United States District Court, S.D. New York
MICHAEL FOGEL, individually and on behalf of all others similarly situated, Plaintiff,
WAL-MART DE MÉXICO SAB de CV, ERNESTO VEGA, SCOT RANK, and WAL-MART STORES, INC., Defendants.
OPINION AND ORDER
KATHERINE POLK FAILLA United States District Judge
Plaintiff Michael Fogel (“Plaintiff”) brings this
class action lawsuit on behalf of purchasers (the
“Class”) of American Depository Shares
(“ADRs”) of Walmart de México SAB de CV
(“Wal-Mex”), for the period between December 8,
2011, and April 24, 2012, inclusive (the “Class
Period”). Relying heavily on a 2012 news article
concerning anticompetitive conduct that ended in 2005, and a
related investigation into that conduct that ended in 2006,
Plaintiff alleges that Defendants Wal-Mex, Ernesto Vega, Scot
Rank, and Wal-Mart Stores, Inc., (“Wal-Mart, ”
and together, “Defendants”), violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
“Exchange Act”), 15 U.S.C. §§ 78j(b)
and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R.
§ 240.10b-5, in public statements that were issued as
late as 2012. Defendants have moved to dismiss
Plaintiff's Second Amended Complaint (the
“SAC”) pursuant to Federal Rules of Civil
Procedure 9(b) and 12(b)(6) for failure to state a claim.
Plaintiff has cross-moved to strike the three appendices
attached to Defendants' motion.
review of the record makes clear that Plaintiff has taken
advantage of two separate opportunities to replead his
complaint in response to contemplated dispositive motions
from Defendants. And, indeed, the size of the operative
pleading has jumped from (approximately) 23 pages and 61
paragraphs to 128 pages and 289 paragraphs, exclusive of the
many exhibits. The Court has carefully considered
Plaintiff's SAC, but concludes that the additional text
has not remedied the many pleading deficiencies identified by
Defendants. Accordingly, and for the reasons outlined below,
Defendants' motion is granted and Plaintiff's motion
is a holder of Wal-Mex ADRs that he purchased on March 7,
2012; March 26, 2012; and April 17, 2012. (See Dkt.
#6, Ex. A; SAC ¶ 6). These purchases each occurred
during the Class Period. (SAC ¶¶ 1, 6).
relevant here, Defendant Wal-Mex “owns and operates a
network of retail stores in México, ” Guatemala,
El Salvador, Honduras, Nicaragua, and Costa Rica. (SAC ¶
7). Six businesses comprise Wal-Mex: Bodega Aurrerá,
Wal-Mart Supercenter, Superama, Sam's Club, Suburbia, and
Vips. (Id. at ¶ 11).
is a subsidiary of Defendant Wal-Mart. More
specifically, it is a subsidiary of Wal-Mart International,
one of Wal-Mart's three divisions. (SAC ¶ 183).
Plaintiff alleges that the parent and subsidiary are closely
■ Wal-Mex was created in 1997, at which time its
principal shareholder was Wal-Mart, which owned 51% of
Wal-Mex's shares. (Id. at ¶ 14).
■ Today, Wal-Mart owns 70% of Wal-Mex and public
shareholders own the rest. (Id. at ¶¶ 12,
Mexico is the most successful foreign country in
Wal-Mart's International segment. (Id. at ¶
■ “Wal-Mart has the ability to designate at least
a majority of the directors of Wal-Mex, ” “[m]any
of the executives at Wal-Mex report directly to Wal-Mart,
” and “[m]any Wal-Mart executives reside on
Wal-Mex's Board and committees.” (Id. at
¶¶ 16-18; see also Id. at ¶¶
■ Wal-Mex issues Wal-Mart credit cards to its customers
(id. at ¶ 23), and the “Investor
Relations” section of Wal-Mex's Annual Reports from
2005 to 2012 “had an email exchange at
Wal-Mart.com” (id. at ¶ 24).
a Wal-Mex employee who has held a variety of executive
positions at the company. (SAC ¶ 8). In 2004, and again
from 2009 to 2011, Vega was a member of the Wal-Mex Board of
Directors (the “Wal-Mex Board”). (Id.).
