Stemberg divorce

The Long Goodbye: The Stemberg Divorce Still Kicks Up Mud After 10 Years in Court --- Staples CEO and Ex-Wife Feud Over Child, Money And Who's in the Wrong --- Judges Are Helpless to Stop It
By Ellen Joan Pollock
Staff Reporter of The Wall Street Journal
3648 words
19 May 1997
The Wall Street Journal
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A1
English
(Copyright (c) 1997, Dow Jones & Company, Inc.)
Corrections & Amplifications

AN ARTICLE on page one May 19 about the ongoing litigation between Thomas Stemberg and his former wife, Maureen Sullivan, reported that a nanny had made an anonymous telephone call to the Department of Social Services alleging Mr. Stemberg and his wife, Dola, were mistreating their children. The nanny, who has admitted she made the telephone call, which resulted in an investigation that found no truth to the charges, was an employee of Ms. Sullivan. (WSJ June 9, 1997)

This year marks Thomas Stemberg and Maureen Sullivan's 10th anniversary -- not of their wedding but of their separation after nearly 10 years of marriage.

While most divorced couples have moved on by this time, Ms. Sullivan and Mr. Stemberg, chairman and chief executive officer of Staples Inc., remain linked to each other.

This isn't a heartwarming '90s tale of cooperation between divorced parents. This is "war." That is how Mr. Stemberg described the dispute last fall when he wrote his then-12-year-old son an extraordinary letter. In it, he said that, although he loved the boy, because of issues related to the divorce "it will not be possible for you to be a part of our family for the foreseeable future."

Mr. Stemberg and Ms. Sullivan have litigated in four Massachusetts courts. The primary case involving their 1987 financial settlement has spawned a second generation of legal action, including a custody fight and attorney-malpractice and defamation suits. In court papers, Mr. Stemberg argues that defending against accusations made by his ex-wife has caused him "intense emotional distress" and "lost earning capacity."

At the heart of the feud is the stuff of almost any divorce, the division of assets and the continued support of an ex-wife and child. Yet in its length and vitriol, this is precisely the type of case that most worries family-court judges and lawyers, who increasingly promote mediation, and sometimes family therapy, as alternatives to battling out every detail in court. They point to the limited resources of the court system and increasing evidence that the discord of litigation is often as damaging to children as divorce itself.

Especially where families are affluent, says Ira Lurvey, chairman of the American Bar Association's family-law section, "the system finds it overwhelming and simply gives it its head" instead of saying "enough. . . . The public and society do not have to underwrite these games."

At the beginning, at least, both sides in the Stemberg fight had the funds to arm themselves to the hilt, with the courts the arena of choice. Ms. Sullivan says she has spent nearly $4 million on legal fees and capital-gains taxes on stock sold to pay for lawyers. Until recently, she concedes, she has also maintained a very high standard of living.

The case is complicated by the fact that the couple separated as Mr. Stemberg was on the cusp of great success. In the years since the divorce, he has become very wealthy, as Staples, based in Westborough, Mass., has grown into the second-largest office-supply retailer in the nation. Last year, the 48-year-old Mr. Stemberg earned more than $5 million, including salary, bonus and the exercise of stock options. He has additional options worth millions more. Meanwhile, Ms. Sullivan, who is 45, has moved out of the sumptuous Back Bay Boston apartment she bought after her divorce and into a more modest rental. She says she recently sold her Armani and Escada outfits to make ends meet. In early May, she says, she had $28 in her checking account and just a few shares of Staples stock left.

Add the fact that both are fighters -- witness Mr. Stemberg's defiant stance in the wake of the Federal Trade Commission's recent antitrust decision against Staples's proposed merger with Office Depot Inc. -- and you get a couple that remains a combustible combination.

With each volley, the battle escalates. Police have been called and protective orders issued and removed. Issues as mundane as arranging and paying for their son's vacations and doctor's appointments have been decided by a judge. Some of the biggest and most expensive law firms in the country have become involved. Even the boy has his own attorney.

Back when they were still married, the Stembergs built a life of shared ambition. In his 1996 book, "Staples for Success," Mr. Stemberg describes himself as a Harvard Business School graduate with a "so-called wild streak." He was fired from executive positions at two big supermarket chains, first in Boston and then in Connecticut, according to a probate-court judge, who chalked the problems up to "friction" with his bosses. After the second dismissal, in 1985, Mr. Stemberg retreated to his West Hartford, Conn., home to draft a business plan for the venture that became Staples.

