The Wal-Mart Menace

In court, the nation's biggest company has scruples as low as its prices.

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When you're the planet's largest retailer, you're fanatical about numbers. You're No. 1, after all, and you want everyone to know it.

So it is that Wal-Mart touts sales and expansion figures with the same relentless, glad-to-see-ya cheer as its greeters welcome customers into stores. To be specific: That's 3,300 stores in the United States and another 1,200 around the world. That's 100 million shoppers a week lured by "Always Low Prices." That's a whopping $218 billion in revenue last year alone.

That's global supremacy.

The figures fill Wal-Mart's website, press releases, and the sound bites of company officials. It's a nonstop public-relations offensive that -- like the chain's growth strategy -- attempts to overwhelm, by sheer volume, another set of numbers. Numbers that are equally mind-blowing, but a lot less fun for officials to talk about -- which is why they don't.

At any given moment, some 10,000 lawsuits are pending against Wal-Mart. Each year, it is sued roughly 4,700 times -- an average of 13 cases a day -- on matters ranging from injured customers to employee discrimination. The total makes Wal-Mart second only to the federal government as America's most frequent litigation target.

As if that's not enough to make Rollback Smiley frown, consider this: In the last six years, judges have slapped the company with at least 75 sanctions for destroying, altering, and hiding evidence, according to documents filed in numerous suits against Wal-Mart across the country. It has racked up millions in court fines for destroying photos of accident scenes, denying it performed safety studies, and concealing company records.

At first blush, 75 violations amid thousands of cases seems an irrelevant percentage -- except that the number appears to represent more sanctions than those of all other Fortune 500 companies combined. The penalties also expose the contradiction between Wal-Mart's down-home image and its back-alley legal tactics. As Paul Martinek, editor of the trade publication Lawyers Weekly USA, puts it, "They don't have those little greeters in their vests in court, do they?"

And last month, an Aurora widow forced the retailer to pay a steeply marked-up price for its chronic deceit -- for the second time in seven years.

Bernadine Davis twice sued the company over the death of her husband, who was killed 10 years ago in a loading-dock accident at a Sam's Club, Wal-Mart's warehouse outlet. A jury awarded her $2 million in the first case in 1995, on the grounds that the company concealed an internal memo regarding previous dock accidents. The second case settled in August for an undisclosed sum. But court documents suggest the company faced a far more expensive day of reckoning this time around.

Davis's attorneys brought the latest suit after learning that, during the first trial, Wal-Mart allegedly covered up the existence of files that chronicled additional dock accidents. Armed with a potent case, and hoping to exploit the company's long history of evidence tampering, they planned to ask a jury to punish Wal-Mart in the only terms a multinational corporation would understand: a judgment of one-tenth its net worth. That's $850 million.

That's enough to get even Wal-Mart to roll over.

The emotions of September 10, 1992, still bubble up too fast for Bernadine to choke back. Her voice cracks as she remembers the day Tom Davis died.

"Every time something happened [with the case], I'd have to go to my attorney's office, and I'd start crying again," says Davis, 52. "I think about what it would have been like if he were alive."

She first met Tom at a Christmas Eve party in Bedford in 1983. Thin, with dark brown hair and a neatly cropped beard, he reminded her of actor Robert Wagner. They would wed three years later, both feeling lucky to get a second chance after failed first marriages.

He worked for the Oakwood Village Sam's Club as a forklift operator, rising at 5 a.m. to unload trucks that pulled in by the dozen. The 40-year-old Buffalo native was good at his job, and the company would dispatch him to new stores to fine-tune their dock operations.

Early on September 10, Tom was moving pallets of produce off a semi. Just as he passed over the trailer's back ledge, the driver began to ease away from the dock. Davis, unable to jump free of his forklift as it plunged to the ground, wound up crushed beneath tons of steel. His funeral drew 300 mourners, many of them fellow employees.

Bernadine retained Cleveland lawyers William Greene and Jean McQuillan, who hired a private investigator to dig into the case. Soon after, the detective unearthed a stick of TNT: A company memo, written eight months before Tom's death, told of prior dock accidents and outlined a policy for preventing future mishaps.

The document, sent to every Sam's Club nationwide, read in part: "We recently have had several incidents where trucks have prematurely pulled away from our dock while an associate and/or lift equipment was still on the truck." Managers were instructed to make sure drivers turned over their keys to a store employee until their trucks were emptied. The procedure wasn't followed the day Tom Davis died.

