Walmart's legal troubles continue to escalate.

The U.S. Court of Appeals for the Eighth Circuit last week refused to grant Walmart's request for a stay of proceedings before a federal court in Arkansas, effectively ruling that lawsuits against Walmart may move forward in both federal court and state court as the retail giant continues to battle a series of shareholder derivative lawsuits arising from violations of the Foreign Corrupt Practices Act.

Walmart shareholders filed a surge of lawsuits in both Delaware state court and the U.S. District Court for the Western District of Arkansas following a story The New York Times broke in April 2012, revealing evidence that Walmart de Mexico's top executives knew of, and concealed, $24 million worth of bribery payments to win market share in Mexico in violation of the FCPA.

As further demonstration of its compliance failures, Walmart de Mexico's executives not only were not disciplined, but its chief executive, who purportedly was the “driving force” behind the bribery, was promoted to vice chairman of Walmart in 2008. The investigation of potential FCPA violations has since expanded into China, Brazil and India.

The shareholder derivative lawsuits filed in Delaware and federal courts largely mirror each other. Both cases focus on Wal-Mart management's alleged breach of its fiduciary duties under Delaware law. In challenging the cases, Walmart urged U.S. District Judge Susan Hickey of the U.S. District Court for the Western District of Arkansas to stay the case pending resolution of the Delaware case.

Citing U.S. Supreme Court precedent set in Colorado River Water Conservation District v. U.S., Hickey granted Walmart's request. In Colorado River, the Supreme Court held that “exceptional circumstances may permit a federal court to refrain from hearing a case, and instead defer to a concurrent, parallel state-court proceeding.”

On Dec. 18, a three-judge panel of the Eighth Circuit, however, lifted the stay. “The District Court stayed and administratively terminated the federal proceedings in favor of a substantially similar state court proceeding that will have the realistic effect of precluding any future proceedings in federal court,” wrote Judge Bobby Shepherd for the three-judge panel.

Even though the claims in the federal and Delaware cases are largely the same, the federal cases include claims under the Securities Exchange Act over which only federal courts have exclusive jurisdiction. “The resulting divergence of the federal and Delaware proceedings, and the practical elimination of the Securities Act claims, casts doubt on the parallel nature of the two proceedings,” Shepherd wrote.

“Since we hold the federal and Delaware proceedings are not parallel, we need not weigh the exceptional-circumstances factors,” Shepherd continued. “In conclusion, we join the Second, Seventh, and Ninth Circuits and hold that the Colorado River doctrine may not be used to stay or dismiss a federal proceeding in favor of a concurrent state proceeding when the federal proceeding contains a claim over which federal courts have exclusive jurisdiction.”

Rising FCPA Costs

The cost of Walmart's investigations continues to pile up. Last year, the company spent $157 million on FCPA-related matters, and through the first three quarters of this year, it spent another $224 million. Of that amount, $135 million represented costs incurred for “ongoing inquiries and investigations,” according to its latest Form 10-Q filing with the Securities and Exchange Commission.

Walmart said it "cannot predict at this time the outcome or impact of the government investigations, the shareholder lawsuits, or its own internal investigations and review."

The company spent an additional $26 million and $89 million, respectively, on the company's global compliance program and organizational enhancements. As part of these enhancements, Walmart stated on its Website that it's addressing 14 compliance subject matters in every market in which it operates, including anti-corruption, anti-money laundering, antitrust, and more.

Walmart also changed the reporting structure of its legal, ethics, finance and compliance functions around the world. The general counsels, ethics officers, chief financial officers, and compliance officers for each country now report to centralized managers, rather than to only the chief executive of the individual country. In addition, it created new senior global compliance and investigations positions in each of its markets outside the United States.

In its Nov. 14 earnings call, Walmart said it expects to spend between $75 million and $80 million in FCPA and compliance-related expenses in its fourth quarter alone. A full explanation of Walmart's global compliance efforts can be found on its Website here.

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