Wal-Mart’s Legal Troubles Grab The Spotlight

The Northwest Arkansas Morning News released over the weekend a Kim Morrison piece on some of the largest legal cases currently pending against Wal-Mart, and most of the findings really shouldn’t come as a surprise at this point. There is, of course, the Dukes gender discrimination suit, and the multitude of wage and hour cases pending - the full extent of which you can also see here, on Wal-Mart’s SEC filing. The two largest wage/hour cases to date - Savaglio and Braun/Hummel - have resulted in combined judgments of over $350 million against Wal-Mart, although the cases are currently in the appeals stages, so Wal-Mart has yet to pay a cent.

What you might find really interesting in the story is the way a company the size of Wal-Mart plans ahead for the day it will have to make a possible million billion-dollar payout:

“It’s not like they wouldn’t be able to pay the light bill if they had a billion dollar settlement,” said Patricia Edwards, fund manager with San Francisco-based Wentworth, Hauser and Violic. “It wouldn’t be good, don’t get me wrong. But the low point in cash last year at quarter end was just short of $5 billion.”

Edwards said Wal-Mart reserves cash for potential future lawsuit payouts so there would be a reduced impact on shareholders in the event of such a case. With Wal-Mart’s ability to absorb some of the impact, a billion dollar payout may show up in earnings as a loss of 5 cents per share, Edwards said.

Well that is certainly good to know, that Wal-Mart - instead of making sure its female employees are treated equally, and ALL of its employees are provided adequate breaks and paid for the overtime they work - has socked plenty of money away underneath its $150 bargain mattresses to pay for its legal shortcomings.

Edwards does point out an interesting possibility:

There’s also consolation, Edwards said, that there doesn’t seem to be a lot of new cases in the pipeline, an indication that Wal-Mart may have changed its ways.

It could be, yes, that Wal-Mart has learned its lesson and mended its dark, dark ways.

On the other hand, 15 wage/hour class actions have been filed since 2007, and the fact that so many class actions currently exist could mean that a possible group of plaintiffs with a meal break complaint in a state like New Mexico could get swept up into a class action already filed and certified there. Same with gender issues and the Dukes case. In addition, with recent filings for everything from trademark infringement to ERISA violations, I’m betting Wal-Mart has plenty of brand spankin’ new legal woes to complain about.

Like Clock Work [NW Arkansas News]

Wal-Mart has worked overtime to show its kinder, gentler side, but accusations of workplace misdeeds are surfacing in a slew of class-action lawsuits that continue to challenge the retailers new image.

There are at least 80 class-action lawsuits in 41 states pending against the Bentonville-based retailer, 76 of which stem from wage and off-the-clock issues, according to Wal-Mart’s 10K filing with the Securities and Exchange Commission.

There are more cases against the Bentonville-based retailer than those disclosed in Wal-Mart’s federal filings. Companies are not required to disclose all legal proceedings, just those that may result in “material” financial losses, or more than 10 percent of the current assets of the company.

Among the lawsuits facing Wal-Mart, The Morning News examined five cases. The cases represent potentially the largest judgments or potential financial impact, or the highest number of plaintiffs.

Dukes v. Wal-Mart is a standout. It’s being called a landmark case in employment discrimination. The suit’s 1.6 million plaintiffs, representing all of Wal-Mart’s female employees, makes it the largest sex-bias case in U.S. legal history.

“The company can not reasonably estimate the possible loss or range of loss that may arise from these lawsuits,” Wal-Mart stated in its federal filing with the SEC.

There are, however, a few suits from which the retailer might expect to take a blow.

Wal-Mart is facing a $198 million lunch tab from Savaglio v. Wal-Mart, a class-action lawsuit in which employees said they were not provided meal and rest breaks in accordance with California state law.

A similar case in Pennsylvania involved complaints of missed meal and rest breaks and other failures to pay employees for all time worked. That case—Braun/Hummel v. Wal-Mart—resulted in a judgment against Wal-Mart of nearly $188 million.

Wal-Mart has consistently denied wrongdoing in these and other cases.

Both Savaglio and Braun/Hummel cases are tied up in appeals, delaying the payout to 301,000 current and former employees that make up the two lawsuits.

It also means the retailer hasn’t yet footed the combined $251 million bill.

But can any of these lawsuits financially threaten a retailer that made $12.8 billion in net income in its more recent fiscal year?