From 2005 to 2008, Vega was the Chairman of that Board, and
in 2012 he was its alternate member. (Id.). Vega has
also served on Wal-Mex's Audit and Corporate Practices
Committees. (Id.). In 2004 and 2006 to 2009, Vega
was a member of the Audit Committee, and in 2005 and 2010 to
2012 he served as its Chairman. (Id.).And Vega was a
member of the Wal-Mex Corporate Practice Committee from 2006
to 2009 before becoming its Chairman from 2010 to 2012.
(Id.).Plaintiff alleges that in these roles, Vega
was involved with several persons who were implicated in a
bribery scheme that the Court will describe in more detail
below: (i) Eduardo Juárez, who was the “Vice
President of Internal Audit of Wal-Mex” from 2005 to
2008 and “reported to Vega” in Vega's
capacity as the Audit Committee's Chairman (id.
at ¶¶ 9, 42); (ii) Cesaro Fernández, who
served as Chairman of the Wal-Mex Board while Vega was a
Board Member (id. at ¶ 10); (iii) Eduardo
Castro-Wright, who was a member of the Wal-Mex Board at the
same time as Vega (id. at ¶ 34); and (iv) R.
Lee Stucky, who was an Audit Committee Member in 2005 while
Vega was the Committee's Chairman and “reported to
Vega, ” (id. at ¶¶ 53, 62 n.4, 71).
situated similarly to Vega. Rank joined Wal-Mex in 2000 as
the Deputy Vice President of Bodega Aurrerá, and was
named its Vice President six months later. (SAC ¶ 11).
“In 2003, Rank became Senior Vice President of Self
Service and oversaw all of the Bodega Aurrerá,
Wal-Mart Supercenter and Superama units at Wal-Mex.”
(Id. (emphasis omitted)). By 2005, Rank had risen to
serve as Wal-Mex's Executive Vice President and Chief
Operating Officer, and as such was responsible for all six of
its underlying businesses. (Id.). Rank served in
this capacity until 2010, when he became the CEO of Wal-Mex,
which position he maintained through 2012. (Id.).
Rank additionally served as a member of Wal-Mex's
Executive Committee and Board from 2010 to
2012. and as a member of its Social
Responsibility Committee in 2011 and 2012. (Id.).
As he did with regard to Vega, Plaintiff alleges that in
these roles, Rank was involved with persons who were
implicated in the Wal-Mex bribery scheme: (i) Xavier del Rio,
who was the Senior Vice President of Real Estate at Wal-Mex
from 2005 to 2009, and “reported to Rank”
(id. at ¶¶ 48, 77, 78); (ii) Jose Luiz
Rodriquezmacedo, who was Wal-Mex's Senior Vice President
of Legal and Corporate Relations from 2010 to 2011,
“where he answered to Rank who was then CEO of
Wal-Mex” (id. at ¶ 49; see also
Id. at ¶ 75); and (iii) Eduardo Juárez, who
“reported to Vega and Rank” (id. at
¶¶ 69, 76).
The Alleged Bribery Scheme
April 21, 2012, the New York Times published an
article by David Barstow titled, “Wal-Mart Hushed Up a
Vast Mexican Bribery Case” (the “Times
Article”). (SAC, Ex. Q & ¶ 181). The
Times Article exposed an internal investigation of
alleged bribery at Wal-Mex that was conducted by Wal-Mart in
2005 and 2006. (SAC, Ex. Q; see also SAC
¶¶ 84-181). Plaintiff's SAC reproduces the
facts reported by Mr. Barstow as the bulk of the alleged
facts underlying Plaintiff's claims for relief.
(Compare SAC, Ex. Q, with SAC ¶¶
84-181). The Court will recount them briefly here.
timeline begins in 2003, when “Kroll Inc.,
(‘Kroll'), a leading investigative firm, conducted
a confidential investigation for Wal-Mart” concerning
Wal-Mex. (SAC ¶ 84). Kroll “concluded that top
Wal-Mex executives had failed to enforce their own
anticorruption policies, ignored internal audits that raised
red flags and even disregarded local press accounts” to
perpetuate a systematic tax evasion scheme. (Id. at
¶¶ 84-85). Kroll also evaluated Wal-Mex's
internal audit and antifraud units, which it “branded
... ‘ineffective.'” (Id. at ¶
September 21, 2005, Sergio Cicero, who “served as the
Director of Legal at Wal-Mex, ” and who had worked for
nearly 10 years in its real estate department before his 2004
resignation (SAC ¶ 35), emailed Martiza I. Munich,
“who served as Vice President and General Counsel of
Wal-Mart from 2003 to 2006” (id. at
¶¶ 19, 46), to inform her that he had information
regarding “irregularities” that had been
authorized by senior management at Wal-Mex. (Id. at
¶ 88). Munich promptly hired attorney Juan Francisco
Torres-Landa to assist her in debriefing Cicero regarding the
alleged “irregularities.” (Id. at
¶¶ 54, 91; see also SAC, Ex. J). Cicero
detailed an extensive bribery scheme, which had been
“bolstered ... with fraudulent accounting, ” and
which “implicated many of Wal-Mex's leaders.”
