The Dart Group Corp., controlled by Washington's Haft family, will pay $2.7 million into a profit-sharing plan for 1,200 employees of Dart Drug Stores Inc., in a settlement announced yesterday that resolves a Labor Department complaint involving the Hafts' sale of the drug chain in 1984.
The government contended that the Dart Group "failed to monitor" the fate of the drugstore chain's $3.5 million profit-sharing plan when it sold the chain for $187 million to a management-led buyout group and turned the fund over to the new owners. A similar claim was made against the former trustees of the Dart Group plan.
The executives heading the group that bought Dart Drug from the Hafts -- former chairman Alvin F. Towle and former president Stephen J. Hansbrough -- were sued in March 1989 along with Dart Drug Stores Inc. by the Labor Department for allegedly violating the Employee Retirement Income Security Act.
Specifically, the Labor Department charged that the two executives and the company used the fund's assets to buy stock in Dart Drug, paying an artificially high price. At the same time, the executives purchased stock for themselves at a much lower price, helping solidify their control.
Under its new owners, Dart Drug fell on hard times in large part because of a heavy debt load incurred in the purchase from the Hafts. Close to bankruptcy, it was sold in 1987 to a group led by Sheldon "Bud" Fantle, former president of Peoples Drug Stores Inc.
The newly dubbed Fantle's chain could not reverse the decline and it filed for Chapter 11 bankruptcy protection in August 1989. It is now in liquidation.
The Hafts said yesterday that at the time of the 1984 sale they had received assurances that no more than 10 percent of the pension plan's assets could be invested in the stock of the new company. The Labor Department said nearly 100 percent of the assets were converted into stock.
Hansbrough and Towle had alleged that the idea to use the pension money came from Dart Group Corp. officials. Sources at the Dart Group denied this accusation yesterday and company officials said they decided to settle the government's claim -- without agreeing with it -- because of the risks and costs of litigation.
"The company did not want to test the government's new legal theory that we were responsible for the fund after we sold it," said one source. "And instead of the money going to litigation, it seemed like it would be better if the employees got something."
The Labor Department action continues against Towle and Hansbrough and the Landover-based Dart Drug Stores Inc., even though the company is under different ownership.