Yet in court, company officials neglected to cough up a copy of the memo when Bernadine Davis's lawyers requested all documents related to dock accidents. Only after Greene and McQuillan mentioned that they already had the memo did officials admit it existed -- but claimed they had "inadvertently" overlooked it. During the trial, the manager who wrote the document -- which he insisted he could not recall -- argued that it referred to "the possibilities of incidents" rather than past accidents. He also asserted that the company kept no accident records.

Jurors spat out the bait. They deliberated for all of 40 minutes before awarding Davis $2 million in September 1995. The judgment carried added sting for Wal-Mart, since it had refused to raise its settlement offer of $150,000 -- even after Davis lowered her demand to $250,000.

But for all Wal-Mart's hardheadedness, its obstinacy had only begun to show.

The huge gap between the company's offer and the jury award led Davis's lawyers to pursue what is known as prejudgment interest. Ohio law allows plaintiffs to seek interest on an award, calculated from the time of injury or death to the date of judgment.

As part of the interest hearings, her attorneys forced the company to turn over its legal team's diary. Its pages contained a bombshell: a notation that revealed Wal-Mart had compiled detailed reports of numerous dock accidents before sending out the memo. The entry demolished officials' denials that they neither knew about previous incidents nor tracked them.

Judge Robert Lawther cuffed Wal-Mart across the muzzle. He found the company "in flagrant violation of the letter and spirit of discovery" law and awarded Davis $600,000 in interest. The judge says he's still baffled by Wal-Mart's antics. "I don't know of any other case I've tried where a lawyer found the other side was hiding a smoking gun like that."

Company appeals went nowhere, and Wal-Mart eventually forked over the $2.6 million. The money, however, didn't buy off Davis's rage. In 1997, she sued again, arguing that Wal-Mart's suppression of documents thwarted her from seeking punitive damages. Her attorneys had abandoned a punitive claim early on, figuring it would be difficult to convince a jury that Wal-Mart intentionally hid the memo and other documents. The diary gave them fresh ammo.

A Common Pleas judge threw out the case, accepting Wal-Mart's argument that punitive damages could have been sought at trial. But an appeals court reinstated the suit two years later, and the Ohio Supreme Court affirmed that decision last October. Justice Paul Pfeifer, who wrote the majority opinion, says the ruling hinged on a simple principle. "Our court . . . does not like it when litigants play hide-the-thimble."

Greene and Brian Eisen, his co-counsel on Davis's latest suit, declined to comment on the case. Likewise for Cleveland lawyers Roy Hulme and Clifford Masch, who represented Wal-Mart in the second suit, and Terrence Gravens, who handled the first. Corporate spokesman Bill Wertz and general counsel Tom Mars, contacted at company headquarters in Bentonville, Arkansas, failed to respond to a dozen messages left by Scene.

The public silence belies the private sniping that marked the latest case as it appeared headed to trial. Alleging Wal-Mart has a habit of concealing evidence, Davis's lawyers requested copies of all sanction orders against the company since 1990. Officials balked -- contending, remarkably, that the nation's largest company doesn't log such information -- and portrayed the violations as a handful of isolated incidents. Greene responded with a letter in March blistering Hulme and his client.

"Wal-Mart has been sanctioned over 86 times since 1990 for discovery abuses . . . I look forward to Wal-Mart management explaining how being sanctioned 86 times in [12] years constitutes an aberration rather than a pattern of misconduct."

Hulme returned fire days later. "I still do not believe your requests are proper, and have no intention of waiving our objections to your requests . . . As the requests stand, I still believe they are more designed to harass than to lead to the discovery of admissible evidence."

Judge Bridget McCafferty sided with Davis and ordered the company to provide the files. The ruling was one of three major reasons that likely compelled Wal-Mart to settle the case, since it guards details on sanctions as if they were nuclear launch codes. Another factor: Greene and Eisen planned to obtain a deposition from CEO H. Lee Scott and potentially put him on the stand -- a form of exposure that CEOs don't much crave. Cutting a deal spared the company from opening its legal books and Scott from opening his mouth.

Ultimately, though, it's safe to assume money loomed largest in Wal-Mart's decision to toss in the towel. Davis's lawyers wanted to deliver a roundhouse to the company's bottom line. As Eisen told The National Law Journal last year, "We're going to ask a jury to punish them, and punish them good, so they'll stop cheating."

