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Wal-Mart Loses Landmark Suit Over Predatory Pricing

October 13, 1993

CONWAY, Ark. (AP) _ Wal-Mart Stores Inc., regarded by many Main Street merchants as the bully on the block, got its nose bloodied on its own turf.

An Arkansas judge ruled Tuesday that the chain - which became the nation’s largest retailer by way of low prices - used discounts to try to drive smaller competitors out of business.

Judge David Reynolds said Wal-Mart violated state law by selling some drugs and health and beauty aids below cost at its store in Conway.

Reynolds ordered Bentonville-based Wal-Mart to stop the practice and awarded the plaintiffs, three independent Arkansas drugstores, nearly $300,000 in damages.

The decision was the first predatory pricing ruling against Wal-Mart, which critics have blamed for the demise of some long-established merchants in small towns around the country. The ruling applies only in Arkansas, but it could encourage similar lawsuits in other states.

Wal-Mart said it will appeal to the Arkansas Supreme Court. Robert K. Rhoads, Wal-Mart’s general counsel, warned of higher prices ″not just for Wal-Mart customers but customers″ at retail stores throughout the state.

Investors apparently shrugged off the verdict and the possibility of more such lawsuits. Wal-Mart stock fell 75 cents to $25.75 on the New York Stock Exchange.

Some analysts said there is little chance of the three pharmacies prevailing if the case is appealed outside Arkansas courts.

Terence McEvoy of the New York brokerage firm Janney Montgomery Scott Inc. predicted the U.S. Supreme Court would reverse the decision if the case got that far.

The ruling is ″blatant restraint of trade, which at one time was allowed and in the current environment no longer is,″ McEvoy said. ″It’s a state law and today’s environment is much different than when that law was written. Court decisions tend to go with the times.″

Wal-Mart admitted in a two-day trial in August that it priced some items below cost but as a way to draw customers, not to drive local druggists out of business.

Reynolds based his ruling in part on Wal-Mart’s in-store price comparisons of products sold locally by the plaintiffs and other competitors.

The judge also noted a variation in prices of Wal-Mart products in other markets with more or less competition, as well as the company’s stated policy of meeting or beating the competition without regard to cost.

Matthew Adlong, a lawyer for the three pharmacy owners who sued Wal-Mart, said small retailers nationwide were awaiting the outcome of the case to decide whether to proceed with similar cases against Wal-Mart and other retailers.

The lead plaintiff claimed victory for small, independent retailers nationwide.

″It’s important to beat Wal-Mart. They were literally driving the small people out of business,″ said druggist Dwayne Goode. Goode said he sued two years ago because he was fed up with trying to compete with Wal-Mart’s pricing. ″There’s no way anyone can keep their prices down with Wal-Mart and survive.″

Besides Goode, who owns American Drugs in Conway, the plaintiffs included owner Jim Hendrickson of Baker Drug Store in Conway and Tim Benton of Mayflower Family Pharmacy in Mayflower.

They claimed Wal-Mart violated Arkansas’ 56-year-old Unfair Practices Act, which bars merchants from selling items at a loss with the intent of harming competitors.

Wal-Mart, which had more than $55 billion in sales in 1992, became the nation’s biggest retailer in 1991.