Wal-Mart Waits for a High-Stakes Ruling

Wal-Mart (WMT Quote) spent Wednesday in court attempting to fend off a potentially dangerous sexual discrimination suit.

A federal judge in San Francisco heard arguments from the company and plaintiffs' lawyers on whether the suit should receive class-action status. The attorneys for seven plaintiffs, all women, are hoping the judge will certify a class of some 1.6 million current and former female employees of Wal-Mart. That would make it the largest sex discrimination class action ever, according to the attorney for the plaintiffs.

The battle over whether to certify the class could prove crucial for Wal-Mart. Without class certification, the company is facing merely seven plaintiffs, with no pressure to settle the suit. With certification of such a mammoth class, the retail giant would be under enormous pressure to settle, with a potential payout in the billions of dollars. Companies typically settle class-action suits out of court, legal experts say. Any such settlement could have a significant effect on Wal-Mart's finances, the company said in its quarterly report filed in July.

Representatives of both sides in the case do not expect the judge to rule immediately. While Wal-Mart argues that the plaintiffs will face a tough time convincing the judge to grant the case class-action status, at least one plaintiffs' attorney disagrees.

Cases like this one are regularly granted class-action status, said David Borgen, a partner with Oakland, Calif.-based Goldstein Demchak Baller Borgen & Dardarian. In 1997, Borgen's firm secured an $87.5 million settlement against Home Depot in a similar sex discrimination case.

Assuming the judge certifies the class, "Wal-Mart is likely to enter into some kind of settlement," Borgen said.

And some in the investment community are starting to focus on the potential ramifications.

"I think it's a big risk factor going forward," said Heather Brilliant, who covers Wal-Mart for Morningstar.