Ms. Sullivan, a college dropout and self-taught interior decorator, had turned their home into a showplace. Traditional Home magazine featured the 14-room house in a 17-page spread and gushed over Ms. Sullivan's "mastery at mixing patterns and prints." The couple entertained lavishly, and after her divorce Ms. Sullivan told another magazine that she had been lucky to be married to Mr. Stemberg because "we traveled in circles that provided me with a great client base."

But on Feb. 15, 1987, less than a year after the grand opening of Staples's first store, when the company was still losing money and its future was by no means assured, Mr. Stemberg left his wife. What commenced was a negotiation that lasted most of that year. Franklin Levy, a lawyer who represented Ms. Sullivan, recalls a few "bad moments." He notes in particular Ms. Sullivan's allegation that Mr. Stemberg had the gas turned off in the family's Dedham, Mass., home, where they had moved in 1986. (A spokesman for Mr. Stemberg says Ms. Sullivan was responsible for the utilities problem.) But for the most part, Mr. Levy says, "Tom was a gentleman. . . . He wanted to make sure she was secure."

The agreement, Mr. Stemberg said in a series of voice-mail messages in which he answered The Wall Street Journal's questions, "was fair and generous to her. . . . I really think that things in divorce should be fair and that's exactly what I tried to do when Maureen and I got divorced."

At the time, the couple's primary asset was $225,000 in equity in their $690,000 Dedham house, plus Mr. Stemberg's stock in Staples, according to a 1994 probatecourt opinion. Mr. Stemberg gave Ms. Sullivan about 23% of his Staples stock, or 500,000 shares, most of them valued by Mr. Stemberg at $2.25 a share. In February 1988, under a carefully negotiated understanding, Mr. Stemberg helped dispose of 175,000 of Ms. Sullivan's shares to assist her in paying off the mortgage on their home, which she kept. Two months later, she sold about 80,000 more shares, at $2.48 a share.

Mr. Stemberg agreed to pay Ms. Sullivan $32,000 a year in alimony and $2,000 a month in child support and to finance the boy's education. The agreement also provided that Mr. Stemberg would pay their income taxes for 1987.

That last, and seemingly insignificant, term led to the first major blowup between the estranged couple over finances. Ms. Sullivan earned roughly $10,000 a year and, during the divorce proceedings, provided a financial statement showing $7,400 in income for 1987. But several months later, she says, her accountant determined that she had earned $40,365 that year from interior decorating. The tax bill was sent to Mr. Stemberg.

April 1988 was a busy month for him. Staples opened a big distribution center in Putnam, Conn., and its first stores in New Jersey, Pennsylvania and Virginia. The executive was clearly angered by the unexpected tax bite. "No one likes to be lied to," a spokesman for Mr. Stemberg says. As tax day approached, Mr. Stemberg sent a letter along with his child-support check.

"With your newfound earnings potential, you surely will not expect alimony in May or any other month," says the note, dated April 12. "While this may cost me a few dollars, it is well worth exposing fraud, to the IRS, and to the courts and BEYOND!" Mr. Stemberg added a postscript that their child, who ordinarily lived with his mother, would spend Mother's Day with him and his soon-to-be wife, Dola, contrary to rules spelled out in the joint-custody agreement.

"I just knew for the rest of my life he controlled the finances," Ms. Sullivan says. "I know it sounds Pollyanna-ish, but what really set me off was that p.s." Mr. Stemberg relented, though, and the boy spent Mother's Day with Ms. Sullivan.

A probate court later chided Ms. Sullivan for the inaccurate financial statement, which she says was accurate at the time but didn't reflect a bonus she received after the statement was prepared. "I did not do anything fraudulent," Ms. Sullivan adds.

On May 24, one day before the decree was to become final, Ms. Sullivan pulled the plug on the divorce by filing an objection. In July, the probate court allowed the divorce to go through. Nevertheless, the delay was a blow to Mr. Stemberg because he had to postpone his marriage, which had been scheduled to take place almost immediately. "Tom had to call guests. He had to call the caterer," recalls Ms. Sullivan's lawyer at the time, Mr. Levy. "You can imagine how that set the tone for the future."

In April 1989, Staples went public at what amounted to $19 a share -- many times the value that had been placed on the shares just two years earlier, when the Stembergs' financial settlement was reached. Ms. Sullivan was hardly impoverished at this point; with about 245,000 Staples shares still in hand, she was worth nearly $5 million.

Nonetheless, she retained an aggressive Boston matrimonial law firm to contest the financial terms of the divorce. In 1990, she alleged in a lawsuit that Mr. Stemberg had failed in 1987 to reveal material facts about the value of Staples stock and the extent of his assets "present and future." Thus, she claimed, she had been wrongfully induced to part with thousands of shares at fire-sale prices. She also said that she had suffered from hormonal imbalances that had impeded her ability to concentrate when she agreed to the settlement.

