RJR Alleges Fraud

Files suit against certain wholesalers, retailers, individuals over buydowns, coupons

Published in CSP Daily News

WINSTON-SALEM, N.C. -- R.J. Reynolds Tobacco Co. has filed a multi-million dollar lawsuit in U.S. Federal Court for the Western District of North Carolina. The suit alleges that certain wholesalers, retailers and other individuals conspired to defraud the company.

This suit is about stopping fraud, recovering our damages and sending the message that we will vigorously pursue those who have been and continue to be engaged in fraudulent activities related to our buydown' and coupon programs, said Jim Beckett, senior counsel for R.J. Reynolds.

He added, We have been investigating these activities for quite some time and will prove the fraud committed against our company. We look forward to recovering our damages and ultimately stopping these schemes.

Several retailers that have admitted a role in the schemes are cooperating with R.J. Reynolds, the company said. Other wholesalers, retailers and individuals that may have been involved in this conspiracy may be named as defendants at a later date.

R.J. Reynolds conducts buydown and coupon promotion programs to provide smokers with discounts on cigarettes purchased at retail. In the complaint, totaling more than 140 pages, the company outlines, among other things, how the defendants diverted buydown money to their own pockets through the use of fraudulent cigarette orders and sales invoices.

The complaint further sets forth that certain of the defendants used improperly obtained coupons, in lieu of cash, to purchase R.J. Reynolds' discounted cigarettes from the retailer defendants who were authorized by the company to accept such coupons.

The complaint outlines allegations that the defendants are guilty of racketeering, unfair and deceptive trade practices, civil conspiracy, as well as additional counts. The company is seeking more than $20 million in compensatory damages and attorneys' fees. Compensatory damages awarded under federal and state racketeering or state unfair trade practice counts can be tripled, said the company.

Wholesalers, retailers and individuals currently named in the suit include:

Market Basket Food Stores Inc., Taylorsville, N.C. Stephen Hunt, owner and operational manager of Market Basket Food Store Inc. RJ Marketing Inc., Kingsport, Tenn. Jason Carpenter, co-owner and operational manager of RJ Marketing Inc. Ronald Clark, co-owner of RJ Marketing Inc. J&L Distributors, Weber, Va. Foster Qualls, owner of J&L Distributors Dave's Distributing, Troutman, N.C. Dave Ritchie, owner of Dave's Distributing Appalachian Oil Co. Inc. (APPCO), Blountville, Tenn. Jeffrey H. Benedict, president of APPCO Daniel Blackburn, president of convenience store operations for APPCO MAP of Virginia dba Wholesale House Tobacco Outlet (WHTO), Abingdon, Va. Michael Patrick, owner of WHTO Hileman Tobacco Stores, Saint Paul, Va. Danny Hileman, owner of Hileman Tobacco Stores BCW Properties dba Holiday Foods, Wilkesboro, N.C. James Crump, owner of Holiday Foods DWI, LLC, Russell, Ky. Hobart Anderson, owner of DWI LLC

Jeffrey Benedict, president of APPCO, told CSP Daily News, I have not seen the legal papers that the R.J. Reynolds lawyer is referring to, so it is difficult to comment with any specificity; however, I do know that neither [APPCO, myself] nor Danny Blackburn has engaged in any fraudulent conduct of any kind, despite the clams of R.J. Reynolds to the contrary. In December 2004, APPCO sued R. J. Reynolds for breach of contract and for violations by R.J. Reynolds of the Tennessee Unfair Trade Practices Act. To my knowledge, that lawsuit contains all the valid legal disputes between APPCO and R.J. Reynolds. We are involved in a contract dispute with R.J. Reynolds. I have no knowledge of any conspiracy.