AR High Court Breathes New Life into Wal-Mart Exec Fraud Suit

April 13, 2007 (PLANSPONSOR.com) - The Arkansas high court has revived a lawsuit by retail giant Wal-Mart against its former vice chairman, saying the company is entitled to have the case proceed further in the court system.

The Arkansas Supreme Court ruled a state judge was wrong to dismiss Wal-Mart’s lawsuit to void the nearly $15-million package for former Vice Chairman Tom Coughlin, now serving a sentence after a fraud conviction, according to a Springdale (Arkansas) Morning News report.

Wal-Mart and Coughlin signed a retirement deal in January 2005 in which the two sides agreed not to sue the other for grievances that might come to light after Coughlin’s departure. According to the newspaper, Wal-Mart said later that it discovered Coughlin’s fraud and believes he was obligated to reveal the crime before quitting.

The company pulled back Coughlin’s retirement package in June 2005 and the two parties went to court over the matter.

Under his retirement agreement, Coughlin was to receive his base salary of $1.03 million for two years. The agreement also provided that Coughlin would not forfeit 186,407 shares of unvested restricted stock, worth about $10 million, that would have otherwise expired on his retirement date under the terms of the restricted stock award agreements, the news report said.

Also, the retirement agreement said Coughlin was eligible to receive a pro-rated portion of any incentive payment earned under Wal-Mart’s management incentive plan, for the fiscal year ending January 31, 2005.

An Arkansas Circuit judge ruled in November 2005 that Wal-Mart failed to showArkansas law required a company officer to disclose any improprieties before signing a general release from liability. The case on which the Supreme Court ruled involved Wal-Mart’s appeal of the lower court’s dismissal of its lawsuit.

“We hold … that Arkansas law is clear that a release induced by fraud is invalid. The circuit court erred in (its) ruling. The question of whether Coughlin, by his actions, exhibited the requisite intent to fraudulently induce the retirement agreement and release is a question of fact for the jury,” the court stated.

“We’re pleased that the Arkansas Supreme Court has reversed the trial court’s ruling and reinstated this lawsuit. This case raises important issues about the duties of corporate officers and directors to act honestly and fairly, and we look forward to the next stage of the proceedings,” said Wal-Mart spokesman John Simley.

Coughlin retired from Wal-Mart in January 2005 and then resigned from its board the following March after an internal investigation by the company revealed his misuse of money and gift cards in an amount approaching $500,000 (See  Wal-Mart Explains Firing of Former Vice President ).

He pleaded guilty to wire fraud and tax evasion in February 2006 in federal court and was sentenced to 27 months of home detention, which he began serving in October (See Coughlin Pleads Guilty to Wal-Mart Misappropriation Charges ).

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