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After dodging a bullet, maybe Wal-Mart will tweak its language to say “we reserve the right” instead of “we will”

Wal-Mart requires its suppliers to agree to a code of conduct. It was sued, in California, by employees of suppliers in various Third World countries, on grounds that • the retail giant had failed to police the suppliers’ compliance with the code’s standards, and • the employees were allegedly third-party beneficiaries of those standards.

Wal-Mart succeeded in having the case dismissed, on grounds that it did not undertake to police compliance, and therefore had no duty to do so; consequently, the foreign employees were not third-party beneficiaries. See Doe v. Wal-Mart Stores, Inc., No. 08-55706 (9th Cir. Jul. 10, 2009) (affirming dismissal for failure to state a claim).

The language of Wal-Mart’s code of conduct could have used some tweaking to make its winning point more conspicuously.

The code of conduct’s standards provision said that “Wal-Mart or a third party designated by Wal-Mart will undertake affirmative measures, such as on-site inspection of production facilities, to implement and monitor said standards” (emphasis added). A supplier’s noncompliance with the standards could lead to Wal-Mart’s canceling orders and/or terminating its relationship with the supplier.

Both the trial court and the appeals court held that, in context, this did not constitute a commitment on Wal-Mart’s part. The appellate court said:

The language and structure of the agreement show that Wal-Mart reserved the right to inspect the suppliers, but did not adopt a duty to inspect them.

The language on which Plaintiffs rely is found in a paragraph entitled “Right of Inspection,” contained in a two-page section entitled “Standards for Suppliers.”

And after stating Wal-Mart’s intention to enforce the Standards through monitoring, the paragraph elaborates the potential consequences of a supplier’s failure to comply with the Standards—Wal-Mart may cancel orders and cease doing business with that supplier—but contains no comparable adverse consequences for Wal-Mart if Wal-Mart does not monitor that supplier.

Because, as we view the supply contracts, Wal-Mart made no promise to monitor the suppliers, no such promise flows to Plaintiffs as third-party beneficiaries.

Id., slip op. at 8619 (extra paragraphing added).

The lesson here: In contracts and related documents, you might not want to say “we will do X,” if what you really mean is “we reserve the right to do X.”

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