Home Depot (NYSE:HD) has been hit with a potential class-action lawsuit that alleges the retailer is shaking down customers wrongly accused of shoplifting, Bloomberg reported on Wednesday (Sept. 11).
A California man, Jimin Chen, said he was wrongly accused of taking two pairs of $3.99 work gloves during a June 6 Home Depot shopping trip during which be purchased almost $1,500 worth of merchandise from the chain. Over the summer he received two letters from a law firm representing Home Depot—one on June 10 demanding $350 to settle claims, a second on July 5 demanding $625. Both letters threatened legal action if he didn't pay.
Instead of paying, Chen sued Home Depot in California state court, alleging that Home Depot is shaking down customers for arbitrary and unjust damages and using false threats of criminal prosecution. The complaint also says the Florida law firm, Palmer Reifler, sends more than a million demand letters a year to shoppers that Home Depot has accused of shoplifting. The law firm is not a defendant in the lawsuit.
A Home Depot spokesman, Stephen Holmes, told Bloomberg the company hasn't reviewed the details of the case but maintains that the general practice of civil demands is lawful. All 50 states have laws that allow retailers to claim damages from shoplifters. California's law limits damage payments to $500, and the lawsuit accuses the chain of using it "to intimidate consumers into paying money to which Home Depot is not entitled."
According to estimates cited by Bloomberg, as much as $37 billion in merchandise is stolen from stores every year, split about evenly between shoplifting and employee theft.
Loss prevention is a problem for all retailers, but it's a bigger challenge in chains, where LP staff are usually separate from store management and, in some cases, don't even work for the chain. That casts Home Depot as a stand-in for all medium-size and large retailers in this case: Whether the accusation was right or wrong, it's the chain that will have to explain why a customer who just spent almost $1,500 on lumber was detained and even handcuffed over $8 in gloves.
The case is scheduled for its first hearing on Oct. 8.
- See this Bloomberg story
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