Responding To Employee Theft: How To Prevent The “Other Shoe” From Dropping

February 28, 2008

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 happen?

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 voided transaction.

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.”