This is one of Wal-Mart’s locations in Mexico, where the company has come under scrutiny for allegedly paying more than $24 million in bribes so stores could open faster.
A federal judge in Arkansas last month threw out a shareholder lawsuit against Wal-Mart Stores Inc. and its directors over allegations of bribery in Mexico.
U.S. District Judge Susan Hickey agreed with Wal-Mart that the shareholders should have lodged their complaint with Wal-Mart’s board before turning to the court.
Attorney John Emerson of Houston, one of the attorneys representing the shareholders in the Arkansas case, declined to comment on the order but said it will be appealed.
Wal-Mart, however, continues to face a similar lawsuit in the Delaware Court of Chancery.
Randy Hargrove, a spokesman for Wal-Mart, said in an email statement to Arkansas Business that the company is pleased with Hickey’s ruling.
“We have said all along that the Walmart board of directors has the appropriate authority to conduct an investigation into the matters alleged in the complaint,” he said.
The lawsuit was prompted by a 2012 New York Times article that revealed an alleged bribery scheme involving Wal-Mart’s Mexican subsidiary and Mexican government officials. The plaintiffs alleged in the lawsuit, filed just days after the story appeared, that Wal-Mart hid violations of the Federal Corrupt Practices Act and misled investors concerning the alleged bribery with false proxy statements filed with the Securities & Exchange Commission. In a derivative lawsuit, shareholders sue on behalf of the company. After the first lawsuit was filed in Arkansas, seven other shareholder lawsuits were filed in Arkansas. Those lawsuits were consolidated into one case.
Through its past three fiscal years that ended January 2015, Wal-Mart spent $612 million on an internal investigation into allegations involving violations of the FCPA and related activities, according to company filings. During its current fiscal year, Wal-Mart said its FCPA-related expenses will range between $160 million and $180 million.
“The investigation is ongoing, and it would be inappropriate to comment further on specific allegations, or for us or others to come to specific conclusions until the investigation is finished,” Hargrove said in the email.
The Order
Hickey’s order didn’t surprise Mike Koehler, an assistant professor at Southern Illinois University School of Law and the founder and editor of the legal blog FCPA Professor.
“Very few derivative actions in the FCPA context do get past the pleading stage, and this was an example of that,” he said.
Wal-Mart filed the motion to dismiss because the plaintiffs failed to establish “demand futility.”
“Demand futility is a way to bypass the board so you don’t have to go to the board” with the complaint of wrongdoing, Koehler said. “But in order to establish demand futility, the court found that the plaintiffs need to do more than what they did in this case. And that is frequently the end result of many of these derivative actions in the FCPA context.”
Wal-Mart argued in court filings that the plaintiffs failed to show that a majority of the board knew or consciously ignored the alleged conduct in 2005-06, when Wal-Mart first learned of the allegations. Hickey agreed.
“Nothing in the Complaint suggests any particularized basis to infer that a majority of the Board had actual or constructive knowledge of the alleged misconduct, let alone that they acted improperly,” she wrote.
The plaintiffs said in the lawsuit that the five named board members who were on the board during the period of the alleged wrongdoing must have known that it was going on.
Hickey disagreed.
“Plaintiffs have alleged no facts to support the allegation that this group of five Director Defendants were ‘directly informed’ of any wrongdoing,” she wrote.
Koehler said he thinks the chances of the case being reversed on appeal are “pretty slim.”
And he predicts that the Wal-Mart case in Delaware will see the same fate.
“For the same substantive reasons that the plaintiffs’ action failed in the Arkansas action, I think it’s likely it will fail again in the Delaware action,” Koehler said.
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