(Id. at ¶ 92). The purpose of the scheme was to
facilitate the construction of “hundreds of new stores
so fast that competitors would not have time to react.”
(Id. at ¶ 95). Cicero was aware of the scheme
because he himself “helped funnel bribes through
gestores.” (Id. at ¶ 97). “[I]t was
his job to recruit the gestores. He worked closely with them,
sharing strategies on whom to bribe, ” and “also
approved Wal-Mex's payments to [them].”
(Id. at ¶ 98).
November 2005, Wal-Mart Special Investigator Ronald Halter
undertook a preliminary inquiry into Cicero's
allegations. (SAC ¶¶ 39, 109-11). Halter and his
team found evidence that appeared to confirm Cicero's
allegations, and which also indicated that a prior audit had
flagged potential bribery in 2004. (Id. at
¶¶ 111-21). Still other evidence suggested that
Wal-Mex was making substantial donations to Mexican
governmental entities. (Id. at ¶¶ 122-24).
These findings were shared with Wal-Mart's Audit
Committee, CEO, and General Counsel, and through them, the
Wal-Mart Board. (Id. at ¶¶ 125, 141-42).
Halter indicated that he had “reasonable suspicion ...
to believe that Mexican and [United States] laws [had] been
violated.” (Id. at ¶ 142 (internal
quotation marks omitted)). He also provided a plan “for
a deeper investigation that would plumb the depths of
corruption and culpability at Wal-Mex.” (Id.
at ¶ 143).
January 2006, Munich advised Wal-Mart's leadership that
Wal-Mart needed “to conduct an extensive investigation
to root out wrongdoing.” (SAC ¶ 152). But,
Plaintiff alleges, “there was no interest at Wal-Mart
or Wal-Mex in making a good faith effort to fix the
corruption problem, ” so “Munich submitted her
resignation, effective February 1, 2006.” (Id.
at ¶ 153).
February 3, 2006, a meeting was held “to discuss
revamping Wal-Mart's internal investigations and to
resolve the question of what to do about Cicero's
allegations.” (SAC ¶ 156). A new protocol was
devised for internal investigations that “gave senior
Wal-Mart executives - including executives at Wal-Mex being
investigated - more control over internal
investigations.” (Id. at ¶ 158 (emphasis
omitted)). Four days later, the Wal-Mex bribery investigation
was transferred “to one of its earliest targets,
” Rodriquezmacedo. (Id. at ¶ 160). This
transfer is alleged to have violated even the new protocol,
according to which Wal-Mart's Corporate Investigations
unit was still required to handle “significant”
allegations, which Cicero's allegations had been deemed
to be. (Id. at ¶ 164).
finished his investigation within just “a few
weeks.” (SAC ¶ 166). He concluded that there was
no evidence of bribes paid to secure licenses or permits, or
given to government authorities. (Id. at ¶
167). He announced a “renewed commitment by Wal-Mex to
Wal-Mart's anticorruption policy, ” but did not
“recommend any disciplinary action against his
colleagues.” (Id. at ¶ 175).
Wal-Mart's Director of Corporate Investigation Joseph R.
Lewis found Rodriquezmacedo's report to be
“lacking.” (Id. at ¶¶ 157,
177-79). Yet, on May 10, 2006, Rodriquezmacedo was told to
finalize his report and conclude the investigation.
(Id. at ¶ 180).
this came to light when the New York Times published
its article on April 21, 2012, “after months of
investigation.” (SAC ¶ 181). On the first two days
of trading following the publication of the Times
Article, “Wal-Mex's ADRs were pummeled, ”
falling 12.2% on Monday, April 23, 2012, and a further 4.3%
on Tuesday, April 24, 2012. (Id. at ¶ 249).
