Wal-Mart Stores Inc. executives and directors persuaded a federal appeals court on Friday to reject shareholder claims that they permitted and then covered up pervasive bribery by officials at the world’s largest retailer’s Mexico unit.
By a 3-0 vote, the 8th U.S. Circuit Court of Appeals in St. Louis upheld a lower court dismissal of a federal lawsuit accusing the defendants, including former chief executives Mike Duke and Lee Scott, of breaching their duties in failing to stop alleged bribery at Wal-Mart de Mexico.
Chief Judge William Riley said the claims “do not give rise to a reasonable inference that Wal-Mart’s board of directors learned of the suspected bribery by Wal-Mex while the alleged bribery was being covered up and the internal investigation quashed.”
The decision could spell the end of derivative litigation, where shareholders seek to hold company officials liable for damages, stemming from the Bentonville, Arkansas-based retailer’s 2012 bribery scandal.
On May 13, a Delaware state judge dismissed a similar case, saying the April 2015 dismissal of the federal lawsuit by U.S. District Judge Susan Hickey in Arkansas precluded him from acting. Friday’s decision upheld Hickey’s dismissal.
Judy Scolnick, a lawyer for the shareholders, did not immediately respond to requests for comment.
Wal-Mart’s market value fell by roughly $17 billion over three days in April 2012, after The New York Times published a Pulitzer Prize-winning report saying the retailer paid bribes to Mexican officials to help it open stores faster.
Shareholders claimed that Wal-Mart’s board was put on notice about the bribery as early as 2005, when company investigators reported their early findings to audit committee chair Roland Hernandez.
Riley, however, found no proof that the board knew or must have known about the bribery, no matter how pervasive it might have been, and even though Hernandez was “only a degree or two” removed from key directors.
Applying Delaware law because Wal-Mart is incorporated in that state, Riley said the case “boils down to the same logic Delaware courts have consistently rejected, namely the inference that directors must have known about a problem because someone was supposed to tell them about it.”
Wal-Mart spokesman Randy Hargrove said: “We are pleased with the decision. As we have said all along, Delaware law gives authority to the board of directors, not individual shareholders, to manage corporate matters such as these.”
The case is Cottrell et al v. Duke et al, 8th U.S. Circuit Court of Appeals, No. 15-1869.
(Reporting by Jonathan Stempel in New York; Editing by Meredith Mazzilli)
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