Ontario Provincial Council of Carpenters’ Pension Trust Fund v. Walton, C.A. No. 2021-0827-JTL (Del. Ch. Apr. 26, 2023)

To assert a derivative claim, a stockholder plaintiff must plead demand futility. The plaintiffs advanced three types of claims relating to Walmart’s distribution of opioids: a Massey Claim (i.e., affirmative law-breaking claim), a Red-Flags Claim (i.e., a species of a Caremark claim), and an Information-Systems Claim (i.e., a species of a Caremark claim). The Massey Claim asserted that Walmart’s directors and officers knew that Walmart was failing to comply with its legal obligations and made a conscious decision to prioritize profits over compliance. The Red-Flags Claim asserted that a series of red flags put Walmart’s directors and officers on notice of Walmart’s noncompliance or potential corporate trauma, but the directors and officers consciously ignored them. The Information-Systems Claim asserted that Walmart’s directors and officers knew that they had an obligation to establish a monitoring system to address a core compliance risk, but consciously failed to make a good faith effort to fulfill that obligation.

The director defendants moved to dismiss for failure to make a pre-suit demand on the board or plead demand was excused. The Court analyzed demand futility for the plaintiffs’ claims and denied the motion to dismiss as to the plaintiffs’ claims relating to a settlement with the Drug Enforcement Agency and Walmart’s obligations as a dispenser under the Controlled Substances Act, while dismissing the claims relating to Walmart’s obligations as a distributor under the Controlled Substances Act. In analyzing demand futility, the Court noted that the plaintiffs had prevailed in part because defendants failed to show that demand was not futile due to “compulsive” heavy redactions for privilege and non-responsiveness of the documents that Walmart had provided to the shareholders in a related Section 220 books-and-records action, which allowed the Court to make plaintiff-friendly inferences relating to these documents at the motion to dismiss stage.