Mexican Bribery Case Against Wal-Mart Ripens
(CN) - Wal-Mart must face federal- and state-court derivative actions regarding Wal-Mart's alleged bribery of Mexican officials, the 8th Circuit ruled, lifted a stay order.
The New York Times brought scrutiny to Wal-Mart last year when it reported on an alleged bribery scheme involving the chain's Mexican subsidiary and Mexican government officials, suggesting that Wal-Mart turned a blind eye to flagrant corruption.
Several shareholder derivative lawsuits were filed in the wake of this article in both Delaware state court and the U.S. District Court for the Western District of Arkansas.
The claims and defendants in each proceeding are largely the same, but the federal cases include two claims under the Securities Exchange Act, over which federal courts have exclusive jurisdiction.
While a federal judge in Texarkana stayed the consolidated federal case pending resolution of the Delaware proceedings, the 8th Circuit lifted the stay Tuesday.
"Here, the District Court stayed and administratively terminated the federal proceedings in favor of a substantially similar state-court proceeding that will have the realistic effect of precluding any future proceedings in federal court," Judge Bobby Shepherd wrote for the three-judge panel based in St. Louis, Mo.
Although most of the claims in the federal case are duplicated in Delaware, state courts have no jurisdiction to directly address plaintiffs' Securities Act claims, according to the ruling
Delaware cannot adjudicate the merits of the Securities Act claims, but an unfavorable business-judgment ruling by the Delaware court could still preclude litigation of the Securities Act claims in the federal proceeding, Shepherd added.
Furthermore, under Delaware law, a judgment rendered in a shareholder derivative suit precludes any subsequent derivative litigation on the same claims.
"Though one could construct a hypothetical situation where the Delaware proceeding would not preclude the entire federal proceeding, such an outcome is unlikely and ignores the realistic risk that the plaintiffs' lawsuit is effectively dismissed from federal court," Shepherd wrote.
In staying the case, the District Court had relied on the U.S. Supreme Court's 1976 ruling in Colorado River Water Conservation District v. United States, which says that a federal court may refrain from hearing a case and defer to a parallel state court proceeding in exceptional circumstances.
Shepherd concluded, however, that "Colorado River does not apply when an exclusively federal claim is properly before the district court."