Congress announced that it would be opening an investigation
into the allegations reported in Times Article,
which it did. (Id. at ¶¶ 250-54; see
also SAC, Ex. EE). A press release published on February
24, 2014, indicated that Wal-Mex had decided to focus on
remodeling old stores rather than continuing its campaign to
open new ones. (SAC ¶ 255).
lawsuit was filed April 5, 2013, against Vega and Wal-Mex.
(Dkt. #1). On June 4, 2013, then-Class Member Fogel moved the
Court for an order appointing Fogel as Lead Plaintiff in this
case and approving his selected counsel as Lead Counsel.
(Dkt. #4-6). This motion was granted on June 10, 2013. (Dkt.
December 8, 2014, Plaintiff filed his First Amended Complaint
(the “FAC”), bringing for the first time claims
against Wal-Mart and Rank, in addition to the claims brought
in Plaintiff's original Complaint. (Dkt. #29). The
parties appeared before the Court on March 3, 2015, for a
pre-motion conference, and the Court granted Defendants leave
to file their contemplated motion to dismiss the FAC pursuant
to Federal Rule of Civil Procedure 12(b)(6). (Dkt. #43-44).
Defendants filed their motion to dismiss on April 6, 2015
(Dkt. #46-49); Plaintiff filed his opposition on May 8, 2015
(Dkt. #51-53); and Defendants filed their reply on May 22,
2015. (Dkt. #54).
Plaintiff had considerable difficulty serving the FAC on
Rank, Rank was not served until October 22, 2015, by which
point Defendants' motion to dismiss the FAC was fully
briefed. (See Dkt. #62). When Rank appeared and
indicated that he too wished to file a motion to dismiss the
FAC, the Court directed the parties to appear for a second
pre-motion conference. (Dkt. #76-77). That conference was
held on December 30, 2015. (Dkt. #81-82). For the reasons
there discussed on the record, the Court denied
Defendants' pending motion to dismiss without prejudice
to its renewal and set a schedule for Defendants to file
their renewed motion. (Id.).
filed their second motion to dismiss the FAC on February 5,
2016. (Dkt. #85-87). In lieu of his opposition, Plaintiff
requested leave to file a second amended complaint (the
“SAC”) on April 4, 2016, which request Defendants
did not oppose. (Dkt. #91). The Court therefore ordered that
the pending motion to dismiss be withdrawn, and granted
Plaintiff leave to file the SAC. (Dkt. #92). The Court
“anticipate[d] that this [would] be Plaintiff's
last request to amend.” (Id.).
filed the SAC on April 6, 2016. (Dkt. #93-95). Defendants
filed their motion to dismiss the SAC on May 6, 2016. (Dkt.
#96-98). Before filing his opposition to Defendants'
motion, Plaintiff filed a Motion to Strike the three
appendices attached to that motion. (Dkt. #100-01). Plaintiff
then opposed Defendants' motion on June 6, 2016. (Dkt.
#103). On June 28, 2016, Defendants filed their opposition to
Plaintiff's motion to strike their appendices (Dkt.
#107), as well as their reply in further support of their
motion to dismiss the SAC (Dkt. #106). Plaintiff filed his
reply in support of his motion to strike on July 15, 2016.
have filed motions for oral argument with regard to both
their motion to dismiss the SAC (Dkt. #99), and
Plaintiff's motion to strike Defendants' appendices.
(Dkt. #108). The parties have also provided the Court with
notices of supplemental authority - Plaintiff on September
22, 2016, and Defendants on January 27, 2017 - to which
notices each opposing party has responded. (Dkt. #110-15).
The Court will address all of these pending motions and
speaking, Plaintiff alleges that Defendants made material
misrepresentations in Wal-Mex's 2004, 2005, 2006, 2007,
2008, 2009, 2010, and 2011 Annual Reports (SAC, Ex. A-H);
each report each was filed in April of the year following the
year on it reports. (SAC ¶¶ 189-213). Plaintiff
also raises claims based on Wal-Mex's website,
Wal-Mart's December 8, 2011 Form 10-Q for third quarter
of fiscal year 2012, and a series of Wal-Mex press releases
and reports published by Wal-Mex's Audit and Corporate
Practice Committees in January, February, March, and April of
2012. (Id. at ¶¶ 188-96, 214-25, 229;
see also SAC Ex. H, X-DD). For the reasons described
below, these claims must all be dismissed.
