By Henry Dubroff Friday, February 20th, 2015

What was billed as a friendly deal to create one of the nation’s biggest staffing companies has triggered an angry dispute between former Select Staffing CEO Stephen Sorensen and the holding company for Select and merger partner EmployBridge of Atlanta.

Just one week after the Feb. 9 closing of the Select-EmployBridge merger, Sorensen was ousted by the board of New Koosharem Holdings on Feb. 16, amid allegations by the board that an internal investigation showed he improperly transferred $2.7 million to an entity he controlled.

In response, Sorenson denied the allegations and said his firing was retaliation against him for filing a federal suit against New Koosharem, the company formed to facilitate the merger. The suit, filed in U.S. District Court in Los Angeles on Feb. 13, alleges he was improperly removed from his CEO role and given a largely ceremonial title of vice chairman. Sorenson is now on unpaid administrative leave while the outcome of the internal investigation is pending.

New Koosharem’s actions had the effect of “driving him out of the business he founded,” a Feb. 17 statement from Sorensen’s attorney, Russell Wolpert said. Based in Santa Barbara, Select was one of the largest family-owned enterprises in the region prior to the merger.

“Stephen Sorensen’s lawsuit is a transparent attempt to distract from his actions that were the basis for the board’s decision to terminate him for cause,” New Koosharem retorted in a Feb. 18 statement that promised a vigorous defense against Sorensen’s claims, which include breach of contract.

The trading of allegations between Sorensen and New Koosharem is an unexpected development in a deal that became public in early January when EmployBridge and Select announced their merger.

The announcement at that time placed Sorensen in the vice-chairman’s role and said EmployBridge’s Atlanta offices would be the headquarters for the combined company. EmployBridge CEO Tom Bickes was designated to helm the combined company, and a company spokesperson said at the time that the idea was for each firm to retain its name and for Select Staffing to maintain its headquarters on Upper State Street.

In his suit, Sorensen alleges a May 16, 2014 agreement between Select and New Koosharem provided for him to be CEO of that company for a three-year period. He alleges the May 16 agreement provided for him to be compensated at a rate of $650,000 per year, with a bonus of $500,000 per year and an annual bonus target of $650,000 to $1.3 million and other benefits.

In April 2014, Select announced a pre-packaged Chapter 11 bankrupcty filing that listed between $50 million and $100 million in debts and between $100 million and $500 million in assets.

The Chapter 11 filing followed years of negotiations between Sorensen and creditors over debt restructuring. Prior to the 2008 financial crisis, Select had taken on a large debt load and paid an $80 million cash-out to Sorensen family members.

At the time it was announced in January, the combination of Select had about $2 billion a year in revenue and was filling about 300,000 placements a year. The combined company is “financially strong and well-positioned for sustained growth,” the Feb. 18 statement from New Koosharem said.

Sorensen, who holds an MBA from the University of Chicago, worked in finance before joining Select, which was founded by his in-laws. He helped launch an office in Thousand Oaks, then went on an aggressive deal-making spree that saw the company expand into a staffing powerhouse.