Wal-Mart Stores, Inc. et al v. City of Pontiac General Employees' Retirement System

Filing 12

MEMORANDUM. Signed by Judge Sue L. Robinson on 2/24/2016. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
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WAL-MART STORES, INC., and
MICHAEL T. DUKE,
Petitioners,
v.

CITY OF PONTIAC GENERAL
EMPLOYEES' RETIREMENT SYSTEM,
Respondent.

CITY OF PONTIAC GENERAL
EMPLOYEES' RETIREMENT SYSTEM,
Plaintiff,
v.

WAL-MART STORES, INC., and
MICHAEL T. DUKE,
Defendants.

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Misc. No. 15-242-SLR

Civ. No. 12-5162 (SOH)
(W.D. Ark.)

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MEMORANDUM
At Wilmington this ; d a y of February, 2016, having reviewed defendants WalMart Stores, Inc. and Michael T. Duke's ("Wal-Mart") motion to quash, and the papers
submitted in connection therewith, the court issues its decision based on the following
analysis:

1. Background. This case relates to two subpoenas ("the Subpoenas") issued
pursuant to Federal Rule of Civil Procedure Rule 45 by the United States District Court
for the Western District of Arkansas, at the request of City of Pontiac General
Employees Retirement System ("PGERS"), and directed to Grant & Eisenhofer P.A. 1
("G&E") and Indiana Electrical Workers Pension Trust Fund ("IBEW"). Wal-Mart moves
to quash the Subpoenas or, in the alternative, to transfer the motion to the Western
District of Arkansas, or stay proceedings related to the Subpoenas pending the outcome
of a Rule 26 motion in the Arkansas District Court. (D.I. 1) The Subpoenas request the
production of documents related to the litigation captioned Indiana Electrical Workers

Pension Trust Fund /BEW v. Wal-Mart Stores Inc., Civ. No. 7779-CS, Delaware
Chancery Court (the "Books and Records Action"), for use in PGERS' current securities
action (the "Underlying Action") against Wal-Mart Stores, Inc. and Michael T. Duke
("Wal-Mart"). The Underlying Action is a securities class action captioned City of

Pontiac General Employees' Retirement System v. Wal-Mart Stores, Inc., Civ. No. 125162 (W.D. Ark.), pending before the Western District of Arkansas.
2. IBEW, a shareholder of Wal-Mart, initiated the Books and Records Action
against Wal-Mart pursuant to 8 Del.C. § 220 in the Delaware Court of Chancery ("Court
of Chancery") following the 2012 publication of a newspaper article discussing
allegations of corruption in Wal-Mart's foreign business operations. In a 2013 order (the
"Final Order"), the Court of Chancery ordered Wal-Mart to produce certain responsive
documents to IBEW, including those protected under attorney-client privilege pursuant

1

Grant & Eisenhofer P.A. is identified as having served as counsel for IBEW in
connection with the Books and Records Action.

to the Garner doctrine, which provides that a corporation may not be fully protected by
claims of privilege in a suit brought by the corporation's shareholders. 2 See Garner v.
Wolfinbarger, 430 F.2d 1093, 1103 (5th Cir. 1970).

3. In the Final Order, the Court of Chancery stated that "nothing herein is
intended to extend this Court's ruling on the application of the Garner doctrine or
exceptions to attorney work-product protection to any other documents of Wal-Mart, or
to result in a waiver of any of Wal-Mart's applicable privileges." (D.I. 6, ex. 5) The
Court of Chancery also ordered Wal-Mart to provide PGERS with a privilege log
identifying "all Responsive Documents over which Wal-Mart asserts privilege and/or
work-product protection." (Id.) The Final Order stated that, to the extent any
documents in the privilege log remained protected under attorney-client privilege or as
work product, IBEW's counsel "shall maintain the privilege and/or work-product
protection of any such documents produced to PGERS by Wal-Mart, and such
production shall not prejudice Wal-Mart's ability to assert privilege and/or work-product
protection vis-a-vis any third party." (Id.) Pursuant to the Final Order, Wal-Mart
produced certain documents to IBEW, including a privilege log. (Id.) The Delaware
Supreme Court upheld the Final Order in 2014. (D.I. 2 at 2)

2

"But where the corporation is in suit against its stockholders on charges of acting
inimically to stockholder interests, protection of those interests as well as those of the
corporation and the public require that the availability of the privilege be subject to the
right of the stockholders to show cause why it should not be invoked in the particular
instance." Garner, 430 F.2d at 1103-4. Further, Garner states that there are "many
indicia" that may allow the court to determine whether there is good cause, including,
among other things, the nature of the shareholders claim and whether it is obviously
colorable, and whether the claim is of wrongful action by the corporation. See id. at
1104.

2

4. PGERS caused the Arkansas District Court to issue identical amended Rule
45 Subpoenas to IBEW and G&E on September 3, 2015, seeking production of the
subpoenaed information from the Books and Records Action for purposes of its current
securities class action against Wal-Mart. The Subpoenas require compliance in the
District of Delaware. (D.I. 6, ex. 9) The Subpoenas request all documents produced by
Wal-Mart in the Books and Records Action and the related court proceedings, including
"all documents or portions of documents for which attorney-client privilege or attorney
work product protection had been claimed by Wal-Mart." (Id. at 7) Additionally, the
Subpoenas request "all privilege and/or redaction logs produced by Wal-Mart in
connection with, or related to, the IBEW Books and Records Action." (Id. at 8)
5. On September 14, 2015, PGERS' counsel met formally with Wal-Mart's
counsel, and Wal-Mart objected to the Subpoenas on the basis that they demanded
privileged documents. 3 (D.I. 2 at 8) PGERS responded that it was entitled to the
documents requested in the Subpoenas, despite the Final Order from the Court of
Chancery. 4 (D.I. 5 at 13)
6. On September 17, 2015, Wal-Mart filed a motion for protective order pursuant
to Federal Rule of Civil Procedure 26 in the Arkansas District Court to prevent PGERS
from obtaining the privileged information from IBEW and G&E through the Subpoenas.

