del1One of the more distinct litigation phenomena in recent years has been the rise of multi-jurisdiction litigation, particularly in connection with merger objection litigation. Corporate advocates and defense attorneys have decried this development, as it has forced companies facing litigation to have to fight a multi-front war and to incur increased defense expense. At its worst, multi-jurisdiction litigation can also hazard the possibility of inconsistent rulings in different jurisdiction. The usual focus of any discussion of the problems of multi-jurisdiction litigation has been on the challenges it creates for the corporate defendants. However, as recent developments in the derivative litigation involving Wal-Mart stores and the scandal surrounding its Mexican operations shows, multi-jurisdiction litigation is not just a problem for defendants – it can also be a serious problem for competing sets of plaintiffs’ lawyers as well.


The Wal-Mart litigation relates to allegations of improper payments and of an alleged cover up relating to supposed improper payments the company’s Mexican operation paid to ensure approval or building permit for the company’s stores in Mexico. The allegations first came to light in an April 12, 2012 New York Times article entitled “Wal-Mart Hushed Up a Vast Mexican Bribery Case” (here). Following the publication of the Times article, various shareholders launched lawsuits against the company and its directors and officers. For example, plaintiff shareholders filed a series of securities class action lawsuits against the company and certain of its directors and officers that were consolidated in the Western District of Arkansas.


Plaintiff shareholders also filed derivative lawsuits based on the Mexican operations bribery scandal. All told, plaintiffs filed seven derivative suits in the Western District of Arkansas, where Wal-Mart’s corporate headquarters are located. The various Arkansas derivative actions ultimately were consolidated into a single proceeding. In addition, a separate plaintiff filed a books and records proceeding in Delaware, in light of that state’s courts’ well-known preference for prospective claimants to first review the corporate records before filing derivative lawsuits in Delaware’s courts. (Wal-Mart is organized under the laws of Delaware.)


Wal-Mart moved to stay the Arkansas action while the Delaware books and records proceedings went forward. While the Arkansas judge agreed to stay the cases in her court, in December 2013, the Eighth Circuit ruled that the Arkansas cases should proceed.


The Arkansas case then went forward, and on March 31, 2015, Western District of Arkansas Judge Susan O. Hickey, applying Delaware law, granted the defendants’ motion to dismiss, based on her determination that the plaintiffs had failed to made the requisite demand on the Wal-Mart board that the corporation should pursue the litigation and further had failed to establish demand futility. Among other things, Judge Hickey said that “Plaintiffs have failed to plead with particularity that [a majority of the] Director Defendants face a substantial likelihood of personal liability so that their ability to consider a demand impartiality would be compromised.”


A copy of Judge Hickey’s March 31 opinion can be found here. The FCPA Professor blog has a detailed review of the issues addressed in Judge Hickey’s ruling in an interesting April 2, 2015 post, here. The Arkansas plaintiffs’ lawyers have indicated they intend to appeal Judge Hickey’s ruling to the Eighth Circuit.


Judge Hickey’s ruling in the Arkansas litigation is obviously welcome news for Wal-Mart and for the individual defendants. It is very bad news for the claimants in the Delaware proceeding and their counsel. The claimants involved in the Delaware proceedings have been fighting actively for three years to try to obtain all of the documents sought in the books and records action. Now it seems likely that the Delaware claimants will be barred from pursuing their claims before they have even had a chance to file a complaint.


With the benefit of Judge Hickey’s ruling in hand, Wal-Mart and the other defendants will likely have the means to move to dismiss any lawsuit the Delaware claimants might seek to file. The defendants will likely be able to argue that under the principles of collateral estoppel, any action filed in Delaware courts would be precluded by the Arkansas ruling. In making these arguments, the defendants would be substantially aided by the Delaware Supreme Court’s 2013 ruling in the Allergan litigation, in which the Court held that an earlier dismissal by a California court was preclusive of an action in Delaware courts by a different set of plaintiffs, as discussed in detail here. (The likelihood that Wal-Mart would raise the arguments is significantly enhanced by the fact that its counsel representing Wal-Mart in the Delaware books and records proceedings is the same attorney that represented Allergan.)


As you might predict, the plaintiff’s counsel in the Delaware proceeding is unhappy about this turn of events. Indeed, it is fair to say that the lead Delaware plaintiffs’ lawyer, Stuart Grant of the Grant & Eisenhofer, is livid, as very colorfully described in Alison’s Frankel’s excellent April 1, 2015 post on her On the Case blog (here).


