Shearman & Sterling LLP | Securities Litigation Blog | Class Certification Granted In Securities Class Action Against Wal-Mart <br >  
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  • Class Certification Granted In Securities Class Action Against Wal-Mart 
     
    09/26/2016
    On September 20, 2016, Judge Susan O. Hickey of the United States District Court for the Western District of Arkansas certified a class of investors in an action brought against Wal-Mart Stores Inc. for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.  City of Pontiac General Employees’ Retirement System v. Wal-Mart Stores, Inc. et al., No. 5:12-cv-05162 (W.D. Ark. Sept. 20, 2016).  The Court held that the proposed class met the numerosity, commonality, typicality, and adequacy of representation requirements under Rule 23 of the Federal Rules of Civil Procedures (“Rule 23”), and named the City of Pontiac General Employees’ Retirement System as class representative. 

    The case hinges on claims that Wal-Mart’s corrective disclosure filed with the Securities and Exchange Commission in 2011 – which disclosed possible violations of the Foreign Corrupt Practices Act (“FCPA”) based on allegations that Wal-Mart bribed Mexican officials for favorable treatment – failed to disclose that the alleged FCPA violations dated as far back as 2005.  Plaintiff brought this suit in 2012 seeking to represent a class of investors that could number in the thousands.  Wal-Mart objected to class certification, arguing that plaintiff lacked standing because it did not suffer any loss on its transactions and, therefore, did not meet the typicality requirement for class certification.  Wal-Mart did not contest the numerosity, commonality, or adequacy of representation requirements under Rule 23.  

    Wal-Mart contended that plaintiff lacked standing because it realized gains on each of its sales of Wal-Mart stock in 2011 and 2012.  Wal-Mart urged the Court to adopt the “first-in-first-out” (“FIFO”) methodology – in which stocks acquired first are assumed to have been sold first in the calculation of losses – to determine whether plaintiff in fact suffered any loss.  Under FIFO, the stocks sold by plaintiff during the class period in 2011 and 2012 would include those purchased prior to the class period.  Thus, according to Wal-Mart, plaintiff achieved gains as a result of each sale of Wal-Mart stock during the class period, because plaintiff sold its shares at higher prices than when it first purchased shares prior to the class period.

    The Court disagreed and found that plaintiff had standing to bring claims stemming from the losses it suffered when Wal-Mart’s stock price dropped in the wake of a New York Times investigation that suggested the company was aware of possible bribery issues in Mexico as early as 2005.  The Court rejected Wal-Mart’s suggestion that the FIFO methodology for calculating losses on sales of shares is the preferred methodology for determining loss, instead holding that plaintiff clearly alleged loss under the “widely accepted LIFO [last-in-first-out] methodology” – in which securities acquired most recently are considered to be the first sold in determining loss.  Finding “no reason to reject [p]laintiff’s calculation of its losses under” the LIFO methodology, and that Wal-Mart failed to show that the FIFO method was preferable in this case, the Court concluded that plaintiff had adequately alleged that it suffered a loss and therefore met the typicality requirement under Rule 23.  The Court consequently granted Plaintiff’s motion for class certification and appointed the pension fund as lead plaintiff. 

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