The Delaware Supreme Court affirmed on Wednesday a lower court ruling that ordered Wal-Mart Stores Inc to provide a shareholder with documents related to the company's internal probe of allegations the retailer had paid bribes in Mexico.
Wal-Mart had appealed a ruling by Delaware's lower Court of Chancery that ordered the company to produce documents to an Indiana union pension trust, which owns the company's stock. The trust had sued Wal-Mart for access to the documents, saying it needed them to determine if the company's board breached duties to shareholders by failing to investigate bribery allegations.
Wal-Mart did not immediately respond to a request for comment.
The alleged bribes and cover-up first came to light with a New York Times story in 2012 which reported that the company's Mexican unit had been making illicit payments since 2005 to obtain permits needed to open new stores. The story said Wal-Mart's investigators found evidence of widespread payments and suspected that laws had been broken. The story also said Wal-Mart leaders rejected an investigator's recommendation to expand the investigation and instead covered it up.
Wal-Mart is under investigation by U.S. and Mexican authorities who are trying to determine if crimes were committed.
To determine if Wal-Mart's board properly investigated, the Indiana Electrical Workers Pension Trust Fund IBEW exercised its right as a stockholder in 2012 to demand the company provide certain documents. Eventually a dispute over information requested led the trust to sue in Delaware, where Bentonville, Arkansas-based Wal-Mart is incorporated.
Wal-Mart objected to a ruling by then-Chancellor Leo Strine in 2013 ordering the retailer to provide seven years of documents, including some never reviewed by the board. The retailer appealed his order to provide documents that Wal-Mart said were protected by the attorney-client privilege.
The Delaware Supreme Court's unanimous ruling rejected Wal-Mart's arguments and said in a 39-page ruling that certain lower-ranking officials had a "reporting relationship" to members of the board, making their communications relevant.
The high court also found the seven-year period of documents was appropriate because Wal-Mart did not initially object to it.
In addition, the Supreme Court held that the attorney-client privilege could not protect information if the documents are essential to proving a breach of fiduciary duties.
Books-and-records requests like the one by the pension trust often lead to a shareholder filing what is known as a derivative lawsuit. In such cases, a shareholder sues the board on behalf of the corporation to recover damages caused by directors acting in their own interests.
Successful derivative cases often result in corporate governance changes rather than monetary damages that are more common in successful securities class actions.
The Supreme Court ruling also barred the pension fund trust from using documents that were obtained from an anonymous source, unless the documents had been be made public elsewhere.
(Reporting by Tom Hals in Wilmington, Delaware; Editing by Lisa Shumaker)