Greene was more pointed in his correspondence with Hulme, stating that "it is one thing to kill your own employee recklessly and 'intentionally,' but quite another thing to cheat his widow . . . Under those circumstances, an award of 10 percent of the net worth of Wal-Mart would not be unreasonable."

To duck that stiff blow -- and the ugly publicity it would invite -- Wal-Mart brokered a confidential pact. The deal represents the closest the company will come to offering Bernadine Davis an apology.

War stories abound of Wal-Mart's mulishness. Alto Watson traces the troubles to April 5, 1992. That's the day company founder Sam Walton went to the big discount center in the sky.

"From the time he died, their litigation posture changed," says Watson, a lawyer in Beaumont, Texas, who has tangled with the retailer on many occasions. "It didn't make a difference how valid your claim was -- they were going to fight it."

Walton built his empire with a no-nonsense attitude. He approached lawsuits the same way. When the company got sued, "Mr. Sam's first question always was, 'What did we do wrong?'" former Wal-Mart general counsel Robert Rhoads told USA Today last year.

With Walton's death, the homespun motto may as well have switched to "What did you do wrong?"

For the past decade, Wal-Mart has played hardball -- settling fewer cases, stretching out litigation until cash-strapped plaintiffs go away, and pushing to move suits into federal court, where judges tend to sneer at personal-injury claims. All of which are tactics common to major corporations.

But Wal-Mart distinguished itself by employing what Watson describes as "an obvious national litigation strategy of discovery abuse." In dozens of cases, the company has chosen to absorb court fines rather than produce crucial evidence and testimony. It received a $120,000 penalty for withholding documents in a 1996 sexual harassment case in Texas. Similar infractions in a 1999 personal-injury suit brought a $104,000 sanction from another Texas judge. In a personal-injury case in Florida in 1998, Wal-Mart earned a $7,000 fine for altering a safety video scene about falling merchandise.

The company's approach has become so notorious that an Alabama judge, irritated by Wal-Mart lawyers skirting questions about past violations, fumed, "Is there something in the drinking water in Arkansas that says that perjury is all right?"

Watson and his law partner, Gilbert Adams III, clashed with the company in a 1999 case involving a woman who was abducted from a Wal-Mart parking lot and later raped. They argued better security could have prevented her kidnapping.

Prior to trial, Watson and Adams learned of an internal study that showed the company tested a parking-lot security program in Florida that drastically reduced crime. But when they requested a copy, defense lawyers repeatedly claimed no study existed -- even though it had surfaced in previous trials.

District Judge James Mehaffy reacted with controlled fury. "Not only in this court but in other courts, [Wal-Mart] has demonstrated a clear pattern of desiring to . . . hide, to cheat, to give false answers under oath." He then drilled the retailer with an $18 million sanction, the largest penalty for discovery abuse in U.S. legal history. Wal-Mart would avoid paying the fine by offering a grudging mea culpa in court and settling the suit.

In another case, a Nevada federal judge hit the company with a $15,000 penalty for destroying photos of an accident scene.

A California man visiting a Las Vegas Wal-Mart was left a vegetable after several boxes of merchandise fell on his head. Contrary to witness testimony, Wal-Mart lawyers maintained that the man caused the boxes to topple by climbing on shelves. Yet photos taken of the scene by an employee were mysteriously "lost," and the company concealed statistics on similar accidents at its stores nationwide. The man won a $4 million award that was more than doubled on appeal last year.

Says Frank Pasternak, the Milwaukee lawyer who represented him: "Wal-Mart simply doesn't play by the rules."

Sometimes the company also doesn't play smart. A teenager suffered minor wounds when another boy shot him in the arm with an air rifle on display in a Wal-Mart in East Peoria, Illinois. The injured boy's parents asked the company to cover the $899 medical bill and apologize. Officials refused.

Before trial, the parents' lawyer, Ralph Davis, requested documents pertaining to in-store crimes and gun-related injuries at Wal-Mart. Defense attorneys denied the company kept such information, a point that is technically true: A firm called Claims Management Inc. tracks the data. But CMI, it turns out, is a wholly owned subsidiary of Wal-Mart. A judge popped the retailer with a $26,000 fine for concealing the reports, and it settled out of court two years ago.

