R.J. Reynolds Tobacco Co. is still waiting for an initial ruling in a $20 million lawsuit it filed in September against 20 retailers, wholesalers and individuals for alleged fraud using RJR’s buy-down trade promotion program and its consumer coupons.
RJR is waiting for the judge to rule on its September motion for a preliminary injunction barring the defendants from selling or buying RJR products until the suit is settled. Once that ruling is made in U.S. Federal Court for the Western District of North Carolina, where the suit was first filed, the suit can move forward and a court date can be set, said RJR spokesperson David Howard.
RJR contends that retailers and wholesalers under contract for buy-down discounts on cigarettes sold them at full price to other retailers and wholesalers not under contract with RJR, and pocketed the difference. (RJR’s contract forbids retailers from selling to anyone but consumers, and requires retailers to pass full buy-down discounts on to consumers.)
Those non-contract buyers— fourth-tier wholesalers selling cigarettes made by smaller manufacturers— took a cut when they sold the cigarettes, so consumers never got the discounts, according to RJR’s suit. The suit also alleges that the contract retailers falsified sales invoices to cover up the illegal transactions.
In a separate scheme, according to Reynolds, some retailers sold RJR’s consumer coupons to fourth-tier wholesalers, who used the coupons like cash to buy bought-down cigarettes from contract retailers (who are allowed to redeem the coupons). Contract retailers falsified reports to make it look like consumers had redeemed the coupons, RJR charges.
RJR says it cut ties with contract retailers that were cheating, but those retailers simply switched sides, buying (rather than selling) buy-down goods and purchasing RJR products with coupons.
The alleged fraud has taken place since at least 2002 in parts of North Carolina, Kentucky, Tennessee and Virginia and continues today, per RJR.
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