On July 23, the Delaware Supreme Court unanimously upheld a ruling by the Court of Chancery granting Wal-Mart Stores, Inc. shareholders access to various documents relevant to highly publicized allegations that Wal-Mart engaged in a long-running bribery scheme in Mexico. At the same time, the Court also affirmed the Court of Chancery’s ruling that the shareholders could not use confidential documents allegedly provided by an anonymous whistleblower.
The shareholders initiated an action pursuant to Delaware General Corporation Law § 220, which authorizes shareholders to access corporate books and records for “any proper purpose.” Wal-Mart voluntarily provided some documents, but the Court of Chancery ordered a more wide-ranging production. All of Wal-Mart’s challenges to that ruling were rejected by the Supreme Court.
The most notable aspect of the Supreme Court’s ruling was its determination that Wal-Mart would have to produce documents held by corporate officers, as opposed to documents held by members of the board of directors. Wal-Mart argued that the only proper purpose for which the shareholders needed the documents was to determine whether a demand on Wal-Mart’s Board (a predicate to filing a derivative lawsuit) would be futile. Instead, the Court held that the shareholders had also established a proper purpose of investigating “the underlying bribery and how the ensuing [internal] investigation was handled.” Moreover, the Supreme Court held that documents possessed by corporate officers were relevant to the demand futility issue to the extent the officers may have reported their knowledge to members of the board.
The Supreme Court also upheld the Court of Chancery’s rulings that Wal-Mart would have to produce documents beyond a date cut-off that Wal-Mart sought, that Wal-Mart would have to search disaster recovery tapes for certain custodians (Wal-Mart had previously agreed to some searches of disaster recovery tapes), and that Wal-Mart would have to produce otherwise privileged documents under the Garner doctrine, an exception to the privilege for documents relating to alleged breaches of fiduciary duties by those in control of the corporation.
On the other hand, the Supreme Court sided with Wal-Mart with regard to certain confidential documents apparently provided to the shareholders’ counsel by an anonymous whistleblower. Wal-Mart demanded the return of those documents, claiming that they were stolen by a former employee in its IT Department. The Supreme Court agreed, at least as to documents that had not otherwise been publicized by the media or members of Congress. However, the Court noted that the shareholders would still be able to obtain the documents if they were within the scope of the shareholders’ valid § 220 demands.