The case yielded a letter that illuminates Wal-Mart's casual disregard for evidence. Sent by one of its lawyers to a senior manager, the note suggests a company that could advertise Always Low Ethics: "If the information has been lost or destroyed, that is OK. If the information is too difficult to locate, that is OK, provided you set forth the reasons why [it] will be so 'unduly burdensome' to obtain."

The ploy sounds familiar to Elyria attorney Kim Meyers. He represented Doris Schaefer, an elderly Grafton woman who sustained a knee injury when a Wal-Mart worker smacked into her with a dolly in 1996. Meyers's requests for documents related to in-store injuries were supposed to be answered within 28 days; five months later, he was still waiting. Finally, Common Pleas Judge Peggy Foley Jones warned Wal-Mart that any further delay would "result in sanctions, including judgment." The company opted to settle.

Ironically, the scorn of judges may bolster Wal-Mart's don't-mess-with-us crusade to chase off potential litigants. Despite what the number of suits against the company implies, few attorneys like to joust with the retail giant. Small law firms, which handle the bulk of personal-injury cases, fear that the company's tricks and stall tactics will drain their resources. Cleveland lawyer John Burke, facing Wal-Mart for the first time in an ex-employee's disability discrimination suit, admits he's "very leery" of the company. "You hear about how Wal-Mart does things, and it's a concern. How do you know when you're not receiving certain documents?"

Lorain attorney Benjamin Barrett, who has battled the likes of Allstate, Kmart, and Sears, calls Wal-Mart the worst of the lot: "What makes them special is the way they litigate. These other companies, if you make your point, they'll make a settlement offer, they'll produce discovery documents when you ask for them. Wal-Mart doesn't like to do that."

The chilling effect on lawyers, in turn, ices injured parties. Unable to find affordable counsel, they abandon their cases altogether or settle for less money. Schaefer remains bitter over the size of her settlement, saying her damaged knee still aches.

"It takes money to fight money," she says. "I don't have money. They have all the money in the world. What are you going to do?"

Maria Frantz, who settled with Wal-Mart last year after she was wrongly accused of stealing from its Cleveland Heights store, feels likewise. "You can't fight them. They're everywhere."

Wal-Mart could have resolved Bernadine Davis's first suit for $250,000 and never heard from her again. Instead, it wound up paying $2.6 million, provoked a second suit, and likely shelled out millions more.

How could a company with the vision to rise from a single store to 4,500 outlets be so myopic? The answer, Lewis Laska says, lies in Bentonville, Arkansas, home to Wal-Mart headquarters.

"They come from a small-town corporate culture, and they're used to throwing their weight around," the Nashville attorney says. He runs the Wal-Mart Litigation Project, a website that sells, for up to $200, insider tips on the retailer's legal strategies and how lawyers can combat them. "They're just confident that they're going to wear the plaintiff down, and if they don't, the thinking is, 'We'll win in front of a jury anyway.'"

The swagger appears justified in Cuyahoga County, Davis's cases notwithstanding. Since the early 1990s, Wal-Mart has won or had dismissed more than 90 of the 140 suits filed against it in Common Pleas Court; at least 20 others have been dropped. The retailer boasts a similar winning percentage nationwide. So if its image suffers a few small bruises because of court sanctions, says Milwaukee attorney Pasternak, the $218 billion company shrugs it off as the price of prevailing.

"I don't think they care at all if they have a bad reputation -- in fact, I think they probably prefer it, because they want to deter the modest cases from going forward. If they have to pay out a big case once in a while, they pay. But they'd rather fight tooth-and-nail. It's more cost-effective for them."

Critics complain the retailer has turned its legal department into a tax shelter of sorts. The scheme, they say, works like this: The company estimates what it thinks a suit will cost and sets aside that amount. Under tax law, by reserving the cost of litigation in advance, a corporation can write it off as a business expense. The strategy explains why Wal-Mart favors sanctions over producing evidence -- it simply includes potential fines as part of a suit's estimated cost, attorneys say. That also explains why, until recently, a company with 1.3 million workers employed only two dozen in-house lawyers.

"If you're not going to turn over documents," Watson says, "you sure don't need any attorneys to help with [evidence] discovery."

Nor has the number of sanctions against Wal-Mart done much to persuade it to behave. The reason again boils down to money: The fines meted out by judges amount to shooting a spitball at a grizzly. "For them, $5,000 here, $25,000 there is nothing. It's pocket change," says Memphis attorney Bruce Kramer, who's formed a loose national alliance of lawyers who have sued the company.

