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Law360 (April 13, 2021, 9:56 PM EDT) -- Walmart was sued Tuesday in Arkansas federal court by a supplier claiming the retailer over-ordered millions of dollars' worth of hand sanitizer after the outbreak of the COVID-19 pandemic, then ultimately refused to pay a $15 million bill for some of the product.
K7 Design Group Inc. says that Sam's Club, which is owned and operated by Walmart Inc., ordered tens of millions of dollars' worth of hand sanitizer in the immediate months following the outbreak of COVID-19 in March 2020, but has refused to take delivery of or pay for more than $15 million's worth of those orders.
Walmart is not the only major retailer K7 is accusing of sticking it with a giant hand sanitizer bill, as it also recently filed an $85 million lawsuit against The Kroger Co. and a $2 million suit against Five Below Inc., featuring similar claims and at times identical language, including that the suits all arise from an "enormous miscalculation" by the retailers in over-ordering hand sanitizer.
"Once Sam's Club realized that it had over-ordered and did not have adequate storage space, it refused to accept further deliveries and pay for a substantial portion of product orders and commitments, leaving K7 with millions of dollars worth of hand sanitizer and related product that it manufactured specifically for Sam's Club based on Sam's Club's purchases," K7 said.
Aside from refusing to accept or pay for some of the shipments Sam's Club ordered from K7, the nation's largest retailer coerced K7 to make various concessions, including paying for the storage of its own product that Walmart had already ordered, K7 said. In October and November, Sam's Club finally agreed to receive 5,200 pallets of sanitizer as long as K7 paid to store 3,200 of those pallets before "absorbing that portion of the product into its retail outlets for sale," K7 said.
"K7 had no feasible commercial choice but to accept these unilateral demands as a means to mitigate its damages and to avert additional losses arising from Sam's Club's breach of its purchase orders," K7 said, adding that it did not have the storage capacity at its own facilities and had to incur third-party storage fees.
K7 said Sam's Club "exerted unjust, unconscionable, and coercive pressure upon K7 in imposing the costs of further storage through the price reductions," and the retailer still has to pay the storage fees on a daily basis.
Even after the price reductions, Sam's Club refused to accept delivery of or pay for more than $15 million in product it previously agreed to purchase, K7 said.
The suit against Walmart was filed in Arkansas, where its headquarters is located, and brings claims for breach of contract or promissory estoppel in the alternative, while seeking more than $15 million for the allegedly unpaid product orders plus $1.6 million in price reductions K7 says it was coerced into.
Walmart and counsel for K7 did not immediately respond to requests for comment.
K7 is represented by David B. Newman of Sills Cummis & Gross PC, and Hardin Jesson & Terry PLC.
Counsel information for Walmart was not immediately available.
The case is K7 Design Group Inc. v. Walmart Inc. d/b/a Sam's Club, case number 5:21-cv-05069, in the U.S. District Court for the Western District of Arkansas.
--Editing by Adam LoBelia.
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