Corporate Law

Claims of corruption by Wal-Mart in Mexico fizzle; Delaware court nixes shareholder suit

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What once appeared to be a significant, multi-pronged probe of claimed widespread corruption concerning Wal-Mart Stores Inc.’s Mexico operations has fizzled.

A three-year federal probe, while still ongoing, has determined that evidence to support the claims is lacking, the Wall Street Journal (sub. req.) reported last year, relying on information from unidentified sources. On Friday, a Delaware judge in the state’s Court of Chancery dismissed a shareholder derivative action over the claims, on issue-preclusion grounds, according to Reuters.

Following a major New York Times investigative journalism story in 2012, experts said the company had significant litigation exposure and multiple plaintiffs brought shareholder suits.

However, as plaintiffs in the consolidated Delaware case were successfully pursuing an effort to get internal Wal-Mart documents to bolster their case, winning a Delaware Supreme Court ruling that attorney-client privilege did not preclude production of the documents, another parallel shareholder case against the company was proceeding in Arkansas.

Dismissed by a federal judge in Arkansas, that case precludes the Delaware plaintiffs from litigating the same issue in the Chancery Court case, said Chancellor Andre Bouchard in his Friday decision.

Addressing issues of first impression that have not been decided in Arkansas, Bouchard predicted that the state’s top court would find the Arkansas plaintiffs in privity with the Delaware plaintiffs and that it would also determine that the Arkansas plaintiffs were adequate class representatives.

“Another challenge of this case is determining whether an Arkansas court would deem a stockholder plaintiff who fails to pursue books and records before launching a derivative lawsuit to be an adequate representative of the corporation,” Bouchard wrote. “On that question, I conclude, consistent with Delaware Supreme Court authority, that an Arkansas court would not presume inadequacy from failing to pursue books and records but would conduct a case-specific inquiry of the issue with principles of due process in mind and, based on the particular circumstances of this case, would find the Arkansas plaintiffs to be adequate representatives.”

The Arkansas plaintiffs are appealing the dismissal of their case, the Reuters article notes.

Related coverage: “Wal-Mart Says Retailer Is Investigating Possible Foreign Corrupt Practices Act Issues in Mexico” “NY Times Says It Pursued Internal Probe Dropped by Wal-Mart, Describes Claimed Bribes in Mexico”

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