Wal-Mart lawyers misled court: new plaintiffs’ brief

January 20, 2015

Stuart Grant of Grant & Eisenhofer has broken out the exclamation points – three of them in a row – in a new motion asserting that Wal-Mart should be fined more than $1 million for failing to turn over documents related to its internal investigation of bribes allegedly paid by its Mexican operation. According to the filing, Wal-Mart’s lawyers at Gibson Dunn & Crutcher and Potter Anderson & Corroon signed misleading certifications in October, attesting that they had decided what documents Wal-Mart would produce in order to comply with an order from Delaware Chancery Court.

“We have now learned that this is not true!!!,” the Grant & Eisenhofer filing said. According to shareholders, Wal-Mart admitted earlier this month that it used a contract attorney firm to conduct an initial review of documents. So, according to the new brief, Wal-Mart should be held in contempt of court “because Gibson Dunn and Potter Anderson failed to make the responsiveness determinations, as former-Chancellor (Leo) Strine specifically directed, and because defense counsel misrepresented that fact, under oath, to the court.”

Shareholders want Wal-Mart to pay $1 million in sanctions, plus $10,000 per day until it complies with the document production order. They also want Chancellor Andre Bouchard to punish Wal-Mart by making it easier for plaintiffs to proceed with a suit against the directors and officers who oversaw Wal-Mart’s internal investigation in 2005 and 2006.

The dispute over what Wal-Mart must disclose to shareholders about that investigation dates back more than two years. After the New York Times first reported in 2012 on Wal-Mart’s handling of Mexican bribery allegations, Grant & Eisenhofer asked the company to turn over corporate books and records, which shareholders are permitted to see under Delaware law.

Wal-Mart didn’t produce everything Grant & Eisenhofer believed it was entitled to, so shareholders brought a suit in Chancery Court to force the company to disclose more information. In 2013, then Chancellor Strine ordered Wal-Mart to turn over a broad swath of documents, not just board minutes and accounting records, as Wal-Mart had argued. Last summer, the Delaware Supreme Court upheld Strine’s order, though Wal-Mart subsequently persuaded Bouchard to restrict production to documents related to the 2006 internal investigation and not also a 2011 followup.

Strine’s 2013 order required Wal-Mart’s lawyers to certify that they “collected all potentially responsive documents from the required custodians and personal assistants and made the responsiveness and privilege determinations themselves.” Gibson Dunn and Potter Anderson filed such a certification when Wal-Mart produced documents in October 2014.

Grant & Eisenhofer argued in December that Wal-Mart still hadn’t turned over everything it had been ordered to produce to shareholders. In their original motion for sanctions, plaintiffs cited three particular examples (though the specifics are redacted in the public version) of “critical responsive documents” that Wal-Mart lawyers knew about but refused to produce.

Wal-Mart responded with a letter to Bouchard on Jan. 8. The public version of the letter said only that Wal-Mart has began a “re-review” of its document production, which it estimated would take between 60 and 90 days. The company proposed that it file a brief opposing the plaintiffs’ motion for sanctions within 10 days of completing the re-review. (Hat tip to the Chancery Daily for providing a link to the public version of the letter.)

The full version of the Jan. 8 letter, according to Grant & Eisenhofer’s new brief, included an important piece of additional information: Wal-Mart admitted that “the company utilized a third-party contract attorney firm, working under the direction and supervision of the company’s outside counsel in this action, to conduct a ‘first level’ review of the documents that were required to be collected and reviewed.”

The involvement of a contract firm came as a “complete surprise” to Grant & Eisenhofer, the brief said. And according to shareholders, Wal-Mart’s admission contradicts what Gibson Dunn and Potter Anderson certified in October.

The new brief asks Bouchard not to allow Wal-Mart to stall for more time after already misleading the court about its compliance with production orders. As punishment, shareholders want the chancellor to rule that they do not have to show it would have been futile to demand Wal-Mart bring its own case against its directors and officers. (Ordinarily, when shareholders bring a derivative suit on behalf of the corporation, they must make a showing of “demand futility” to proceed with their case. Grant & Eisenhofer asked to see Wal-Mart books and records to gather information in advance of filing a derivative suit.)

Gibson Dunn partner Theodore Boutrous sent me an email response to the new plaintiffs’ filing. “This is another baseless and frivolous filing by the Grant & Eisenhofer firm. We will be filing a brief in the coming days addressing these issues in full,” it said. Boutrous also provided a statement on behalf of Wal-Mart: “We’ve reviewed over 265,000 documents and provided nearly 14,000 pages,” it said in part. “We take our obligations to the court seriously and we have worked hard to comply with the court’s order. We are revisiting the document review process to make sure we have given the (plaintiffs) all of the documents (they) should receive. If we discover errors, they will be addressed and the appropriate documents will be provided. We have made the court aware of this and oppose the plaintiff’s motion for sanctions.”

A Potter Anderson partner did not respond to emails.

 For more of my posts, please go to WestlawNext Practitioner Insights

Follow me on Twitter

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/