Wal-Mart Stores, Inc. v. Watson

• Decision Date: 30 March 2000
• Docket Number: No. CIV. 99-5187.,CIV. 99-5187.
• Citation: 94 F.Supp.2d 1027
• Parties: WAL-MART STORES, INC., Plaintiff, v. Barry M. WATSON, et al., Defendants.
• Court: U.S. District Court — Western District of Arkansas

Page 1027

94 F.Supp.2d 1027

WAL-MART STORES, INC., Plaintiff, v. Barry M. WATSON, et al., Defendants.

No. CIV. 99-5187.

United States District Court, W.D. Arkansas, Fayetteville Division.

March 30, 2000.

George R. Rhoads, Mark T. Fryauf, Matthews, Campbell, Rhoads, McClure & Thompson, Rogers, AR, for Wal-Mart Stores, Inc.

G. Alan Wooten, Warner, Smith & Harris, Fort Smith, AR, for Barry Watson, Wildlife Habitat, Int'l and Bristol Ridge, Inc.

W.H. Taylor, Mashburn & Taylor, Fayetteville, AR, for Daralyn R. Watson.

John C. Everett, Jason H. Wales, Everett Law Firm, Fayetteville, AR, for Lawrence L. Pickens & Pickens, Inc.

MEMORANDUM OPINION

H. FRANKLIN WATERS, District Judge.

This case is before the court on the motion to dismiss filed on behalf of Lawrence L. Pickens and Pickens, Inc.¹ Pickens contends the complaint as against him should be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure because the Racketeer Influenced and Corrupt Organizations Act (RICO) claim asserted therein is barred by the statute of limitations.

Background.

On March 6, 2000, plaintiff, Wal-Mart Stores, Inc., filed its first amended complaint. The complaint asserts civil RICO claims against multiple defendants including Pickens.

The allegations of the complaint concern questionable transactions involving Barry Watson, a former apparel buyer for Wal-Mart, and multiple defendants. The questionable transactions allegedly resulted in Wal-Mart paying an increased price for various types of apparel while Watson, his wife, Daralyn Watson, or companies controlled by them received kickbacks from various vendors.

With respect to Pickens, it is alleged Pickens and various other defendants paid kickbacks to defendant Tuscan Consulting, Inc., in the amount of at least $1,075,150. In paragraph 45, the amended complaint alleges that the kickbacks paid by Pickens on behalf of defendants, Bellagio International, Ltd., and Cliftex Corporation, were made in September, 1994, October, 1994, December, 1994, May, 1995, and July, 1995. The kickbacks paid on these five occasions are alleged to have been at least $63,000.

In consideration of these kickbacks, it is alleged Barry Watson around February 22, 1994, added a line of cotton sweaters purchased from Bellagio International, Ltd., which had not previously been sold in plaintiff's Sam's stores and for which Barry Watson obligated the plaintiff to pay a higher price than the quality of the cotton sweaters justified. The consideration for the kickbacks Pickens paid on behalf of Cliftex Corporation was that Watson around March 10, 1995, switched the plaintiff's purchases of men's sports coats for its Sam's stores from an existing vendor to Cliftex at a higher price than was paid to the existing vendor and for a lesser quality product. It is also alleged that Watson ordered the sports coats and cotton sweaters in a larger quantity than would reasonably sell in the plaintiff's Sam's stores. As a result of the large quantities purchased, plaintiff alleges it was forced to take markdowns on the apparel and thereby lose money.

Discussion.

When analyzing a 12(b)(6) motion, we accept the complaint's factual allegations as true and construe them in the light most favorable to the plaintiff. Id. All that is required of a complaint is "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R.Civ.P. 8(a). Furthermore, the complaint is to be liberally construed in the light most favorable to the plaintiff. See Coleman v. Watt, 40 F.3d 255, 258 (8th Cir. 1994). "At a minimum, however, a complaint must contain facts sufficient to state a claim as a matter of law and must not be merely conclusory in its allegations." Springdale Education Association v. Springdale School District, 133 F.3d 649, 651 (8th Cir.1998).

We will not dismiss a complaint for failure to state a claim unless it appears beyond a doubt that the plaintiff can prove no set of facts which would entitle him to relief. Schmedding v. Tnemec Company, 187 F.3d 862, 864 (8th Cir.1999). "Nor should a complaint be dismissed merely because it does not state with precision all elements that give rise to a legal basis for recovery." Id. Therefore, "as a practical matter, a dismissal under Rule 12(b)(6) should be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Id.

