Plaintiff in Wal-Mart §220 Action Requests Immediate Sanctions on Megastore

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By Michael Greene

Jan. 21 — The plaintiff in a hotly contested books and records action is requesting that the Delaware Chancery Court immediately impose sanctions on Wal-Mart Stores Inc. for failing to comply with a court order requiring the megastore to turn over more internal files about what directors and officers may have known about alleged bribes made by executives at its subsidiary in Mexico.

In addition to its request for immediate sanctions, in a Jan. 19 reply brief, the Indiana Electrical Workers Pension Trust Fund IBEW, the plaintiff that filed the §220 books and record demand, asked the court to excuse demand in an underlying Delaware derivative action.

In a Jan. 8 letter to the court, Wal-Mart proposed a scheduling order that would allow the retailer to undertake a complete re-review of approximately 265,000 documents before filing its opposition to the plaintiff's motion for contempt, for the company's alleged failure to comply with a court production order. The letter stated that the company anticipated the re-review process to take 60-90 days.

In opposition to this request, the plaintiff's reply brief states: “Instead of correcting these deficiencies or even denying Plaintiff’s allegations, Wal-Mart asks for an additional sixty to ninety days to examine documents previously reviewed by an unnamed ‘third-party contract attorney firm … .'”

According to the plaintiff, “this has nothing to do with the bases for the Contempt Motion. The Company is unquestionably in violation of the [production order], has had ample opportunity to respond, offers no defense, and should be held in contempt without further delay.”

In a statement provided to Bloomberg BNA Jan. 22, Randy Hargrove, a Wal-Mart spokesman, said that the company takes “our obligations to the court seriously and we have worked hard to comply with the court’s order.” Hargrove said that since the IBEW submitted the §220 request, “we’ve reviewed over 265,000 thousand documents and provided nearly 14,000 pages.”

He added: “We are revisiting the document review process to make sure we have given the IBEW all of the documents it should receive. … We have made the Court aware of this and oppose the Plaintiff’s motion for sanctions.”

A chancery court official told BBNA Jan. 22 that no order had been entered.

Immediate Sanctions Request

On Dec. 8, Wal-Mart certified to the chancery court that it had fully complied with a July Delaware Supreme Court order requiring the company to release internal documents related to what directors may have known about claims that officials handed out bribes to facilitate Mexican real estate deals.

However, three days later, the plaintiff filed a contempt motion claiming that “[t]here are numerous examples of documents that plaintiff's counsel is aware of that Wal-Mart counsel knows to exist, but has nevertheless failed to produce,” and that the production reflects substantial over-redactions.

In the Jan. 19 brief, the plaintiff claims that Wal-Mart's proposal for a 60-90 day re-review process ignores the bases for the contempt motion and reveals additional violations of the court order.

Accordingly, the plaintiff asks the chancery court to immediately order Wal-Mart to pay plaintiffs's fees and expenses in bringing the contempt motion, and to impose a $1 million fine, plus $10,000 per day until it complies with the production order.

Demand Excuse Request

The plaintiff is additionally requesting that the court take an adverse inference and find that demand is excused in the underlying Delaware derivative action.

In an earlier court filing, the plaintiff had complained about Wal-Mart's rate of production compared with pending derivative litigation in Arkansas. The underlying Delaware derivative action and two related Arkansas actions are ongoing, and the plaintiff has warned of a scenario in which Arkansas courts could render a judgment that would be binding in Delaware.

“This Court has the inherent judicial authority to fashion and impose appropriate sanctions for contempt,” the plaintiff's reply brief states.

The plaintiff further writes that “Wal-Mart’s withholding of responsive information appears to be simply strategic behavior designed to stymie Plaintiff’s inspection and, ultimately, having lost its appeal before the Delaware Supreme Court, to delay the proceedings in Delaware so that a potentially binding demand futility ruling can be issued first in Arkansas, where the plaintiffs and court do not have the benefit of Section 220 documents.”

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The plaintiff's reply brief is available at http://www.bloomberglaw.com/public/document/CONS_W_CA_7726_CS_CONF_ORD_ON_DISC_Indiana_Electrical_Workers_Pen/4.