Walmart Inc. thought it had the perfect solution to meet a commitment it made at the height of the pandemic in 2020.
The Bentonville retailer had made a deal to buy millions of dollars’ worth of nitrile gloves for its employees and customers from London Luxury LLC of New Rochelle, New York, but quickly realized it didn’t need that many.
So in 2021, Walmart doubled down, increasing the order with plans to sell the excess gloves to another supplier, Heypex Global Inc. of Rogers, in a business-to-business transaction expected to generate a $72 million profit.
Walmart “would just buy it, and turn around and sell. They wouldn’t have to do much,” said Brendon DeMay, an attorney for London Luxury. “Not only could they get rid of this excess inventory, but they would make an easy profit.”
But problems with the deal soon arose, and early this month, Walmart was hit with a $101 million breach of contract judgment.
After Walmart placed a $500 million noncancelable order with London Luxury in 2021, Heypex decided it no longer wanted the gloves. Prices on personal protective equipment had fallen by the end of that year.
London Luxury sued Walmart in 2022 after the retailer canceled the $500 million contract based on claims the gloves were defective.
The showdown between the two companies has given a rare peek into Walmart’s dealings with a supplier.
DeMay, a partner at Holwell Shuster & Goldberg LLP of New York, represented London Luxury and tried the case with Priyanka Timblo, also a partner at the firm, and Scott Richardson of McDaniel Wolff of Little Rock.
“So it’s just the disaster scenario for Walmart,” DeMay said. “Walmart has a noncancelable contract to buy a half a billion dollars of gloves and no customer to sell them to.”
DeMay said that Walmart invented reasons to cancel the contract with London Luxury, including an allegation the gloves didn’t pass certain quality tests. London Luxury insists its gloves were excellent.
On April 9, after an 11-day trial, a federal jury in Fayetteville found that Walmart breached its contract with London Luxury and awarded the supplier $101.2 million in damages.
Walmart had filed a counterclaim accusing London Luxury of breaching the contract. Walmart also accused the company’s CEO, Marc Jason, of interfering with Walmart’s employment contract with Garrett Small, who was Walmart’s senior sourcing director and main negotiator of the deal with London Luxury. Small no longer works for Walmart.
Walmart alleged that the pair worked together to help London Luxury and hurt Walmart in the glove transaction. Walmart also said that it later discovered that Jason met Small for lunch in February 2021, during which they discussed Small leaving Walmart and going to work for Jason in a proposed company that would manufacture gloves in the U.S. The next month, Jason paid for Small’s first-class trip to Miami Beach, Florida, to scout a location for a factory.
Walmart alleged that if it had known Small and Jason had a side arrangement, it wouldn’t have committed to the deal.
London Luxury denied the allegations of wrongdoing.
The jury awarded Walmart $350,000 after finding that London Luxury engaged in tortious conduct.
Walmart’s counterclaim for breach of contract against London Luxury was dismissed with prejudice, meaning it can’t be refiled.
“The jury’s findings that London Luxury engaged in tortious conduct vindicate what Walmart has argued from day one: this case is about allegations of London Luxury’s unethical behavior, including bribery,” a Walmart spokeswoman said via email to Arkansas Business. “We expect our suppliers to live up to the highest ethical standards, and we look forward to continuing to make our case in court that behavior like London Luxury’s is unacceptable.”
DeMay said it was “totally untrue” that London Luxury bribed a Walmart employee to make the deal happen.
Attorneys Ted Lynch and Lee Armstrong of Jones Day’s New York office and Steve Quattlebaum of Quattlebaum Grooms & Tull of Little Rock represented Walmart.
Richardson, one of London Luxury’s attorneys, said in a statement to Arkansas Business, “This jury showed once again that businesses who deal with Walmart can have their day in court, even in Walmart’s backyard.”
Pandemic Protection
In the summer of 2020, Walmart started talking with London Luxury about supplying nitrile gloves for its employees to wear in its stores to protect themselves from COVID-19.
Although London Luxury didn’t manufacture the gloves, the supplier said it was sure it could fulfill Walmart’s request for millions of boxes of nitrile gloves for its employees and customers through manufacturers in Southeast and East Asia, because almost all of the world’s nitrile glove production occurs outside of the U.S. “Walmart’s own people describe that the glove market in Southeast Asia is like dealing with the Mafia,” DeMay said.
On Dec. 14, 2020, Walmart wrote a year’s worth of purchase orders, for a little more than 53 million boxes of gloves at $7.20 per box, to London Luxury, according to a March memorandum opinion and order by U.S. District Judge Timothy Brooks, who presided over the case.
“But less than a week after Walmart issued the purchase orders, its executives began questioning whether Walmart still needed such a large supply of gloves,” Brooks wrote.
Although in July 2020, Walmart initially wanted 3 million boxes of gloves a month, about six months later, the demand fell to 625,000 boxes per month.
But Walmart’s Small and other Walmart executives believed they had made a legal commitment to London Luxury to buy at least 3 million boxes a month, court records show.
On Dec. 22, 2020, Small emailed Jason, London Luxury’s CEO, and told him that Walmart would soon have a new purchase order — but for a much lower amount, Brooks wrote.
“Said very calmly, this email is freaking me out more than a little,” Jason said in the email response to Small, which is quoted in Brooks’ 55-page order.