“It’s not like they wouldn’t be able to pay the light bill if they had a billion dollar settlement,” said Patricia Edwards, fund manager with San Francisco-based Wentworth, Hauser and Violic. “It wouldn’t be good, don’t get me wrong. But the low point in cash last year at quarter end was just short of $5 billion.”

Edwards said Wal-Mart reserves cash for potential future lawsuit payouts so there would be a reduced impact on shareholders in the event of such a case. With Wal-Mart’s ability to absorb some of the impact, a billion dollar payout may show up in earnings as a loss of 5 cents per share, Edwards said.

There’s also consolation, Edwards said, that there doesn’t seem to be a lot of new cases in the pipeline, an indication that Wal-Mart may have changed its ways.

“If you’re dealing with things that happened three to five years ago and you’ve changed and are not doing those things anymore, then you have to look at the company on a go-forward basis rather than what’s happened before,” Edwards said.

But the ghosts of Wal-Mart have yet to haunt the retailer.

The following are summaries and updates of the largest cases facing Wal-Mart.

DUKES V. WAL-MART

Among all the cases facing Wal-Mart, this one is the mother lode.

Dukes v. Wal-Mart represents a whopping 1.6 million female employees and alleges Wal-Mart systematically discriminated against women in promotions, pay, training and job assignments.

“Wal-Mart has strong equal employment opportunity policies, and fosters female leadership both among its associates and in the larger business world,” Daphne Moore, Wal-Mart spokeswoman, said in an e-mail statement. “Wal-Mart has consistently maintained that class certification is inappropriate because the alleged experiences of the six women who brought this suit are not representative of our female associates.”

The case was brought on behalf of all past and present female employees in the company’s U.S. retail stores and warehouse clubs since 1998. Six women, including two who still work at Wal-Mart stores, originally filed the suit in 2001.

Wal-Mart in December lost its second bid to have a federal appeals court in San Francisco reconsider a lower-court decision to grant class-action status.

Wal-Mart is still fighting the court’s decision.

A three-judge panel of the federal appeals court split 2-to-1 in the decision to uphold the class-action status. The retailer on Jan. 8 filed a petition for “rehearing en banc,” or, by the full 15-judge panel.

Both sides are waiting on the Ninth Circuit to set a briefing schedule so they can respond to arguments.

After briefing, the court could still take several months to resolve the panel and “en banc” reviews, said Brad Seligman of Berkeley, Calif.-based The Impact Fund and lead attorney for the eight firms representing the plaintiffs.

“At root, this is not a novel case,” Seligman said. “It is a very straightforward case about whether Wal-Mart is paying women less than men and not promoting them as often as they should.”

The plaintiffs seek, among other things, injunctive relief, front pay, back pay, punitive damages, and attorney’s fees. And the final tally on that, should the plaintiffs win their case, could amount to more than a billion dollars.

“Based on the analysis we presented to the court in 2003, it didn’t take any mental gymnastics to get to the billion dollar range,” Seligman said. “I’m sure it’s more now.”

HALE V. WAL-MART

A case that began in 2002 with five former employees in Missouri has since swelled to more than 200,000.

The plaintiffs, who worked for the company’s stores and discount warehouses between 1996 and 2003, allege systematic understaffing and overtime limits were enforced through the retailer’s corporate policies and a bonus incentive plan for managers based on strict payroll and staffing controls. The understaffing caused employees to miss breaks and work off the clock without compensation, the plaintiffs allege.

The Missouri Court of Appeals last June upheld the suits’ class-action status, originally granted in 2005. A trial has been set for April 6, 2009.

It will be a trial nine years in the making since plaintiffs first filed the suit. But it’s time that Steve Long, lead trial attorney with Denver-based Shughart, Thomson & Kilroy and one of the 12 attorneys representing the plaintiffs, said was well-spent.

“I think the Missouri courts took a long time to make sure they got it right and making sure this was a proper class action,” Long said. “Hopefully it will allow us to avoid a lot of post-trial issues because so much has been decided already.”

Long has gone up against Wal-Mart before. Colorado-based attorneys Gerald Bader and Franklin Azar tapped Long for help representing Wal-Mart workers in Colorado in a similar off-the-clock lawsuit. That case reportedly settled for $50 million.

Long’s career in business litigation spans more than 30 years and 60 jury trials, but said facing off with Wal-Mart is a daunting task.

“Wal-Mart is a formidable defendant,” Long said. “They fight very hard for what they believe, and they fight very hard to protect the way they practice their business in order to preserve their profits. Since they make a lot of money, they can fight very hard.”