Pickens argues RICO's four year statute of limitations erects an insuperable bar to relief. He contends that in Rotella v. Wood, ___ U.S. ___, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000), the Supreme Court held that the four year statute of limitations begins to run when a plaintiff knew or should have known of its injury. Given the allegations of the amended complaint concerning the five occasions from September of 1994 until July of 1995 when Pickens, on behalf of Bellagio and Cliftex, is alleged to have paid kickbacks to Watson, Pickens argues the injuries that Wal-Mart allegedly suffered as a result of his actions occurred more than four years prior to the date Wal-Mart filed its original complaint, November 23, 1999.

Pickens argues that if Wal-Mart was injured in its business in the manner alleged in the complaint, the injuries occurred as soon as the plaintiff purchased the sweaters and sports coats from Pickens in February of 1994 and March of 1995. This is true, Pickens contends because Wal-Mart knew what it purchased from Pickens and could have ascertained immediately upon taking delivery the quality and quantity of the goods purchased.

Wal-Mart states that it was not until after Watson left its employ on December 20, 1995, that an investigation uncovered a series of kickback schemes. While it concedes the purchase of the inferior goods and the payment of kickbacks occurred earlier, it states it did not discover the activities until December of 1995 which is within four years of November 23, 1999.

Further, Wal-Mart argues the Rotella case, while it eliminated the injury and pattern discovery rule formerly applied in this circuit, did not adopt an injury occurrence rule.² Instead, Wal-Mart states Rotella did not settle on a final rule but its holding looked to the date when the injury was discovered. As it did not discover the injury until well within the four year statute of limitations, Wal-Mart contends Pickens' motion to dismiss must be denied.

Although RICO provides for civil actions, it contains no statute of limitations. In Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), the Supreme Court, borrowing an analogous four-year period established by the Clayton Act, 15 U.S.C. § 15b, established a four-year limitations period for civil RICO claims. The Supreme Court left for later determination the question of when the limitations period began to run.

In the wake of Malley-Duff, the courts adopted a variety of accrual rules. A number of circuits adopted an "injury discovery accrual rule starting the clock when a plaintiff knew or should have known of his injury." Rotella, ___ U.S. at ___, 120 S.Ct. 1075, 1077-78, 145 L.Ed.2d 1047 (citations omitted). Some courts, including the Court of Appeals for the Eighth Circuit, "applied the injury and pattern discovery rule ... under which a civil RICO claim accrues only when the claimant discovers, or should discover, both an injury and a pattern of RICO activity." Id. See Granite Falls Bank v. Henrikson, 924 F.2d 150, 154 (8th Cir.1991). Other courts applied a "last predicate act" rule under which "the period began to run as soon as the plaintiff knew or should have known of the injury and the pattern of racketeering activity, but began to run anew upon each predicate act forming part of the same pattern." Rotella, ___ U.S. at ___, 120 S.Ct. 1075, 1080, 145 L.Ed.2d 1047 (citations omitted).

In Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997), the Supreme Court "cut the possibilities by one, in rejecting the last predicate act rule." Rotella, ___ U.S. at ___, 120 S.Ct. 1075, 1080, 145 L.Ed.2d 1047. Klehr left "two candidates favored by the various Courts of Appeals: some form of injury discovery rule (preferred by a majority of Circuits to have considered it), and the injury and pattern discovery rule." Rotella, ___ U.S. at ___, 120 S.Ct. 1075, 1080, 145 L.Ed.2d 1047.

Rotella cut the possibilities by one more by rejecting the injury and pattern discovery rule. Id. In footnote two of the opinion, the Court was careful to note that it did not "settle upon a final rule." Rotella, ___ U.S. at ___ n. 2, 120 S.Ct. 1075, 1080, 145 L.Ed.2d 1047. It stated that "[i]n addition to the possibilities entertained in the Court of Appeals, JUSTICE SCALIA has espoused an `injury occurrence' rule, under which discovery would be irrelevant ... and our decision in Klehr leaves open the possibility of a straight injury occurrence rule." Id. While the Supreme Court was urged in an amicus curiae brief to adopt this latter rule, it declined to pass upon it since the parties had not focused on that option. Id.

Wal-Mart is therefore correct when it argues Rotella did not definitively adopt an accrual rule for civil RICO actions. Rotella did, however, definitively reject the accrual rule previously adopted by the Eighth Circuit.

We are therefore left with two apparent possibilities: the injury discovery accrual rule and the injury occurrence rule. We begin our analysis with a brief review of plaintiff's RICO claims. In the complaint, Wal-Mart alleges the defendants conspired to violate the provisions of 18 U.S.C. § 1962(a) through (c) in violation of § 1962(d). Wal-Mart seeks treble damages, costs, and attorneys' fees under § 1964(c). 18 U.S.C. § 1964(c).

Section 1962(a) prohibits the use or investment of income derived from a pattern of racketeering activity in any enterprise engaged in...