Jason said that Walmart needed to stick to what it agreed to order. “There is simply no way in the world that I can back out now, I literally have tens of millions of dollars at risk, in addition to a significant personal guarantee that I gave the bank based solely on Walmart’s written commitments and trust that I’ve been given throughout,” Jason’s email said.
Small said he was sorry, and said that “Walmart will buy your allocated amount” and Jason could count on him to help, Brooks’ order said.
Lemons to Lemonade
Brooks said that in “a lemons-to-lemonade moment” Walmart constructed a solution to its glove problem.
In early January 2021, Walmart found a buyer for its extra gloves: Heypex, which had clients in the medical industry.
(Heypex couldn’t be reached for comment, and the Arkansas secretary of state’s office lists the company’s status as revoked.)
Chastity Prince, a Walmart buyer, said in an email to members of her team that the transaction was a “significant opportunity” and noted the “potential to scale this long term [wa]s infinite!” Brooks quoted her Jan. 19, 2021, email. She estimated that the profit to Walmart would be $63 million. Another member of Walmart’s team later estimated the deal with Heypex would result in an even higher profit of $72 million.
DeMay, London Luxury’s attorney, said that Walmart rushed into the decision. “They’re used to selling stuff in stores and online, but to get into the wholesale market was something completely new for them.”
On Feb. 19, 2021, Walmart signed a contract with Heypex to deliver a little more than 55 million boxes of gloves over a one-year period. Walmart intended for London Luxury to supply the gloves.
But “London Luxury made clear that without a noncancellable commitment to buy, London Luxury would not have been able to secure the financing necessary to source the gloves from factories overseas,” according to London Luxury’s complaint.
After a February lunch meeting with Small and Jason, “where they discussed, among other things, the possibility of Mr. Small leaving Walmart and going to work for Mr. Jason on a new domestic glove manufacturing venture,” Jason emailed Small, Brooks wrote.
“The email contained language that Mr. Jason had crafted for Mr. Small to insert in a working draft of a ‘[b]inding commitment’ letter that London Luxury could, in turn, present to its bank,” Brooks wrote.
The next day, Small emailed Jason and had signed the document that said that Walmart’s commitment to buy the gloves was “noncancellable and irrevocable.”
“The cover email stated that the attached letter was approved by ‘Walmart legal,’ though Walmart disputes that this was true,” Brooks wrote.
By May 2021, Heypex’s order with Walmart had grown to 66 million boxes. Walmart’s total agreement with London Luxury was for 73 million boxes, which included retail boxes and gloves for employee use in addition to the more than 66 million boxes for Heypex, Brooks wrote.
‘Things Changed Abruptly’
“However, things changed abruptly in the fall of 2021,” London Luxury’s complaint said.
Heypex decided not to buy the gloves from Walmart, after the price had fallen, DeMay said.
DeMay said that Walmart then generated reasons after the fact to cancel its contract with London Luxury.
Walmart said that some of the gloves it tested in November 2021 received a failing grade.
On Nov. 11, 2021, Alex Hurd, Walmart’s vice president of health and wellness sourcing, emailed Jason and said to stop production of glove orders, Brooks wrote.
“London Luxury has had ongoing and significant issues meeting its obligation,” including “repeated delays and a failure to comply with Walmart’s supplier standards,” which are “strict,” Brooks quoted the email in his March filing.
Hurd also said that Walmart had still “not received timely and accurate information about the products” and was “so disappointed in the performance of London Luxury” that it wasn’t planning to issue any more orders, Brooks wrote.
Jason said in a reply email that the cancellation order “came out of the blue” and he was “surprised to receive that email given the blood, sweat, tears, time, money and resources we have dedicated to supplying WM with its requirements for nitrile examination gloves,” Brooks quoted the email.
Jason also reminded Hurd that Walmart gave an “‘irrevocable and non-cancellable” commitment to buy the gloves.
Based on Walmart’s commitment, Jason and London Luxury entered into several exclusive contracts with glove manufacturers in Asia, “which required us to guarantee certain minimum purchases at WM specified pricing.”
He said that gloves were being shipped and ready to go.
“We suspect that this apparent change of heart is the result of one of WM’s B2B clients [sic] recent cancellation of glove orders,” Jason wrote in his email. “However, that obviously has nothing whatsoever to do with us.”
The last shipment Walmart received was on Jan. 31, 2022. Walmart had paid London Luxury $27 million for gloves “that no person who cares about people would sell,” Quattlebaum, an attorney representing Walmart, said in his closing statement.
Heypex “may have lost their buyer, but it’s because everybody was beginning to see, there’s just too many red flags all over this thing,” Quattlebaum said.
DeMay disagreed, saying the gloves were perfectly fine.
Walmart’s Allegations
Walmart argued at the trial that Small didn’t have the authority to enter into a contract with London Luxury.
In addition, Small breached his fiduciary duty to Walmart, Quattlebaum told the jury.
“Once the conflict of interest is created, Garrett Small is no longer 100% on Walmart’s team,” he said.
DeMay told the jury in his closing arguments that Walmart executives were “throwing [Small] under the bus for something he did not do. They made the bad bet and now they are blaming him.”
But he said that even if they found there was a conflict of interest, “it did not substantially defeat the purpose of the deal,” DeMay said. “London Luxury was delivering hundreds of millions of gloves, just like it promised.”
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