Motions to Dismiss Under Federal Rule of Civil Procedure
Court will consider later the pleading requirements
applicable to securities class action complaints, and
discusses here the general requirements of Federal Rule of
Civil Procedure 12(b)(6). When considering a motion to
dismiss under this rule, a court should “draw all
reasonable inferences in [the plaintiff's] favor, assume
all well-pleaded factual allegations to be true, and
determine whether they plausibly give rise to an entitlement
to relief.” Faber v. Metro. Life Ins. Co., 648
F.3d 98, 104 (2d Cir. 2011) (internal quotation marks and
citation omitted) (quoting Selevan v. N.Y. Thruway
Auth., 584 F.3d 82, 88 (2d Cir. 2009)). Thus,
“[t]o survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)). In this regard, a complaint is deemed
to include any written instrument attached to it as an
exhibit or any statements or documents incorporated in it by
reference. See, e.g., Hart v. FCI Lender Servs.,
Inc., 797 F.3d 219, 221 (2d Cir. 2015) (citing
Fed.R.Civ.P. 10(c) (“A statement in a pleading may be
adopted by reference elsewhere in the same pleading or in any
other pleading or motion. A copy of a written instrument that
is an exhibit to a pleading is a part of the pleading for all
Twombly does not require heightened fact pleading of
specifics, it does require enough facts to ‘[nudge a
plaintiff's] claims across the line from conceivable to
plausible.'” In re Elevator Antitrust
Litig., 502 F.3d 47, 50 (2d Cir. 2007) (per curiam)
(quoting Twombly, 550 U.S. at 570). “Where a
complaint pleads facts that are ‘merely consistent
with' a defendant's liability, it ‘stops short
of the line between possibility and plausibility of
entitlement to relief.'” Iqbal, 556 U.S.
at 678 (quoting Twombly, 550 U.S. at 557). Moreover,
“the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal
conclusions. Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not
of Defendants' arguments concern the affirmative defense
of timeliness. In a motion to dismiss brought under Rule
12(b)(6), “a defendant may raise an affirmative defense
... if [that] defense appears on the face of the
complaint.” Staehr v. Hartford Fin. Servs. Grp.,
Inc., 547 F.3d 406, 425 (2d Cir. 2008) (citing
McKenna v. Wright, 386 F.3d 432, 436 (2d Cir.
2004)). “The lapse of a limitations period is an
affirmative defense that a defendant [typically] must plead
and prove.” Id. (citing Fed.R.Civ.P. 8(c)(1)).
However, courts permit defendants to raise timeliness
arguments in a Rule 12(b)(6) motion where they appear on the
face of the complaint, because “[t]imeliness is
‘material when testing the sufficiency of a
pleading.'” Id. at 425-26 (quoting
Fed.R.Civ.P. 9(f)); see also Gavin/Solmonese LLC v.
D'Arnaud-Taylor, 68 F.Supp.3d 530, 536 (S.D.N.Y.
2014) (citing LC Capital Partners, LP v. Frontier Ins.
Grp., Inc., 318 F.3d 148, 156 (2d Cir. 2003) (holding
that when the relevant facts “can be gleaned from the
complaint and papers ... integral to the complaint,
resolution of the issue on a motion to dismiss is
appropriate”)) (noting that while accrual begins at the
date of discovery, and “[a]lthough the date at which
discovery should have occurred can be a fact-intensive
question, courts in this district often make this
determination on a motion to dismiss”),
aff'd, 639 F. App'x 664 (2d Cir. 2016)
Several of Plaintiff's Claims Must Be Dismissed as
Timeliness Under the Sarbanes-Oxley Act of 2002
28 U.S.C. § 1658
case of claims brought pursuant to Section 10-b and Rule
10b-5, the timeliness requirements are specified in Section
804 of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”), 28 U.S.C. § 1658.
See, e.g., Merck & Co. v.
Reynolds, 559 U.S. 633, 638 (2010). This
provision states that
a private right of action that involves a claim of fraud,
deceit, manipulation, or contrivance in contravention of a
regulatory requirement concerning the securities laws, as
defined in section 3(a)(47) of the Securities Exchange Act of
1934, may be brought not later than the earlier of - (1) 2
years after the ...