Rushed Litigation Dooms|Wal-Mart Bribery Suit

(CN) — Citing the failure of similar claims in Arkansas, a Delaware judge tossed a securities suit accusing Wal-Mart of bribing Mexican officials.

Shareholders slapped the retail giant with 15 lawsuits in the two jurisdictions on the heels of an April 2012 expose by The New York Times that said Wal-Mart "had given millions of dollars in bribes to Mexican officials to facilitate Wal-Mart's growth in Mexico."

On June 1 that year, Wal-Mart conceded that it was cooperating with federal government investigations into potential violations of the Foreign Corrupt Practices Act (FCPA).

While the case against the Bentonville retailer in Arkansas proceeded swiftly on the merits, the Delaware plaintiffs vigorously pursued a books-and-records request in litigation that took three years to resolve.

Two months before the latter group filed an amended complaint that included information obtained from Wal-Mart's books, a judge dismissed the Arkansas case in March 2015.

Dismissal in Arkansas rested on the shareholders' failure to show that a demand on the board would have been futile, and Chancellor Andre Bouchard in Delaware ruled Friday that this outcome forecloses further proceedings.

Saying issue preclusion prevents the shareholders from relitigating demand futility, Bouchard rejected arguments that the Arkansas plaintiffs were "grossly deficient" by failing to pursue books and records from Wal-Mart before going to court.

Then-Chancellor Leo Strine, who now serves as Chief Justice of the Delaware Supreme Court, also admonished counsel for the Delaware plaintiffs for not proceeding on a complaint similar to the Arkansas complaint.

But tactical mistakes made by Arkansas plaintiffs do not invalidate the judgment against them, Bouchard said.

"Taken to its logical extreme, plaintiffs' argument would mean that any stockholder representative in a derivative action who did not first pursue books and records would be inadequate, or at least presumptively inadequate," Bouchard said. "It does not follow that plaintiffs are necessarily inadequate representatives because their counsel chose not to follow a recommended strategy in a different action, even one suggested by a preeminent corporate jurist, particularly when they are litigating in a different jurisdiction before a different judiciary."

The 58-page opinion notes that key internal Wal-Mart documents quoted in The New York Times article were made available on the paper's website. This trove includes one report the Delaware plaintiffs quoted nine times that says: "There is reasonable suspicion to believe that Mexican and USA laws may have been violated."

"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," the chancellor wrote. "But, in my opinion, that decision falls into the category of an imperfect legal strategy and does not rise to the level of litigation management that was so grossly deficient as to render them inadequate representatives."

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