What ensued was a trial lasting about 50 days, spread out over two years beginning in July 1990. During this time, Staples was growing in the U.S., opening its 50th store, in Anaheim, Calif., and another in Germany and expanding its distribution system and product lines. Mr. Stemberg calls this the "only period that I can recall where this had the potential for being a serious distraction. . . . I worked in the courtroom as well as working off-hours during the night for Staples. Luckily, I'm one of those people who gets by on five or six hours of sleep at night."

In the courtroom, the topic was the early days of Staples. Mr. Levy, Ms. Sullivan's first lawyer, testified that during the divorce negotiations, Mr. Stemberg's lawyers had provided him with financial projections showing that by April 1989 Staples would be profitable. But he said he hadn't received a page appended to a financing memorandum stating that Staples planned to go public that spring.

In a 52-page ruling on July 11, 1994 -- roughly two years after the
trial ended -- Probate Court Judge David Kopelman ruled that even if Mr.
Levy hadn't received that particular document, he fully understood that
Staples stock was likely to become more valuable. The judge also wrote
that, after the separation agreement was signed but before the divorce
hearing, Mr. Levy received information that the company was planning to
go public.
In addition, the judge ruled that Ms. Sullivan's sale of Staples stock
after she had filed her objections to the 1987 settlement "constituted
a ratification by her of the very agreement which she seeks to
rescind." (Ms. Sullivan had sold about 45,000 shares for roughly
$930,000 in 1989.) She lost the case.
"If she had just hung on to [her] stock she would be one of the wealthiest women in Boston today," Mr. Stemberg said in one of his voice-mail messages to the Journal. Her personal spending didn't help her finances, either; Ms. Sullivan concedes that she became accustomed to expensive clothes, ritzy vacations and luxurious accommodations. Recently, she has cut back, she says.

After the 1994 courtroom defeat, Ms. Sullivan sued her attorneys, arguing that they had pressured her to sell stock in 1989 to ensure that their legal fees would be paid, despite her fears that this would prejudice her case. They denied the allegation, and some of the lawyers countersued for nonpayment of fees. Meanwhile, with the help of Palmer & Dodge, one of Boston's elite law firms, she appealed the ruling upholding the financial settlement.

Outside the center ring of that litigation, there was plenty of other court action in Stemberg vs. Stemberg. Much of it put the Stembergs' son squarely in the middle and exacerbated what Robert Zibbell, his court-appointed guardian for the litigation, calls the "painful loyalty issues" confronting the boy. Because the couple often had so much trouble communicating, Dr. Zibbell had to set up visitation schedules. Recently, the judge ordered Mr. Stemberg to pay for the boy's vacations with his mother and set out a detailed payment plan.

These days, divorcing parents in most Massachusetts counties are required to go through an education program about how divorce can affect children. The idea, says Probate Court Judge Sean Dunphy, who developed the program, is to teach parents to "promote the best interests of the children rather than ignoring the trauma on the child because you're caught up with your litigation." But the Stembergs haven't participated because their case predates the establishment of the program in their county.

In February 1995, the Stemberg case moved into a new, and even more highly charged, arena. Mr. Stemberg and his wife, Dola, filed a defamation case against Ms. Sullivan in state court in Boston. The case involved, among other things, an anonymous call to the state Department of Social Services complaining that Tom and Dola Stemberg were mistreating their children. The department investigated and found there was no truth to the charges. It turned out that a nanny, and not Ms. Sullivan, had made the anonymous phone call, according to the nanny's testimony.

Mr. Stemberg says he can't comment specifically on the defamation case because it is pending. "Ever since we were divorced, and especially since I remarried, Maureen has been going around saying terrible and untrue things about me, my family and my company. She has also taken vicious and unfortunate actions against us," Mr. Stemberg says. "In an effort to get her to stop doing this, and on advice of legal counsel, this defamation suit was filed. Our lawyers felt that this was the only way to get her to stop spreading all the lies about us and to stop taking the kinds of actions that she has."

By mid-1995, pretrial discovery was in full swing. Ms. Sullivan's lawyer demanded Mr. and Mrs. Stemberg's therapy records, arguing that they were necessary to determine whether the couple had indeed suffered emotional harm. Over their protests, a superior court judge ruled that the couple had to turn these records over, and they did. In October 1995, Mr. Stemberg filed for physical custody of the boy, who ordinarily lived with his mother under the custody arrangement. Mr. Stemberg dropped the request the following year.