Even the $18 million penalty leveled in 1999 inspired only lip service. Ronald Williams, the company's assistant general counsel at the time, groveled in court, "Wal-Mart is engaging in a searching reevaluation of [its] litigation processes [and] . . . regrets the misguided conduct that has brought us here today . . ."

Officials then made a show of asking the Cleveland-based firm of Jones, Day, Reavis & Pogue to review the company's practices. (Columbus attorney Jeffrey Sutton, who headed the effort, declined comment.) The retailer also hired an in-house consultant to advise it on the finer points of turning over evidence.

The result: more sanctions. A $200,000 penalty for hiding computer records in a New York counterfeit clothing case. The $26,000 fine in the East Peoria air-rifle suit. A $73,000 fine for providing incomplete documents in a Texas falling-merchandise case.

"Nothing changed," says Kramer, recalling a suit he worked last summer, in which the judge threatened to fine Wal-Mart for withholding evidence. "Absolutely nothing."

Yet if the company's dubious scruples frustrate opposing attorneys and judges, outside lawyers hired by the company also feel the pain.

Wal-Mart historically has employed lawyers on a flat-fee basis -- typically paying $2,000 to $12,000 a suit -- as a way to further reduce costs. But like a coach flashing signals to his quarterback, the company's in-house counsel calls every play. When Wal-Mart says a safety study doesn't exist, it doesn't exist. A Texas judge noted as much when he imposed a $5,000 sanction against the retailer in 1997, saying Wal-Mart kept its lawyers "in the dark" about the existence of accident reports.

Given that tight control, it's no surprise lawyers for Reminger & Reminger -- the Cleveland firm that represents the retailer in most of its cases here, including Davis's two suits -- declined comment. One of them, John Scott, handled the company's defense in Schaefer's knee-injury case, in which Wal-Mart took five months to hand over documents. Meyers, who also has faced Scott in non-Wal-Mart cases, blames his rival's client.

"John's the type of attorney who, when you request something, you get it," Meyers says. "In this case, we didn't get the information right away, so you can assume the problems were coming from somewhere else."

Namely: Bentonville, Arkansas.

Pardon lawyers if they react with skepticism to recent reports that Wal-Mart has begun to mend its ways. They've heard it before. As Kramer says, "There's a history with these people of saying one thing and doing another."

In May, Wal-Mart quietly ousted general counsel Robert Rhoads, five months after it nudged his assistant, Ronald Williams, out the door. Tom Mars, hired to succeed Williams in January, was promoted to Rhoads's post. Observers regard Rhoads and Williams as the chief architects of the company's scorched-earth policy.

The retailer also has beefed up its in-house legal staff, now comprising 80 lawyers, and is trying to settle more cases, according to plaintiffs' attorneys. Watson and Kramer both say the company has resolved years-old suits with them in the past six months, and Laska has heard similar accounts. Wal-Mart's confidential deal with Davis a few weeks ago put to rest a decade-long struggle.

Whether the cases represent a trend, or merely the extending of an olive branch to select attorneys who know how to crack Wal-Mart, remains uncertain. Pasternak, for one, suspects the latter. "I think what they're doing is taking steps to try to prevent against future sanction motions. I do not think they're sincere in trying to clean up their act."

The company flouts the law at its own peril, Laska warns. In a post-Enron world, jurors harbor renewed disgust for corporations trying to stick it to the little guy. Soon enough, massive punitive awards, not mere court sanctions, could emerge as the company's migraine du jour.

"If Wal-Mart gets an Enron-like shadow cast upon them, based on a perception of it not being a good place to work or shop, then they will have triggered anger in jurors," he says. "Once the goodwill is gone, you don't get it back."

Indeed, bad press has spiked against Wal-Mart of late. Employees who allege they're forced to work overtime without extra pay have filed class-action suits. Union efforts are simmering. Resentment of the retailer's big-box stores has beached plans for new outlets in several cities.

Still, like Microsoft, McDonald's, and a handful of other mega-corporations, Wal-Mart is as much a part of the national consciousness as the horizon. The 100 million customers who walk through its doors every week testify to the chain's irresistibility. As long as there's "Always Low Prices," even those who feel most victimized will keep coming back.

Just ask Bernadine Davis.

"Sam's Club is harder than Wal-Mart, but I still go there. You gotta keep living."

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