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Checking In On The Wal-Mart FCPA-Related Securities Fraud Action

Wal-Mart

As highlighted in this October 2014 post, a securities fraud class action against Wal-Mart and certain former executives in connection with its Foreign Corrupt Practices Act scrutiny made it past the motion to dismiss stage.

It is unusual for such claims to proceed to trial and the Wal-Mart action, if it follows the typical path, is unlikely to proceed to trial.

Yet this post highlights two pre-trial developments in the case. The first concerns the judge granting plaintiffs access to certain internal documents and thus denying Wal-Mart’s claim that such documents were covered by the attorney-client privilege or work product doctrine. The second concerns the judge granting plaintiffs the ability to depose Wal-Mart’s current CEO.

Attorney-Client Privilege / Work Product

As framed by the court:

“The parties are currently engaging in discovery. As part of this discovery, PGERS [plaintiff City of Pontiac General Employees’ Retirement System] took the deposition of Ronald Halter, a former Wal-Mart in-house investigator. Halter reviewed business records and interviewed fact witnesses to determine what occurred in Mexico. At the deposition, PGERS attempted to examine Halter with certain documents. However, Defendants asserted that much of Halter’s testimony was protected by either the attorney-client privilege and/or the attorney work-product doctrine. Defendants have also withheld certain documents that they claim are protected by the work product doctrine. At the deposition, counsel for Defendants instructed Halter not to answer any questions regarding the creation, content and substance of these documents. PGERS argues that the information it seeks is not protected and that Defendants acted improperly by preventing PGERS from conducting a complete examination of Halter.”

The court held:

“PGERS argues that it is entitled to fully examine witnesses regarding documents posted to The New York Times and/or Congressional websites that are no longer subject to a claim of privilege. Defendants assert that because the publication of these was unauthorized or involuntary, the attorney-client privilege and/or work product protection still applies to the broad subject matter of Halter’s internal investigation.

Regardless of whether the publication of these documents was unauthorized, the Court has previously recognized that Wal-Mart lost any claim of privilege regarding documents posted to The New York Times and/or Congressional websites as of May 16, 2013.

[…]

The 2005 and 2006 Internal Investigation

PGERS also argues that it should be able to fully examine Ronald Halter, a former Wal-Mart in-house investigator, regarding the facts Halter learned and reported to his superior, Joseph Lewis. PGERS also argues that it is entitled to the production of the factual reports Halter drafted and provided to Lewis. Defendants argue that testimony and documents regarding the 2005 and 2006 internal investigation qualify for protection under the attorney-client privilege and/or work product doctrine.

[…]

[T]he Court finds that Defendants have not met their burden to show that the privilege applies to Halter’s communications regarding the 2005 and 2006 internal investigation. Halter collected facts and conducted interviews pursuant to his duties as an investigator and communicated his findings to his direct superior, Joseph Lewis. Neither Halter nor Lewis is an attorney, and there is no indication that either Halter or Lewis communicated Halter’s findings to an attorney. Halter testified that he conducted the investigation without any specific direction. There are no facts in the record to suggest that the purpose of Halter’s investigation was to gather facts so that Defendants could obtain legal advice or that Defendants represented to Halter or Lewis that the investigation was commenced for the purpose of obtaining legal advice. The Court is not convinced that a communication from one non-attorney gathering facts, without any specific direction, to another non-attorney, without any indication of a purpose of obtaining legal advice, is a privileged communication. Accordingly, Halter’s communications regarding the 2005 and 2006 internal investigation are not protected by the attorney-client privilege, and PGERS is entitled to fully examine Halter regarding the facts he learned and reported to Lewis.

