Starbucks: Dempsey Unfairly Charmed Tully’s Auctioneers

Losers at the bankruptcy auction for the Tully’s coffee shops are asking the court to reject the winning $9.1 million bid from actor Patrick Dempsey, arguing that the “Grey’s Anatomy” star whom Hollywood calls “McDreamy” unfairly charmed auctioneers to win the 47-location chain without putting in the highest bid.

Anyone who’s ever looked into his eyes would understand.

But after losing the 13-hour auction last week Starbucks Corp. and another group were left waving their $10.5 million combined offer in frustration. Starbucks and others are now pushing Judge Karen Overstreet of the U.S. Bankruptcy Court in Seattle to reject Mr. Dempsey’s lower bid at a Friday afternoon hearing.

The Denver private equity firm that put in the very first bid of $4.3 million accused Mr. Dempsey’s company of creating a spectacle that “may have impeded financing for qualified bidders and creates the appearance that its bid was favored,” its attorneys complained in court papers.

Mr. Dempsey does know how to create a feel-good moment. The Seattle Times gushed over his bid, welcoming Mr. Dempsey’s company as a “rescue squad” for the recession-battered chain. Television cameras waited outside the auction to capture his moment.

The next day, Mr. Dempsey celebrated alongside Tully’s Chief Executive Scott Pearson by visiting Tully’s to make the baristas blush.

“Seattle has been very good to me over my career, and I am honored to have the privilege to own Tully’s and work closely with the company’s employees,” Mr. Dempsey said in a press release. “After a celebratory cup of Joe, we will immediately begin the transition of the company and implementing our vision for quality customer service and building the Tully’s brand.”

Tully’s needs to persuade Judge Overstreet to approve the bid first.

In court papers filed Thursday, Mr. Pearson threw his support behind McDreamy’s offer to keep the chain intact, which would save its 480 jobs. Customers could still use their $5.4 million worth of unspent gift cards, he said.

“Many Tully’s customers strongly prefer, and paid for a Tully’s product, as opposed to Starbucks,” said Mr. Pearson in court papers.

Of course, the plot thickens behind the scenes.

An underplayed key reason that Mr. Dempsey’s bid won, Mr. Pearson said in court papers, was that Tully’s coffee supplier Green Mountain Coffee Roasters is trying to protect its sales pipeline.

As Tully’s exclusive roaster, Green Mountain has the power to cause a fuss that would delay the sale, which its executives promised to do if Starbucks won the right to buy some stores, Mr. Pearson said in court papers. But with Green Mountain’s blessing, a winning bidder could purchase the company by the end of the month.

Starbucks planned to wipe the Tully’s name off of its 13 locations and add to growing roster of 700 Starbucks that are located throughout Washington state. The converted stores would not sell Green Mountain-brewed coffee.