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July 22 — Wal-Mart Stores Inc. escaped a shareholder derivative suit July 22 alleging that it covered up pervasive bribery by its Mexico subsidiary ( Cottrell v. Duke, 8th Cir., No. 15-01869, 7/22/16 ).
The shareholders should have asked Wal-Mart's board to bring a lawsuit on behalf of the corporation before they filed suit, Judge William Jay Riley of the U.S. Court of Appeals for the Eighth Circuit affirmed. The shareholders' reasoning for not doing so isn't detailed or particular enough to show that demand on the board would have been futile, the court said.
Shareholders sued Wal-Mart and its board of directors in April 2012 after a newspaper's investigative report detailed an alleged bribery scheme involving Wal-Mart’s Mexico subsidiary and Mexican government officials. The news report suggested that Wal-Mart had violated the Foreign Corrupt Practices Act by handing out bribes to facilitate Mexican real estate deals. It also criticized the sufficiency of Wal-Mart management's response to the situation.
In March 2015, the U.S. District Court for the Western District of Arkansas dismissed the claims on the ground that the shareholders didn't make a presuit demand or establish that doing so would have been futile (63 SLD, 4/2/15).
The shareholders' allegations “fall short,” the Eighth Circuit said, affirming the lower court's decision to toss the case. The shareholders' position requires the court to assume that directors knew about the problem because the chair of the board's audit committee was supposed to tell them about it, the court said.
“We refuse to assume so much,” the appeals court said.
The plaintiffs were represented by Scott & Scott, Crowder & McGaha, Emerson & Scott, Jigarjian Law, Murray & Frank, Steel & Wright and Wyly & Rommel.
The defendants were represented by Kutak Rock LLP and Gibson Dunn & Crutcher LLP.
Attorneys Donald Broggi of Scott & Scott and Jess Askew of Kutak Rock didn't immediately respond to an e-mailed request for comment.
To contact the reporter on this story: Cameron Finch in Washington at firstname.lastname@example.org.
To contact the editor responsible for this story: Phyllis Diamond at email@example.com.
To view the court's opinion, visit: http://www.bloomberglaw.com/public/document/John_Cottrell_et_al_v_Michael_Duke_et_al_Docket_No_1501869_8th_Ci.
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