The case of the stolen shoes (Scarborough v. Dillard’s) was recently back
before the North Carolina Court of Appeals. Imagine a company firing an employee
for embezzlement in 1997 and a grand jury indicting the employee at the request
of the local district attorney. Now, imagine a decade later an appellate court
ruling that the company owes the employee punitive damages. How could this
Two Pairs of Shoes Walk Off
Bernard Scarborough worked part-time in the ladies’ shoe department at
Dillard’s Department Store. One night in 1997, he helped two customers try on
shoes for about 35 minutes, and one of the women decided to buy two pairs of
shoes. Mr. Scarborough took the shoes to the register, scanned the items, and
placed the shoes in a bag. As they completed the transaction, the second
customer came to the register and asked him about another pair of shoes. Mr.
Scarborough “voided the first transaction so that he could check the price of
the shoes for the second woman, and so his employee number would not remain in
the register when he went into the stockroom.” The two women then said they
would return for the third pair of shoes in a few minutes and left Dillard’s
with the two pairs of shoes in their bag that were not paid for because of the
The two women soon returned as promised and asked Mr. Scarborough to hold the
third pair of shoes until the next day. Mr. Scarborough agreed and attached the
second woman’s name to the shoes along with his employee number. After the
customers left, two other Dillard’s employees looked at the register tape and
confirmed that the women were not charged for the first two pairs of shoes. One
of the employees told this to Mr. Scarborough, and Mr. Scarborough then called
the manager on duty to tell him what happened.
Dillard’s Response and The Arrest
The next evening, Dillard’s officials interviewed Mr. Scarborough for two
hours. During the interview, Mr. Scarborough explained that he made a mistake,
said he would pay for the shoes, and offered to take a polygraph. According to
Mr. Scarborough, the Dillard’s officials accused him of knowing the two women
and threatened to prosecute him in order to ruin his other, full-time job with
First Union if he did not provide their names. He told the officials that he did
not know them but believed one of them was named Betty. (The night before, he
had attached the name Betty Jordan to the third pair of shoes.) At the end of
the interview, the store manager terminated Mr. Scarborough for embezzlement.
After the termination, one of Dillard’s security guards, who also was a full
time sergeant with the local police department, interviewed three employees
about the voided transaction and then met with an Assistant District attorney.
Two weeks later, Mr. Scarborough was arrested in the First Union atrium on the
way to work and escorted in handcuffs out of the building. Because of the
arrest, First Union fired Mr. Scarborough and said he would be eligible to
return to work only if he was cleared of the charges.
The Litigation Goes On and On
In May 1998, Mr. Scarborough was tried for embezzlement but the jury returned
a “not guilty” verdict.
In 2001, Mr. Scarborough sued Dillard’s for malicious prosecution. His civil
case against Dillard’s went to trial in 2005. A jury again ruled for Mr.
Scarborough. It ordered Dillard’s to pay Mr. Scarborough $30,000 in compensatory
damages and $77,000 in punitive damages. However, the trial judge set aside the
punitive damages award.
Mr. Scarborough then went to the North Carolina Court of Appeals to ask that
Court to reinstate the punitive damages award. After one trip to the appellate
court and a return trip to the trial judge, the Court of Appeals issued its
latest opinion in this case on February 5, 2008.
Dillard’s To Pay Punitive Damages
In a divided decision, the Court of Appeals ruled that the trial judge erred
in setting aside the punitive damages awarded by the jury.
The Court found that the record contained sufficient evidence for the jury to
conclude that Dillard’s engaged in “willful or wanton conduct.” The Court
reached this conclusion in large part based on: (1) Mr. Scarborough’s testimony
that the store manager repeatedly threaten to “mess up” his job at First Union
if he did not identify the two customers, and (2) the fact that Dillard’s did
not try to contact the customer whose name Mr. Scarborough had placed on the
third pair of shoes.
The Court also found sufficient evidence of Dillard’s “malice.” The Court
highlighted that the first thing the store manager said to Mr. Scarborough when
meeting with him was: “I cannot believe you’re in my office again.” The manager
was referring to Mr. Scarborough’s recent reprimand for suggesting that a
customer try another store for tennis shoes. Surprisingly, the Court found this
comment to be evidence of “personal ill will toward Mr. Scarborough.”
In his dissent, Judge Hunter focused on some interesting findings that the
majority does not mention: (1) the security guard who met with the DA did so in
his capacity as a police officer, not as a part-time Dillard’s employee; (2)
Dillard’s presumably was not allowed “to take part in any way in the initiation
of a felony prosecution;” (3) Dillard’s took no part in the proceedings before
the grand jury to obtain an indictment; and (4) there was no evidence at trial
that Dillard’s had any role in the location, timing or circumstances of Mr.
Scarborough’s arrest. Given this dissent, this case very well may continue
through the appellate process.
What Is An Employer To Do?
The Court of Appeal’s opinion in this case potentially raises some serious
challenges for employers. If a company believes an employee is stealing, isn’t
calling the police or talking to a prosecutor to let the experts decide what to
do the best action? Why should a company be liable if a DA chooses to seek an
indictment and prosecute someone?
In order to try to answer these questions, employers should begin by
carefully considering the majority opinion’s key conclusion: “An employer’s
failure to fully investigate an incident before causing an employee to be
prosecuted for embezzlement is sufficient for a finding of reckless and wanton
disregard of the employee’s rights.”