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Mattress Firm Settles With Developer Over Allegedly Bribing Former Execs

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Two Mattress Firm locations next door to each other In Houston
Two Mattress Firm locations next door to each other in Houston

One of the developers accused of supplying kickbacks, including co-purchasing an oceanside home and a fishing yacht, to former Mattress Firm real estate executives in exchange for above-market leases has settled out of court.

Mattress Firm filed a motion Jan. 9 to dismiss its claim against Nashville-based Oldacre McDonald and its principal Mark McDonald amid its ongoing real estate fraud lawsuit in Houston court.

“Mattress Firm no longer wishes to pursue its claims against the Oldacre McDonald Defendants. Therefore, Mattress Firm requests that its claims against the Oldacre McDonald Defendants be dismissed with prejudice,” attorneys for the country's largest mattress retailer wrote in a court filing.

In legal parlance, dismissing with prejudice means Mattress Firm will be unable to pursue the same charges against Oldacre McDonald in the future.

“My clients are happy to put this behind them and focus on what they do well,” said Oldacre McDonald's attorney, Houston-based Beck Redden partner Alistair Dawson. 

Dawson declined to disclose details of the settlement, including whether money was exchanged, due to a confidentiality disclosure, but said the settlement in no way means the developer is admitting to any of the allegations in the original lawsuit.

The original dispute is now more than a year old. Mattress Firm alleged that two former in-house real estate executives, Bruce Levy and Ryan Vinson, as well as a former broker with Colliers International Atlanta, Alexander Deitch, conspired to commit the retailer to too many leases, signed at above-market rents.

In some cases, Mattress Firm claimed, the landlords benefiting from inflated rents were corporations in which Levy, Vinson and Deitch own shares. In other cases, the landlords bribed the trio with exotic trips and luxury gifts, Mattress Firm claims.

Mattress Firm also alleged the “inner circle” of developers — which included Illinois-based Quattro Development, Florida-based Win-Development and Kirkland, Washington-based Madison Development Group alongside Oldacre McDonald — benefited numerous times from the lease arrangement.

Of the 40 leases secured by Oldacre McDonald, 22 had length terms “significantly longer” than the retailer's average leases, and in 11 of those cases, Mattress Firm claimed in the suit, it was paying rents “significantly higher” than comparable rents at other stores, in some cases just blocks away from the new locations.

Oldacre McDonald was accused of lavishing kickbacks and bribes to the trio of executives, including co-purchasing with Levy and Deitch a four-bedroom, 2,766 SF waterfront home in Summerland Key, Florida, for $1.6M and co-investing in a $110K Crevalle fishing boat.

Vinson also was named president of Heritage 66 Co., a company founded by Oldacre McDonald that sold Taylor Swift-branded apparel in China, another example of kickbacks and bribes, Mattress Firm alleged.

Mattress Firm CEO
Mattress Firm CEO Steve Stagner

In March, Deitch filed a counterclaim against Mattress Firm that the company pressured the trio to bulk up its real estate portfolio in an effort to kill its competition.

“Mattress Firm’s aggressive roll-up was reckless, resulting in massive clustering of stores, assumption of bad locations which needed to be propped up, and astounding redundancies in certain markets,” Deitch's attorneys wrote in the countersuit.

Deitch also claimed Mattress Firm's real estate committee — which was manned by a number of top executives, including current CEO Steve Stagner and former CEO Ken Murphy — had full knowledge of the deals and signed off on them, and said accepting vendor gifts and trips was commonplace among company executives.

Since the initial suit was filed, Mattress Firm's South African parent company, Steinhoff International, has found itself the subject of an accounting scandal that led to its CEO's ouster and continued financial and criminal investigations.

Mattress Firm filed for Chapter 11 bankruptcy protection in October, blaming a bloated real estate portfolio for not being able to meet its payments as a result of buying up competitors like Sleepy's, Sleep Train and Mattress Giant. The expansion gave it more than 3,000 locations, including in several instances as many as four locations around a single intersection or within a mile of each other.

By November, Mattress Firm emerged from bankruptcy more than 600 stores lighter and having renegotiated rents with landlords on many of its remaining stores.

It was unclear how many of the shuttered stores were the same that were subject of the fraud lawsuit, and Deitch's attorney claims the bankruptcy is proof that Mattress Firm was using the defendants as scapegoats for larger financial problems.

“I still maintain the bankruptcy was supportive of our position that the company had bad management,” said Deitch's attorney, Schulten Ward Turner & Weiss partner Kevin Ward. “None of that has changed.”

Ward said Mattress Firm's settlement with Oldacre McDonald does not affect Deitch's counterclaim against the retailer. He also declined to say if Deitch was seeking a settlement of his own.

“Taking out one of the major players and essentially taking those leases off the table as a practical matter … I think it certainly is useful and narrows the scope of the dispute, if nothing else,” he said.