Wal-Mart Stores, Inv. v. Thomas M. "Tom" Coughlin

Wal-Mart Stores, Inc. sued Thomas Coughlin for breach of fiduciary duty to disclose material facts before entering into a self-dealing contract, and (2) his fraudulent inducement of Wal-Mart to enter into the Retirement Agreement, which incorporated a Mutual General Release (Release) between the parties, by his failure to disclose material facts and by his affirmative misrepresentations. We agree with Wal-Mart that it sufficiently pled Coughlin's duty, as a fiduciary, to disclose material facts as well as fraudulent inducement by Coughlin's affirmative misrepresentations so as to withstand a motion to dismiss under Rule 12(b)(6) of the Arkansas Rules of Civil Procedure. We further agree that the circuit court made a premature finding of fact in its order of dismissal relating to Coughlin's fraudulent purpose in connection with the Retirement Agreement and Release. We reverse and remand for further proceedings.

In 1978, Coughlin began working for Wal-Mart as the Director for Loss Prevention, where he had the responsibility to investigate theft, fraud, and abuse by Wal-Mart associates, suppliers, and others who may have committed these offenses against the company. From 1983 until 2003, Coughlin held various executive positions within Wal-Mart and the company's Sam's Club division. He also eventually became a member of the Wal-Mart Board of Directors. During this time, he retained responsibility for management of the Loss Prevention Department. In 2003, Coughlin assumed the position of Executive Vice President and Vice Chairman of the Board of Wal-Mart Stores, Inc. (USA), and later became Vice Chairman of Wal-Mart's Board of Directors.

In 2004, Wal-Mart announced that Coughlin would retire in 2005. On January 22, 2005, Wal-Mart and Coughlin entered into a Retirement Agreement, which included the Release between the parties, under which Coughlin was to receive millions of dollars in benefits over the ensuing years. In February 2005, after the execution of the agreement, Wal-Mart learned of Coughlin's fraudulent conduct after a store associate alerted Wal-Mart's internal investigations group that Coughlin had used a Wal-Mart gift card, issued internally for associate relations, for personal purchases. Through the internal investigation that followed, Wal-Mart learned that Coughlin had abused his position of authority and conspired with subordinates to misappropriate hundreds of thousands of dollars in cash and property through various fraudulent schemes. Three months after Wal-Mart signed the Retirement Agreement and Release with Coughlin, Wal-Mart suspended Coughlin's retirement benefits.

On July 27, 2005, Wal-Mart filed suit against Coughlin to void the Retirement Agreement and Release and alleged ten claims for relief: fraud, fraudulent concealment, breach of fiduciary duty, conversion, accounting, restitution based on rescission of the Retirement Agreement, declaratory judgment that Coughlin is not entitled to retirement benefits under the Retirement Agreement, restitution based on unjust enrichment, judgment for money had and received by Coughlin, and conspiracy. Coughlin moved to dismiss the complaint for failure to state a claim upon which relief could be granted under Rule 12(b)(6) of the Arkansas Rules of Civil Procedure. On November 1, 2005, the circuit court dismissed Wal-Mart's complaint with respect to all allegations occurring prior to the execution of the Retirement Agreement and Release.

On November 4, 2005, Wal-Mart filed its First Amended Complaint and added fraudulent inducement of the Retirement Agreement and Release as a new claim for relief. Wal-Mart alleged in that new claim that Coughlin had made repeated misrepresentations to Wal-Mart about his conduct by his execution of Certifications and Disclosures pursuant to SEC regulations and Wal-Mart's internal policies, which attested to no wrongdoing. Wal-mart asserted that these misrepresentations induced it to enter into the Retirement Agreement and Release. On January 23, 2006, the circuit court entered its final order, which found that "Wal-Mart failed to specifically plead a nex[u]s between Coughlin's alleged fraud and the signing of the Release" and dismissed the First Amended Complaint.

Settled for an undisclosed sum.