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May 13 — The Delaware Chancery Court May 13 dismissed a consolidated investor lawsuit accusing Wal-Mart Stores Inc. directors of breaching their fiduciary duties in connection with an alleged bribery scheme at the company's Mexican subsidiary.
Chancellor Andre G. Bouchard held that the Delaware plaintiffs were barred from re-litigating claims that had already been dismissed by an Arkansas federal court.
“We are pleased that the prior ruling from a federal court in Arkansas means this lawsuit may not proceed,” Wal-Mart Stores Inc. spokesman Randy Hargrove told Bloomberg BNA. “We believe that the Arkansas ruling is correct and have said all along that the Wal-Mart board of directors has the appropriate authority to conduct an investigation into the matters alleged in these cases.”
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. Bouchard found the Arkansas plaintiffs to be adequate representatives even though their lawsuit didn't include an inspection of Wal-Mart's internal documents.
Plaintiffs' attorneys previously told Bloomberg BNA that a major concern about protracted Delaware books and records actions is that plaintiffs in other jurisdictions could litigate their derivative lawsuits ahead of the Delaware plaintiffs (84 CARE, 5/2/16).
The Wal-Mart books and records case took more than two years to resolve. A representative from Grant & Eisenhofer PA, counsel for the IBEW, didn't respond to a request for comment.
In April 2015, the U.S. District Court for the Western District of Arkansas dismissed a derivative lawsuit alleging that Wal-Mart officers and directors breached their fiduciary duties by covering up possible Foreign Corrupt Practices Act violations at the company's WalMex subsidiary (13 CARE 712, 4/3/15).
The federal court ruled that the plaintiff stockholders hadn't established that a pre-suit demand on Wal-Mart's directors to take action would have been futile. The decision has been appealed to the U.S. Court of Appeals for the Eighth Circuit (13 CARE 793, 4/17/15).
In the Delaware case, Bouchard applied Arkansas law in determining that the demand futility issue couldn't be re-litigated. The Delaware judge also resolved a matter that has never been addressed by Arkansas courts: whether issue preclusion bars two different stockholder plaintiffs from bringing derivative claims on behalf of the same corporation.
Bouchard reasoned that Arkansas courts likely would find the Delaware plaintiffs couldn't pursue their claims in light of the clear weight of authority from other states.
The chancery court also addressed another “challenging” issue—whether the Arkansas plaintiffs were adequate representatives. The court found that the Arkansas plaintiffs' representation of Wal-Mart wasn't grossly deficient despite the lack of an inspection demand.
“It is certainly better practice for stockholder plaintiffs to use `the tools at hand' to investigate their claims thoroughly before launching derivative suits, and I share the concerns Delaware courts have expressed regarding the risk of diligent derivative plaintiffs being collaterally estopped by fast filers,” Bouchard wrote. “Indeed, it may turn out (depending on the outcome of the appeal to the Eighth Circuit) that the Arkansas plaintiffs’ assessment of their ability to establish demand futility without pursuing books and records from Wal-Mart was ill-advised.”
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