3

In its memorandum supporting its motion to quash the subpoenas, Wal-Mart stated,
"[o]n September 14, 2015, Wal-Mart's counsel formally met and conferred with
PGERS's counsel, objecting to their baseless demands for privileged documents
through the subpoenas." (D.I. 2 at 8)
4
In its memorandum opposing Wal-Mart's motion to quash the subpoenas, PGERS
maintained that the subpoenaed documents are those which Wal-Mart was ordered to
produce to IBEW during the Books and Records Action, stating "[a]ll of the subpoenaed
documents are documents Walmart produced to IBEW pursuant to the IBEW 220
Demand or the Delaware Litigation." (D.I. 5 at 13)

3

Wal-Mart has moved to expedite the Arkansas District Court's consideration of such
motion. (D.I. 2 at 9) Wal-Mart has not yet provided PGERS with a privilege log in
connection with the Underlying Action. (D.I. 5 at 18)
7. Legal Standard. Under Federal Rule of Civil Procedure 45(d)(3)(A), the court
is required, on timely motion, to quash or modify a subpoena that:
(i) fails to allow a reasonable time to comply; (ii) requires a person to
comply beyond the geographical limits specified in Rule 45(c); (iii) requires
disclosure of privileged or other protected matter, if no exception or waiver
applies; or (iv) subjects a person to an undue burden.
Fed. R. Civ. P. 45(d)(3)(A).
8. Rule 45 also addresses how a party may claim information is privileged. If a
party withholds subpoenaed information on the grounds that it is privileged or protected
as trial-preparation, that party must "(i) expressly make the claim, and (ii) describe the
nature of the withheld documents, communications, or things in a manner that, without
revealing information itself privileged or protected, will enable the parties to assess the
claim." Fed. R. Civ. P. 45(e)(2).
9. Federal Rule of Evidence 502(c) concerns the waiver of attorney-client
privilege. Specifically, Rule 502(c) states that a disclosure made in a state proceeding
that is not the subject of a state-court order concerning waiver does not operate as a
waiver in a federal proceeding if the disclosure: (1) would not be a waiver under this rule
if it had been made in a federal proceeding; or (2) is not a waiver under the law of the
state where the disclosure occurred. Fed. R. Evid. 502(c).
10. Analysis. Rule 45 expressly states that the court for the district where
compliance with a subpoena is required must quash or modify a subpoena that, among
other things, requires the disclosure of privileged material. Fed. R. Civ. P.

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45(d)(3)(A)(iii). Rule 45 further requires that, when a party asserts a claim of privilege, it
must expressly make the claim and describe the documents with a certain level of
specificity. However, Rule 45 does not explicitly state that the failure to do so results in
a waiver of one's ability to claim privilege. 5 See Fed. R. Civ. P. 45(e)(2)(A). Moreover,
in the Final Order, the Court of Chancery expressly preserved Wal-Mart's ability to
assert a privilege claim in proceedings outside the Books and Records Action. (D.I. 6,
ex. 5) The court concludes that Wal-Mart's previous disclosure does not amount to a
waiver of its ability to assert applicable privileges; Wal-Mart retains its ability to assert a
claim of privilege with respect to the information requested under the Subpoenas.
Accordingly, Wal-Mart's motion to quash is granted in this regard.
11. Rule 45 also requires that a party expressly make the claim of privilege and
describe the nature of the documents in such a way that allows the parties to assess the
claim but also protects the privileged information. Fed. R. Civ. P. 45(e)(2)(A). In the
instant case, Wal-Mart has made the express claim of privilege, stating "as [its] motion
for protective order indicates, many of the subpoenaed documents are privileged and/or
entirely irrelevant to the issues in dispute." (D.I. 2 at 9) Wal-Mart has failed, however,
to "describe the nature of the withheld documents, communications, or tangible things in

a manner that, without revealing information itself privileged or protected, will enable the
parties to assess the claim." Fed. R. Civ. P. 45(e)(2)(A)(ii).
12. The court concludes that Wal-Mart has failed to assert a valid claim of
privilege with respect to the documents requested by PGERS and, accordingly, Wal-

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Nor does PGERS' argument that, in the Books and Records Action proceedings, the
Court of Chancery warned Wal-Mart of the importance of providing a privilege log
answer the question of waiver. (D. I. 5 at 18)

5

Mart's motion to quash is denied in this regard. Wal-Mart must produce a privilege log
that would allow the court to assess its claim of privilege. 6
13. Conclusion. For the reasons stated above, Wal-Mart's motion to quash is
granted in part, and denied in part. An appropriate order shall issue.

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To the extent that the Subpoenas seek information that the court determines to be
privileged after Wal-Mart produces a privilege log, the Arkansas District Court should
resolve the privilege dispute.

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