Freshly Removed from Bankruptcy, Mattress Firm Partially Settles Fraud Lawsuit

February 21 2019| News| | | By Okin Adams

Since late 2017, Mattress Firm has been embroiled in litigation against a litany of real estate industry defendants over what it claims was “a massive, multi-year fraud, bribery, and kickback scheme.” Having recently emerged from chapter 11 bankruptcy, the major bedding retailer is now setting its sights on resolving at least a portion of its wide-ranging lawsuit.

Last month, Mattress Firm filed a motion to dismiss its claims against Nashville-based Oldacre McDonald and its principal Mark McDonald. Having reached a settlement with these two defendants, Mattress Firm requested that the Harris County district court dismiss its claims “with prejudice” to refiling. However, the litigation against the remaining defendants will continue.

In the suit, Mattress Firm alleges that two of its former in-house real estate executives, Bruce Levy and Ryan Vinson, along with former broker Alexander Deitch and his employer Colliers International – Atlanta, conspired to commit the retailer to too many leases that were signed at above market rates. Mattress Firm also contends that that in some instances, the landlords benefiting from inflated rents were corporations in which Deitch owns shares.

Regarding the parties to the recent settlement, Oldacre McDonald was accused of providing lavish kickbacks and bribes to Mattress Firm executives, including McDonald’s co-purchase with Levy and Deitch of a four-bedroom, 2,766 square foot waterfront home in Summerland Key, Florida, for $1.6 million and co-investing in a $110,000 Crevalle fishing boat.

In March of 2018, Deitch filed a counterclaim against Mattress Firm alleging that the company had pressured him into bulking up its real estate portfolio in an effort to derail competition. Deitch also claimed that Mattress Firm’s real estate committee―manned by a number of top executives―had full knowledge of the deals and signed off on them, and encouraged accepting vendor gifts and trips, stating that it was common among company executives.

In October 2018, Mattress Firm filed for chapter 11 bankruptcy protection. It blamed a bloated real estate portfolio for its inability to meet its payment obligations as a result of the acquisition of competitors such as Sleepy’s, Sleep Train, and Mattress Giant, though it is unclear just how many of Mattress Firm’s closed stores are at issue in the Harris County suit. Mattress Firm’s plan of reorganization was confirmed by the United States Bankruptcy Court for the District of Delaware on November 16, 2018.

Okin Adams is a boutique Texas law firm assisting businesses of all sizes with many of the legal, financial and strategic challenges they frequently face. We provide our clients with business-based, practical solutions to these challenges by applying years of experience in the areas of bankruptcy, commercial litigation, and corporate transactions.