Walmart Inc., Bloomingdale’s Inc. and Abercrombie & Fitch are facing a lawsuit in Northern California federal court claiming a purportedly theft-deterring third-party program for accused shoplifters that they no longer use was little more than extortion.
A trio of unnamed shoppers is taking issue with the retailers’ alleged work with the Corrective Education Company, a privately held Utah-based business offering what it calls “restorative justice” programs and technology to retailers looking to unburden their internal security personnel, as well as reduce calls to local police over shoplifting incidents. Theft from retailers in 2017 accounted for $48.9 billion in lost revenue, or about 1.4 percent of total sales, according to research from the National Retail Federation.
Through CEC’s offering, retailers give accused shoplifters an option when they are held by security: wait for the police and possibly face charges and arrest, or sign an admission of guilt and agree to pay between $400 and $500 to take a six to eight hour class online that is aimed to deter future theft.
“Those who choose the latter option (about 90 percent) are forced to make a substantial payment to CEC, a portion of which is kicked back to the participating retailer,” the shoppers wrote in their complaint.
The option of CEC is also allegedly offered based on a person’s “qualification” for the program, including whether they have a criminal record, which the retailer checks through its own, CEC’s and publicly available records.
Burlington Coat Factory, DSW, Sportsman’s Warehouse and Kroger are named as defendants using CEC in the complaint, along with Walmart, Bloomingdale’s and Abercrombie. CEC’s cofounders Darrell Huntsman, Glenn Bingham, Brian Ashton are also named, as are six other board members and executives and Decathlon Capital Partners, an investor in CEC.
A Bloomingdale’s spokeswoman said the company “does not currently” work with CEC and has not “for a number of years.” An Abercrombie spokeswoman said “we are not a client of CEC,” but declined to comment further, citing pending litigation. A copy of the company’s contract with CEC filed with the court is dated 2015. A Walmart spokesman said: “We began evaluating this program last year and ultimately suspended it last December. We deny the allegations made against us and plan to defend ourselves.”
Representatives of other defendants could not be reached for comment.
Plaintiffs are seeking class action status and unspecified damages for any person who’s paid to take a CEC class after being accused of shoplifting at one of the retailers named in the lawsuit. They’re also asking the court to rule the program and its users in violation of the Racketeer Influenced and Corrupt Organizations Act, which focuses on holding legally accountable leaders that order subordinates to commit crimes or other unlawful acts.
CEC’s service has been the subject of at least two earlier lawsuits, both at the state level in Indiana and California, but that did not include retailers. Judges in both enjoined the uses of CEC in their counties, with one characterizing the program as an outright threat and the other as “textbook extortion.”
In the new complaint, the shoppers claim CEC has been operating since at least 2012 and has “extorted hush money payments from thousands of people.” Last year, CEC reported annual revenue of $7.6 million “nearly all of which is attributable to payments through the CEC program,” plaintiffs claim.
Each of the shoppers claims to have found themselves in situation where they were detained by loss prevention personnel in a store, accused of stealing and threatened with police intervention, if they did not agree to submit to the CEC program.
One shopper claims that in September she was detained in a Georgia Walmart after checking out with a number of items and accused of not paying for a case of water and a package of hotdog buns. Although she claimed the items were simply not scanned, a loss prevention employee showed her a video explaining the CEC program and “in response to Walmart’s threat to report [Jane] Doe to criminal authorities,” she agreed to the CEC option and ended up paying $500 for the class. She also paid for the items she was accused of stealing.
A script of the explanatory video — which was used at least until 2016, but CEC claims to have updated — claims that whatever establishment the viewer is in is not profiting from their choice of CEC.
However, plaintiffs claim that CEC would “reimburse” retailers $40 for every individual that submitted to the program. While one of the CEC cofounders Darrell Huntsman told a local California court in November that the company “no longer” offered such reimbursements, plaintiffs in the federal complaint said they lack “sufficient information to determine the truth of this self-serving statement or to determine when, if ever, CEC stopped making these kickback payments.”
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