Wal-Mart Stores Inc. scored a legal victory on February 27, 2017 by securing the dismissal of one of a series of lawsuits arising from bribery allegations against its Mexican subsidiary.
The lawsuit, which was commenced in New York, was one of a number of legal proceedings that stemmed from allegations in a 2012 New York Times article that Wal-Mart had shut down an internal probe into alleged bribery, and that it had failed to notify U.S. or Mexican authorities after its initial investigation found evidence of suspect payments totaling more than $24 million. The CEO of Wal-Mart’s Mexican subsidiary had allegedly authorized bribes to quickly secure construction permits, zoning approvals and licenses with the goal of expanding before competitors could react.
The New York court dismissed the claims on the basis they were added more than two years after the alleged bribery was revealed, and had failed to show deceptive intent on the part of Wal-Mart’s subsidiary or its executives. An Arkansas judge had dismissed a related derivative action in 2015, finding plaintiffs had failed to prove Wal-Mart’s board was too conflicted to investigate itself. As discussed in our previous post, a Delaware court in 2016 dismissed a parallel suit on the basis that the Arkansas action precluded the case from going forward. However, the Delaware action was revived in January.
To date, Wal-Mart has been successful in having legal actions arising from the alleged bribery in Mexico dismissed on procedural grounds. However, the Delaware action may still proceed. In addition, the fact remains that five years after these allegations surfaced, Wal-Mart is still digging out from a blizzard of lawsuits arising from alleged disclosure deficiencies. As discussed in our previous post, a corporation’s continuous obligations under Canadian securities legislation may in certain circumstances include an obligation to include potential regulatory enforcement in its public filings, particularly if the enforcement is significant enough to affect share prices. Failure to do so may result not only in further regulatory action, but in civil claims for causes of action such as misrepresentation. A company’s board may also face derivative action under the Canada Business Corporations Act or equivalent provincial legislation.
The circumstances in which potential wrongdoing requires reporting in securities filings will depend on a number of factors including the scope of the alleged misconduct, attention from enforcement agencies and the company’s assessment of the truth of the allegations following investigation. Companies should investigate in detail any wrongdoing alleged, and seek advice from counsel as to whether and at what stage potential enforcement needs to be disclosed.