[…]

Work Product Doctrine

According to Defendants, the documents prepared in conjunction with the 2005-2006 internal investigation, including Halter’s work plans, interview reports, and December 2005 report, were created in anticipation of litigation or government investigations that could result if FCPA violations had occurred. Defendants argue in general terms that the internal investigation was initiated in direct response to allegations of illegal conduct, which created the prospect of litigation. However, the fact that the subject matter of these documents could conceivably be litigated at some point is not determinative. […] Defendants have not offered the Court any evidence in the form of an affidavit or declaration setting forth the basis for the claim that the documents are protected by the work product doctrine. Defendants have the burden of proving the applicability of the work product doctrine to the documents prepared in conjunction with the internal investigation, and all that Defendants have offered as evidence are general, conclusory assertions by counsel that litigation was anticipated. If this was sufficient, it would render the burden to establish the protection meaningless.

The facts before the Court seem to suggest that the investigation was not commenced and the report was not prepared because of any prospect of litigation but instead to gather factual information regarding an alleged bribery scheme orchestrated by Wal-Mart de Mexico. Halter testified that his reports simply recounted facts; that he was not given any special direction as to how to conduct the interviews; that he reported the facts he gathered; that he conducted no legal analysis; and that he did not send his reports to counsel. Thus, the Court finds that the factual materials regarding the 2005-2006 internal investigation that Halter drafted and provided to his superior, Joseph Lewis, including investigative reports, action plan, interview reports, and other factual compilations, are not protected by the work product doctrine. Thus, Wal-Mart shall produce these documents to PGERS.”

Deposition

As framed by the court:

“The parties are currently engaging in discovery. On October 18, 2016, Plaintiff issued a deposition notice for C. Douglas McMillon, Wal-Mart’s President and Chief Executive Officer. Plaintiff noticed the deposition for February 3, 2017. Approximately four months later and ten days before the deposition was to take place, Separate Defendant Wal-Mart, Inc. filed the present motion seeking a protective order prohibiting the deposition of McMillon. […] Defendant generally implies that deposing McMillon would create an undue burden on him by running afoul of the apex doctrine.”

The court held:

“At the end of each financial quarter since McMillon became Wal-Mart’s CEO in February 2014, he has certified the accuracy and completeness of statements describing ongoing investigative activities and risk assessment related to the alleged bribery scheme. McMillon is one of only four individuals who have signed certifications related to the alleged bribery scheme. McMillon was listed by Wal-Mart as a custodian whose records were likely to contain documents relevant to this case. Prior to his promotion to CEO of Wal-Mart, Inc., McMillon served as President and CEO of Wal-Mart International. McMillon participated in several meetings involving the topic of Wal-Mart’s investigation, and he was one of the highest-ranking decision-makers at the meeting where Wal-Mart decided to issue the first of the statements at issue in this case. McMillon is the only attendee of the meeting who continues to certify the accuracy and completeness of Wal-Mart’s public descriptions of the alleged bribery scheme. Wal-Mart identified McMillon as an employee who received or provided information, documents, and other input regarding the statements at issue in this case. McMillon sent or received over 100 different communications about the article published in The New York Times, the Mexican government’s potential responses to bribery allegations in Mexico, and Wal-Mart’s public statement concerning the Foreign Corrupt Practices Act in Mexico. McMillon had primary responsibility for multiple conference calls scheduled in anticipation of the April 2012 article published in The New York Times.

Given McMillon’s direct and personal involvement in the acts and issues in this case, it appears to the Court that McMillon has unique knowledge of relevant issues in this litigation that only he can explain. There is no basis on which the Court can conclude that Plaintiff is attempting to harass McMillon or inflate discovery costs. Rather, Plaintiff seeks to depose McMillon for a legitimate purpose because he has unique personal knowledge regarding various issues that surround Wal-Mart’s investigation into the alleged bribery scheme. Moreover, Defendant has provided no support for a finding of undue burden. Wal-Mart’s general and conclusory assertion that deposing McMillon would create an undue burden does not establish good cause for a protective order. Plaintiff has offered to minimize the inconvenience to McMillon by limiting the allotted time for the deposition and scheduling the deposition at a time and place that is most convenient for McMillon.”

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