I should emphasize here that while Frankel’s post contains numerous quotes from Grant in which he is critical of the Arkansas plaintiffs’ counsel, her post also contains extensive statements from the lead Arkansas plaintiffs’ counsel defending their actions, refuting Grant’s remarks, and emphasizing the Arkansas plaintiffs’ intent to appeal Judge Hickey’s ruling. In the interests of balance and fairness, I encourage readers to read Frankel’s post in full, and in particular to read the statements of the Arkansas plaintiffs’ lawyer there.


Frankel’s post, entitled “War Looms Between Plaintiffs’ Firms After Suit vs. Walmart Board is Tossed” includes statements attributed to Grant to the effect that he is considering filing a malpractice action against the Arkansas plaintiffs’ counsel. “If I were them,” Frankel quotes Grant as saying, “I’d be letting my malpractice carriers know.” (Whether a shareholder could derivatively pursue a malpractice claim is one of those theoretical questions that we may or may not ever get to see tested. The Arkansas plaintiffs’ counsel dismisses Grant’s remarks about a malpractice action as a “temper tantrum.”)


In her blog post, Frankel also quotes Grant as saying that while he has not yet filed a complaint owing to the battle he has been fighting with Walmart over the documents, because of the material he has collected, his complaint would have been “much stronger” than the one filed in the dismissed Arkansas suit. In fact, he argues, his complaint, which he apparently still intends to file, will show why the Arkansas plaintiffs’ lawyers “ill-served shareholders by moving forward with a case before conducting a books and records investigation.” He adds further, with reference to the Arkansas dismissal, that “This is a perfect example of what happens when you have a small shareholder running to a foreign jurisdiction filing a derivative suit without investigation,” adding that “I don’t believe this is the way Delaware wants things to be.”


If I may paraphrase Grant’s remarks in my own terms, I would say that what this case is a “perfect example” of is how multi-jurisdiction litigation can turn out to be a problem for everybody, depending on how things play out. Where this situation got off track was when the Eighth Circuit lifted the stay in the Arkansas proceeding. After the appellate court lifted the stay, there were two sets of proceedings going forward, which is always fraught and often produces problems for somebody. Just the same, as the earlier Allergan case demonstrates, this is not the first time proceedings in another jurisdiction have superseded proceedings in Delaware.


It may be that these kind of competing proceedings will become less frequent as more companies adopt exclusive forum bylaws, designating a specific court (usually in Delaware) to consider intracorporate litigation. If as Grant suggests that the sequence of events is “not the way Delaware wants things to be,” forum selection (or exclusive forum) bylaws could help avert these kinds of situations. In any event, this case underscores how the curse of multi-jurisdiction litigation potentially can be a problem for everyone, not just the defendants – although, to be sure, in this case, Wal-Mart probably at this point does not have a problem with the way things turned out, at least so far.


It is worth noting that the various derivative lawsuits filed against Wal-Mart and arising out of its Mexican operations represent a trend I discussed in a recent post; that it, the number of corporate and securities lawsuits arising out of anticorruption investigations in Latin America. It could also be argued that the Arkansas derivative suit dismissal illustrates another trend I have noted on this blog, which is that often the follow-on civil actions filed in the wake of antibribery investigations and disclosures do not always fare all that well and many do not survive motions to dismiss. However, in fairness, it probably should be noted that in the parallel securities class action litigation arising out of the Wal-Mart operations regarding its Mexican operations, Judge Hickey denied the defendants’ motion to dismiss, as discussed here.


Olympus Securities Fraud Claims in Japan Settled for $92 Million: Readers interested in developments in securities litigation outside the U.S. will want to note that the scandal-plagued Olympus Corporation has agreed to a $92 million settlement with institutional investors that had asserted claims against the company in following the companies disclosures of accounting improprieties, as discussed in an April 2, 2015 article on Law 360 (here, subscription required). The claims reportedly were resolved using alternative dispute resolution processes that had been advanced by a litigation funder, DRRT. The article contains relatively little detail about the processes employed, the claimants involved, or how the settlement was brought about, but clearly it is a significant development with respect to the assertion of securities fraud claims in Japan, and perhaps even elsewhere.


For reference, DRRT does say on its website with respect to the Olympus litigation that: “A case against Olympus was filed in the Toyko District Court, Japan, on behalf of 50 institutional investors with over $240 million in damages on June 28, 2012. A second case was filed on June 25, 2013 adding over 40 institutions with more than $160 million in claims.”


Background regarding the Olympus scandal can be found here. In addition to the claims in Japan, certain shareholders had also filed a securities class action lawsuit in connection with the scandal, as discussed here. However, only a very small fraction of the shares of Olympus traded in the U.S. and, according to reports, the U.S. action settled for a payment of $2.6 million.