Walmart Lifts a Win in Shoplifting RICO Claims

February 22, 2019

On Feburary 8, Judge Lucy Koh granted a group of defendant retailer’s motion to dismiss an action filed against them claiming a nationwide conspiracy to shakedown accused shoplifters. The retailers that were named in the suit included nationwide retailers Walmart, DSW, Burlington Coat Factory, Bloomingdales, Abercrombie & Fitch, Kroger, and Sportsman’s Warehouse. The allegations arose from their affiliation with a company named Corrective Education Company, LLC (“CEC”) which provides a program titled “Restorative Justice.”

According to the complaint filed in April 2018, the program worked as follows. Upon a store’s own security personnel apprehending an accused shoplifter they were presented with the choice of referral to law enforcement for possible criminal charges or participation in Restorative Justice. The program began with a signed admission of guilt in exchange for an agreement to participate in a series of online courses. According to the script used by CEC quoted in the complaint, the online courses could cost $400 up front or $50 down with monthly payments totaling $500 paid directly to CEC. The complaint alleges a portion of this program fee was then provided as a kick-back to the retailer. An affidavit from one of the founders of CEC claims though they “no longer offer reimbursements, or payments of any kind to retailers who offer its program.”

Even without the alleged kick-back, the benefit to the retailer is obvious, they can quickly and quietly clear shoplifting cases without having the additional burden of preparing evidence for cases in most instances. It’s clear to see why so many retailers would be jumping on to this program. CEC benefits from charging $400-500 for an online course. The accused shoplifter is the one left without a venue or opportunity to prove their innocence, particularly given the admission of guilt they sign to begin the program. Versions of the script provided in the complaint even stress the “serious, long lasting” consequences of criminal shoplifting allegations but signing up for Restorative Justice will provide you with a CEC coach who “on your side”. The persuasive effect of choosing between a quiet resolution to being arrested and sent to trial is clear. The problem starts when a program participant can’t make their payments.

The phone calls quoted in the complaint read very similarly to collections calls. The difference though, is CEC holds an ace card, which is they can turn the case back over at any point to law enforcement complete with a signed admission of guilt. Protestations of not having any money available to make the program payment are met with threats of “likely” arrest and criminal charges. In spite of the compelling narrative set forth in the complaint, the court’s dismissal likely leaves the action dead in the water for the time being.

It does seem the primary basis for dismissing the action is based on the pleading of the court’s jurisdiction rather than the underlying merits. The court found the plaintiff’s failed to allege general jurisdiction for most of the retailer defendants and also failed to allege specific jurisdiction by sufficiently pleading any alleged harms occurred within California. On the other hand, court finds some of the RICO claims against the retailers to fall short. The retailers named in the complaint other than Walmart had the RICO claim dismissed with prejudice primarily because there were no shoplifters alleged to have been apprehended at these retailers. The implication is they were named purely as CEC Restorative Justice participants. Walmart, on the other hand, was the basis of the shoplifting allegations pleaded as the class representatives’ involvement with CEC. As a result, the court seems to give some light at the end of the tunnel by only dismissing these claims without prejudice, potentially leaving the plaintiffs an opportunity to re-file. A follow-up order on February 11 makes it clear the plaintiffs are under notice they must amend their complaint against the remaining defendants dismissed without prejudice or risk having a second motion to dismiss be granted with prejudice.

Image: REUTERS/Kamil Krzaczynski

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