Shareholders’ long quest for Wal-Mart bribery documents

November 14, 2014

On Thursday, the plaintiffs’ firm Robbins Geller Rudman & Dowd sued the Securities and Exchange Commission, which Robbins Geller accuses of improperly withholding Wal-Mart documents requested under the Freedom of Information Act. Robbins Geller is lead counsel in a shareholders’ securities fraud class action against Wal-Mart in Arkansas federal court. It wants the SEC to turn over all of the material as received from Wal-Mart in the government’s investigation of the company’s alleged coverup of bribes paid by its Mexican unit. The SEC has refused, citing its ongoing investigation. Robbins Geller’s suit argues that since all of the material it is requesting came from Wal-Mart – and much of it has been revealed in the New York Times articles and congressional disclosures – turning it over won’t interfere with the SEC’s case.

This isn’t the sort of case anyone actually expects to be litigated to a conclusion. Robbins Geller frequently uses FOIA requests to obtain information about defendants in securities fraud class actions. Occasionally, it resorts to suing the government when its requests are denied, according to the partner who is leading the case against Wal-Mart, Jason Forge. Forge told me he believes the SEC’s justification for withholding the Wal-Mart documents is unfounded. On the other hand, he couldn’t think of an example of Robbins Geller winning a FOIA case against a government agency that’s still investigating the target.

As much as it is a litigation tactic, the Robbins Geller suit against the SEC is an acknowledgment of Wal-Mart’s remarkable success in keeping its documents out of the hands of plaintiffs’ lawyers, both in Delaware and in Arkansas, despite the company’s losses in two big decisions that should have led to discovery for shareholders. Wal-Mart is determined to keep its internal documents under wraps while it negotiates with the SEC and the Justice Department, and, so far – to the frustration of plaintiffs’ lawyers – its strategy of delay has worked. Every securities fraud target can learn a thing or two from Wal-Mart’s defense.

You probably remember the big ruling last summer from the Delaware Supreme Court in a shareholder books-and-records action against Wal-Mart. The plaintiffs, represented by Grant & Eisenhofer, wanted to see a broad swath of board documents – not just official minutes and accounting records – related to Wal-Mart’s response to internal reports of bribery in Mexico. Wal-Mart said the demand wasn’t within the scope of Delaware law and that many of the documents were privileged. The Delaware Supreme Court sided with shareholders.

But when the case returned to Delaware Chancery Court, Wal-Mart continued to resist some of Grant & Eisenhofer’s demands. Last month, the company’s lawyers persuaded Delaware Chancellor Andre Bouchard that under the Supreme Court’s ruling, shareholders are only entitled to documents relating to Wal-Mart’s initial 2006 internal investigation of Mexican bribes, not a subsequent 2011 investigation. Wal-Mart has since certified that it has turned over the materials Bouchard ordered, but that’s not everything Grant & Eisenhofer wanted – and it has taken two years for plaintiffs to get there.

In fraud class actions, shareholders can’t demand discovery from defendants until after they’ve survived dismissal motions. (That’s why firms like Robbins Geller try to get information from government agencies through FOIA requests.) In September, U.S. District Judge Susan Hickey of Fayetteville, Arkansas, denied Wal-Mart’s motion to dismiss Robbins Geller’s fraud class action. That was another huge loss for Wal-Mart, not least because it should have opened the way to document demands by shareholders.

But once again, Wal-Mart came up with a way to delay discovery. In October, its lawyers at Gibson, Dunn & Crutcher and Kutak Rock filed a motion asking Judge Hickey to decide whether the shareholder class can be certified before she permits any discovery on the merits of the fraud claims. Wal-Mart contended that under the U.S. Supreme Court’s ruling last term in Halliburton v. Erica P. John Fund, the company will be able to rebut the presumption that the market was defrauded by its supposed misstatements about the bribery scandal. If the class can’t be certified, Wal-Mart said, there’s no need to engage in “wide-ranging and costly discovery.”

Plaintiffs’ lawyer Forge told me the motion was “strictly a stall tactic.” Class certification in this case, in which Wal-Mart’s stock dropped on the day the New York Times revealed the alleged bribery coverup in 2012, “is not even close to being a close call,” he said. “They know the case isn’t going away. They’re concerned that once we get the documents, it will put pressure on Justice and the SEC to hit them with a bigger hammer.”

In their response to Wal-Mart’s motion, plaintiffs told Judge Hickey that they’ve already waited more than two years for discovery and there’s no basis to keep putting off production of its documents. The SEC suit, Forge said, is another way to signal to Wal-Mart that shareholders are sick of waiting.

I emailed Wal-Mart lawyer Theodore Boutrous of Gibson Dunn but didn’t hear back.

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What no one seems to understand is that, in Mexico you can’t park your car unless you bribe the cop for watching your car, refuse, and your car will be stripped. You can’t get any kind of building permit unless you bribe the authorities. Bribery is the only way to get anything done. Bribery is the way of life in Mexico.

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