The Delaware Chancery Court, considering arguments on remand from the Delaware Supreme Court’s ruling in Indiana Electrical Workers Pension Trust Fund IBEW v. Wal-Mart Stores Inc,1 recently issued a ruling that slightly narrowed the scope of Wal-Mart’s disclosure obligations under Section 220 of the Delaware General Corporation Law, while also expanding the scope of Wal-Mart’s obligation to produce a privilege log of withheld responsive documents. The bottom line: despite another skirmish with the demanding shareholder on remand, Wal-Mart’s expansive document production obligations largely remained in place.
The Chancery Court’s ruling resulted from a motion by Wal-Mart (the “Motion”) seeking clarification of its disclosure obligations following the Delaware Supreme Court’s ruling that Wal‑Mart was required to make an extensive production of documents related to an earlier investigation of corruption issues at its Mexican subsidiary, Walmex. The Supreme Court’s ruling also had included an order requiring the production of certain privileged documents under the exception to the attorney-client privilege set forth in Garner v. Wolfinbarger.2
Wal-Mart’s Motion was heard by Chancellor Bouchard, who replaced Chancellor Strine, who had presided over the original trial of the case before he became Chief Justice of the Delaware Supreme Court. At issue in the latest proceeding was the Final Order that had been entered by Chancellor Strine, which, in pertinent part, required Wal-Mart to produce documents related to three “responsive topics”: (1) “any aspect of the Walmex Investigation;” (2) Wal-Mart’s “FCPA general compliance policies and procedures;” and (3) Wal-Mart’s “internal investigation policies, procedures, and/or protocols.” The “Relevant Period” covered by the order was from September 1, 2005 through June 6, 2012. In addition, Chancellor Strine had ordered Wal-Mart to provide an updated privilege log identifying all responsive documents over which Wal‑Mart purported to assert either the attorney-client privilege or work product protection.
In a motion for clarification, Wal‑Mart argued that the Final Order was ambiguous in at least two respects and needed to be clarified.3 First, according to Wal-Mart, the order’s reference to the “Walmex investigation” was unclear, because investigations had been undertaken in 2005-2006 and again in 2011. Wal‑Mart claimed that the 2011 investigation should not be covered by the order. Second, Wal‑Mart argued that it should not be required to produce a privilege log for any documents withheld after January 1, 2011, because the Delaware Supreme Court had limited the application of the Garner exception to the period before that date.
The Scope of Wal-Mart’s Production Obligation
With respect to the first issue, Wal-Mart conceded that documents generated in the 2005-2006 investigation of corruption allegations fell within the scope of the Final Order. Wal-Mart argued, however, that documents generated in the course of the second internal review in 2011 were distinct and should not be considered part of the “Walmex investigation.”
The IBEW characterized Wal-Mart’s motion as untimely and an attempt to relitigate issues that had been resolved by the Final Order, which had defined the “Relevant Period” covered by IBEW’s Section 220 requests as September 1, 2005 through June 6, 2012 – a period that the IBEW said unambiguously included both the 2011 investigation and the 2005-2006 investigation.
Chancellor Bouchard ultimately ruled in Wal-Mart’s favor on these issues. With respect to timeliness, he agreed with the IBEW that Wal-Mart’s request for clarification was untimely, because the motion should have been filed within five days after entry of the Final Order.
Even if the Final Order date were generously interpreted as the date of the Delaware Supreme Court’s mandate from its ruling, Wal-Mart failed to file until 60 days later. Chancellor Bouchard decided that he would not reject Wal-Mart’s motion, even though it was untimely. Instead, he found nevertheless that he had discretion to manage a case on his docket and therefore could assist the parties in clarifying the prior order.
On the merits, he determined that the meaning of “Walmex Investigation” in the Final Order was predicated on The New York Times article that had prompted the IBEW’s original Section 220 demand.4 That article, according to Chancellor Bouchard, had clearly focused on the original internal review in 2005‑2006. While the article mentioned the 2011 investigation in passing, he did not view that mention as sufficient to suggest that the 2011 investigation was a subject of the IBEW’s original Section 220 demand. He therefore rejected the IBEW’s request for access to 2011 investigation records.
The Need to Log All Responsive Privileged Documents
With respect to Wal-Mart’s second contention – that it should not be required to log post-January 1, 2011 privileged documents – Chancellor Bouchard found that the prior order was clear and that a log was required, even though he recognized that it would be burdensome. In reaching this conclusion, Chancellor Bouchard rejected Wal-Mart’s argument that Chancellor Strine’s ruling that documents should be produced under the Garner exception through January 1, 2011 had made privileged documents after that date irrelevant. Instead, Chancellor Bouchard appeared to accept the IBEW’s argument that a privilege log was needed in the case to act as an “independent check” on the potentially inappropriate claims of privilege.
Chancellor Bouchard therefore ordered the privilege log to include a listing of all privileged, withheld documents through June 6, 2012 – the ending date of the IBEW’s original document request. In reaching this conclusion, Chancellor Bouchard acknowledged Wal-Mart’s argument that producing the log would require “extraordinary effort” that would not be “reasonable” given the October 29, 2014 deadline for the completion of production. The Chancellor found, however, that Wal-Mart was a company with “enormous resources” to apply to the task and that any difficulty presented by the deadline was largely a result of its own delays.
The Implications of the Latest Rulings
The latest skirmish between the IBEW and Wal-Mart in this ongoing battle over the use of Section 220 in the context of an FCPA investigation clearly produced mixed results for Wal-Mart. What remains unchanged, however, is the continuing prospect that future high-profile FCPA investigations likely will be attended by expansive shareholder requests for corporate records – including those potentially related to the conduct of the investigation itself – and the companies will need to be prepared for vigorous litigation over the scope and propriety of those demands.