit.
Stephens said in a prepared statement that "the allegations against me and Dillard's are untrue and absurd."
Harben also said the hiring of Stephens Inc. "appears to be a quid pro quo for Stephens' approval, in his role as a member of the Compensation Committee, of excessive compensation paid to the members of the Dillard family."
Harben also questioned other ties between Stephens and Dillard's including:
In 2008, Dillard's paid more than $3 million for advertising in Stephens Media Group, which Warren Stephens is co-chairman and 50 percent owner of SF Holdings Corp., the general partner of the partnership that owns Stephens Media Group, the lawsuit said.
Also in 2008, Stephens Insurance LLC received $1.1 million in revenue in connection with the sale of voluntary insurance benefits to Dillard's employees. Approximately $245,000 of amounts represents premiums contributed by Dillard's. And Stephens Insurance is wholly owned by Warren Stephens, the lawsuit said.
Harben is suing for breach or fiduciary duty. Harben also named the Dillard's family and Stephens in a count for unjust enrichment. He is seeking an unspecified amount of damages.
Dillard's declined to comment.