This wasn't an easy time for the child, who among other things was worried about his mother's finances. (She says she has had difficulty getting decorating work in the Boston area since the divorce.) In early 1996, he and his mother ran into Mitt Romney, a Staples board member and a former Republican candidate for the U.S. Senate, while they were on a ski trip. At a luggage area, he approached Mr. Romney, hoping to speak with him about his mother's problems. He asked, "May I call your office to make an appointment to see you some time?" Mr. Romney recalls. The boy never made the call.

Last summer, Ms. Sullivan brought in a Washington, D.C., law firm, Patton Boggs, to try to settle all the litigation. Read K. McCaffrey, an experienced litigator and mediator, says he believed that the disputes could be resolved if "everyone put away their ire for a few hours."

He says he was "very pleasantly surprised" to find Mr. Stemberg's lawyers interested in settling the cases. "We certainly had some very good-faith discussions," he says. "We were at the point where we were getting very close to an agreement."

Then, last October, about a month after the proposed merger with Office Depot was announced, Mr. Stemberg and his son had a late-night argument on the phone, Ms. Sullivan says. Ms. Sullivan ended up on the line as well; she says that Mr. Stemberg threatened to kill her and that she called the police. According to the police-department report, she claimed Mr. Stemberg said, "Things are going to end for you." A spokesman for Mr. Stemberg says this is "another deliberate distortion by Ms. Sullivan" and that Mr. Stemberg has never threatened to harm her.

Based on her complaint, temporary orders were issued, pending a hearing, preventing Mr. Stemberg from interfering with Ms. Sullivan or their son. Soon after, at the hearing in probate court, the judge declined to issue restrictions on Mr. Stemberg. But at the same time, the judge issued a temporary abuse-prevention order against the current Mrs. Stemberg, who earlier that year had grabbed her stepson's arm during a heated discussion, according to accounts from both sides. That order, too, was soon lifted because, according to Mr. Stemberg's spokesman, "there was absolutely no evidence" to support an abuse allegation. (Mrs. Stemberg didn't respond to requests for comment.)

On Oct. 25, Mr. Stemberg wrote to his son, expressing anger at the action taken against his wife. "You will probably find this letter difficult to read. Believe me, son, it has been every bit as difficult to write," he said. Mr. Stemberg explained that the boy had broken several "rules" that "HAD to be followed if you wanted to be part of the Stemberg household." The rules, which Mr. Stemberg set after his son approached Mr. Romney, stated that the boy had to tell the truth, "not take sides in the never-ending war between your mom and me," and "not create unbearable hassles, like monthly court appearances, etc. . . . You have violated all three rules in a major way, and as a result, it will not be possible for you to be a part of our family for the foreseeable future."

Through a spokesman, Mr. Stemberg declined to comment, saying the letter was private and didn't belong in The Wall Street Journal.

In Washington, Mr. McCaffrey decided to "let some time go by" before resuming settlement talks. He says he contacted Mr. Stemberg's lawyers explaining that "hopefully the time that has passed has allowed people's tempers to calm somewhat." But, he says, "we were told that the settlement discussions were over."

In March, Ms. Sullivan lost her appeal challenging the 1987 settlement, and Massachusetts's highest court has since declined to hear the case. Mr. Stemberg says that all along he thought the agreement she was contesting was "fair and generous to her, and all throughout her appeals the facts have proven me right." Nevertheless, the fight continues. The defamation case is pending. And Mr. Stemberg and Ms. Sullivan are now embroiled in a court fight over child support.

Each side blames the other for the length of the battle. Mr. Stemberg says that he is sure that "any woman or man who has gone through a divorce and then moved on to a new life only to have their former spouse refuse to accept the reality of the new situation . . . would understand how I feel about it."

Ms. Sullivan, meanwhile, says she believes that she and her son have been victimized by her ex-husband. She continues to blame her tenuous finances on the money she has spent on the custody battle and the defamation case.

When the settlement talks stalled last fall, Mr. McCaffrey of Patton Boggs bowed out of the case. "Sometimes I think these people acted like adolescents," the lawyer says. "You want to pick them up both by the ear and say, `Listen, let's put this behind you.'"

(See related letter: "Letters to the Editor: Divorcing Couples At Lawyers' Mercy" -- WSJ June 11, 1997)

(See related letters: "Letters to the Editors: A Painful, Tragic Story You Should've Skipped" -- WSJ June 24, 1997)

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Corrections & Amplifications

MAUREEN SULLIVAN filed a malpractice suit against lawyers she had hired to contest the financial settlement in her divorce from Thomas Stemberg, chief executive of Staples Inc. She did not sue Franklin Levy, who had negotiated the settlement. A page-one article May 19 about the divorce did not name the lawyers she sued.

(WSJ May 23, 1997)

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