BRAUN/HUMMEL v. WAL-MART

The class-action lawsuit initially filed by Michelle Braun in 2002 was soon followed by another lawsuit filed by Dolores Hummel in 2004. The litigants proceeded separately until the estimated 186,000 plaintiffs were consolidated for trial in September 2006, according to court documents.

The plaintiffs alleged that they were forced to miss rest breaks and work off the clock from March 1998 through May 2006.

A three-month, 32-day trial ended in a jury siding with the plaintiffs, and found that Wal-Mart failed to pay workers for all the work they performed and refused to allow workers to take their paid mandatory rest breaks.

The jury awarded damages of $78.8 million.

A Pennsylvania judge later awarded $62.3 million in damages, $10.2 million in interest and $36.5 million in attorney’s fees for the five firms representing the plaintiffs.

The final judgment was $187.6 million.

“The company believes it has substantial factual and legal defenses to the claims at issue,” Wal-Mart said in its federal filing. The company filed a notice of appeal in December.

SAVAGLIO V. WAL-MART

The largest verdict to date against the retailer is Savaglio v. Wal-Mart, which also grabbed the No. 10 spot on The National Law Journal’s list of top verdicts from 2005.

The allegations in this case are like the others—they were not provided meal and rest breaks in accordance with state law. In California, employees working more than 6 hours receive a 30-minute meal break or an additional hour pay. Wal-Mart, the workers allege, did neither.

The 2005 jury trial of the case resulted in a verdict of $57 million in statutory penalties and $115 million in punitive damages. The judge later in 2006 awarded the plaintiffs an additional $26 million in costs and attorney’s fees.

Wal-Mart stated in its federal filing that “the company believes it has substantial factual and legal defenses to the claims at issue.”

The retailer in January filed its notice of appeal.

“We won and Wal-Mart has appealed virtually everything under the sun,” said Michael Christian, attorney with Minneapolis-based Zelle, Hofmann, Voelbel & Gette LLP. “Nothing happens during the pendancy of that appeal. The briefing will be completed within the next months and at that point, the court will likely set an oral argument for some point in the fall.”

Christian is still working with the case, but has since moved to Zelle Hofmann from San Francisco-based The Furth Firm, which maintains control of the case.

BRAUN v. WAL-MART

A verdict is waiting in the wings for a Minnesota class-action suit representing 56,000 Wal-Mart and Sam’s Club employees.

The trial began in January. Over the next two and a half months of trial, attorneys for the plaintiffs argued that Wal-Mart owes employees more than $50 million for unpaid work, including 8 million missed meal and rest breaks, and falsified time cards.

Wal-Mart attorneys have denied the allegations.

“Wal-Mart did not force anybody to do anything,” company attorney Neal Manne said as the trial concluded April 1.

Plaintiffs claimed stores were understaffed and managers were pressured to meet store performance goals. They allege that store managers falsified timecards and asked employees to work before clocking in and after clocking out.

Debbie Simpson, a former employee and original plaintiff in the suit, testified she missed breaks because there was too much work and no one was available to cover for her. She eventually resigned from her position as a department manager.

“Wal-Mart is chronically understaffed and we have a significant amount of evidence showing that—not just ours, but Wal-Mart’s own records,” said Justin Perl, who leads the case for Minneapolis-based Maslon, Edleman, Borman & Brond LLP. “Wal-Mart is now contending that its own time records are inaccurate.”

The workers are seeking back pay to 1998 and as much as $1,000 per violation.

Judge Robert King Jr. said he would issue a decision on liability, back pay and willfulness by July 1. A jury trial would decide damages in a second trial to start Oct. 20, should King rule in favor of Wal-Mart’s employees.

BEYOND THE FIVE

Wal-Mart has argued in the cases that circumstances are individual and not representative of worker’s conditions at its stores, and has vigorously challenged the class-action certifications for every case.

“Wal-Mart is committed to treating its associates fairly and in accordance with the law,” Moore said in an e-mail statement. “It is our policy to pay every associate for every hour worked, and any manager who violates that policy is subject to discipline, up to and including termination. The great majority of courts across the nation have ruled that cases like this are not properly suited for treatment as class actions because every individual’s circumstances are unique.”

Wal-Mart additionally stated in its March 31 federal filing with the SEC that class certification has yet to be addressed in a majority of cases, but where it has, the company’s tally goes like this—certification was denied in nine cases, granted in 11 cases, conditionally granted in three cases, denied in nine cases and in two cases, certification was granted, but the case was subsequently dismissed.

Posted by Corey Himrod on Monday, June 23, 2008