A shareholder-derivative lawsuit against Wal-Mart Stores and key officers of the global retailer may move forward, according to an opinion issued Wednesday (Dec. 18) by a three-judge panel with the 8th U.S. Circuit Court of Appeals.
The lawsuit is the combination of several similar lawsuits filed by Wal-Mart shareholders after it was revealed in 2012 that Bentonville-based Wal-Mart and key officers were under investigation for bribery and other violations of the Foreign Corrupt Practices Act related to operations in Mexico. The investigation was later expanded to allegations of FCPA violations in China, Brazil and India.
Plaintiffs in the case are John Cottrell, the Louisiana Municipal Police Employees’ Retirement System, Elizabeth Tuberville, Kathryn Johnston Lomax, William Cottrell and Andrew Richman. John Cottrell is the lead plaintiff who derivatively and on behalf of Wal-Mart Stores filed his action.
Wal-Mart officials have estimated that spending related to FCPA and internal compliance efforts will top $310 million this fiscal year. Through the second fiscal quarter, the company spent $155 million in FCPA and compliance matters.
Wal-Mart voluntarily disclosed internal investigative findings to the U.S. Department of Justice in November 2011. The entire world became aware of the allegations in April 2012 when the New York Times made the bribery investigation public.
In late 2012, Wal-Mart and other defendants in the shareholder-derivative lawsuit asked the U.S. Federal Court for the Western District of Arkansas to delay the action until a similar proceeding in Delaware courts received a ruling. The federal judge granted the defendants’ request based on the “Colorado River” precedent. That precedent, set by the U.S. Supreme Court, “held that exceptional circumstances may permit a federal court to refrain from hearing a case and instead defer to a concurrent, parallel state-court proceeding.”
The 8th Circuit Judges said Wal-Mart’s “argument is persuasive” in suggesting that the Arkansas and Delaware actions are similar and should be held to the Colorado River rule. But it wasn’t persuasive enough.
“Nevertheless, we reject the Defendants’ argument because it ignores the formal differences between the two proceedings after the threshold demand determination,” noted the opinion.
The opinion explained that the outcome of the Delaware proceeding may not address issues in the Arkansas lawsuit. Also, the federal Securities Act claims in the Arkansas case are to be heard in a federal court and not a state court. The Delaware case awaits a ruling from the Delaware Supreme Court.
“The resulting divergence of the Federal and Delaware proceedings, and the practical elimination of the Securities Act claims, casts doubt on the parallel nature of the two proceedings,” noted the opinion. “In conclusion, we join the Second, Seventh, and Ninth Circuits and hold that the Colorado River doctrine may not be used to stay or dismiss a federal proceeding in favor of a concurrent state proceeding when the federal proceeding contains a claim over which Federal courts have exclusive jurisdiction.”
Wal-Mart issued the following statement about the 8th Circuit ruling: “We are reviewing the 8th Circuit Court’s ruling and our understanding is that the court has not ruled out a stay. We are considering our options.”
The Appeals Court case is 12-3871, John Cottrell v. Michael Duke. Link here for the PDF of the 8th Circuit opinion.