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Wal-Mart Stores Inc. shareholders got a second chance from the Delaware Supreme Court to pursue their claims that it is unfair to throw out their lawsuit over an alleged bribery scheme at the company’s Mexican subsidiary ( Cal. State Teachers’ Ret. Sys. v. Alvarez , Del., No. 295, 1/18/17 ).
The state supreme court Jan. 18 asked the Delaware Chancery Court to take another look at the shareholders’ claims, saying the “importance of the Due Process issue merits closer examination.” The lower court had dismissed the case based on a legal doctrine that bars litigation of claims that have already been litigated elsewhere.
How the chancery court resolves the case on remand may have implications for how shareholders bring derivative lawsuits—actions in which they sue on the company’s behalf—in Delaware. In particular, it may impact strategic decisions about whether investors should spend time seeking information about company decisions through books and records requests and litigation or proceed quickly with a lawsuit that challenges corporate conduct.
Wal-Mart is facing several investor lawsuits in the wake of news about probes by U.S. authorities into whether it bribed government officials in markets from Mexico to India and China. The company could be facing more than $600 million in fines to resolve the investigations, according to Bloomberg News.
Representatives from Wal-Mart and the shareholder plaintiffs didn’t immediately respond to requests for comment.
The chancery court dismissed the shareholders’ lawsuit in May 2016 after finding that an Arkansas federal court resolved similar claims brought by another group of shareholders.
The Arkansas case was dismissed while one of the Delaware plaintiffs—the Indiana Electrical Workers Pension Trust Fund IBEW—was pursuing a books and records action in the chancery court. The Wal-Mart books and records action took almost three years to litigate.
In its remand order, the supreme court asked the chancery court to consider “whether a shareholder plaintiff, whose derivative complaint fails to survive a motion to dismiss, may, as a matter of Due Process, bar the action of another derivative plaintiff in Delaware.”
The state high court said the due process issue was addressed in a chancery court ruling in 2016, citing In re EZCORP Inc. Consulting Agreement Derivative Litig. , 2016 BL 11072, 130 A.3d 934, Del. Ch., No. 9962-VCL, 1/15/16 . In that case, the chancery court held that a shareholder’s decision to voluntarily drop derivative claims doesn’t preclude other shareholders from bringing subsequent lawsuits on the same cause of action.
If the shareholders ultimately lose the case, future investor plaintiffs may be deterred from filing books and records actions in Delaware, the proceeding that delayed the Indiana Electrical Workers Pension Fund, allowing the Arkansas action to be resolved first.
Shareholders bring books and records lawsuits to access a company’s internal documents for certain purposes. Delaware courts strongly recommend that shareholders use such litigation to help them mount the procedural hurdles of a derivative case.
However, plaintiffs’ attorneys have expressed concern that some books and records cases are taking too long, allowing other shareholder litigants to more speedily proceed on the same claims outside Delaware.
To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com
To contact the editor responsible for this story: Yin Wilczek at firstname.lastname@example.org
The court's ruling is available at http://www.bloomberglaw.com/public/document/California_State_Teachers_Retirement_System_v_Alvarez_Aida_M_Dock/1.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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