Walmart fights investor suit over opioid violations in Third Circuit

PHILADELPHIA (CN) — Facing a lawsuit that claims Walmart executives hid a federal probe into unlawful opioid distribution from company investors, the retail giant pushed the Third Circuit to rule against disgruntled shareholders Thursday.

“There’s no securities fraud here,” attorney Roman Martinez of Latham & Watkins told the court on behalf of Walmart.

The core of the dispute centers on the claim that Walmart did not adequately disclose to shareholders that it knowingly filled prescriptions issued by “pill-mill” prescribers.

The Walmart lawyer told the appeals court Thursday his client “vigorously disputes” that it violated the Controlled Substances Act.

“But even if it had, that wouldn’t be a securities law problem,” Martinez told the three-judge panel.

Rosen Legal lawyer Sara Fuks disagreed on behalf of lead plaintiffs, Kim Kengle and Roseanne Lacy, that between March 2017 and December 2020, Walmart did have a securities violation because it made materially false and misleading statements in filings with the Securities and Exchange Commission.

“Walmart did not disclose the investigations,” Fuks said.

She emphasized that Walmart had been told in March 2018 that it would be criminally indicted for violating the Controlled Substances Act in connection with dispensing prescription opioids. Two days after receiving this notice, it failed to disclose this to investors in its 2017 annual report with the SEC, according to Fuks.

Pressing back on the lawyer’s argument, U.S. Circuit Judge Marjorie Rendell, a Bill Clinton appointee, sought to clarify that the 2018 notice of investigations was just regarding one doctor’s prescriptions.

Chief U.S. Circuit Judge Michael Chagares also questioned whether disclosure at such an early stage of an investigation would be warranted.

“This is a heavily regulated area, controlled substances, and there’s a lot of different inquiries going on with the law, particularly with a company the size of a Walmart,” the George W. Bush appointee considered.

Regardless, Fuks held that if Walmart executives were told in 2018 of such criminal investigations, they should have told shareholders.

The retailer’s lawyer argued that this was a matter of discretion.

“Plaintiffs are really trying to hold Walmart liable here for an accounting judgment: the accounting judgment not to disclose the DOJ investigation sooner, but that judgment was reasonable under the relevant accounting rules,” Martinez said.

Chagares countered the attorney’s point.

“But I suppose your friend on the other side might say, ‘Well, your internal documents say there was a severe risk of liability here,’” he said.

Two years after the initial tip, Walmart was sued by the Department of Justice in a 2020 lawsuit out of Delaware federal court that claimed the retail giant unlawfully dispensed controlled substances at its more than 5,000 pharmacies — committing hundreds of thousands of violations of the Controlled Substances Act.

In 2022, Walmart settled the accusations that it failed to properly investigate the suspicious prescriptions for controlled substances for $3.1 billion. Last October, it also reached a $123 million settlement in a shareholder lawsuit related to the opioid crisis, with the payment coming from insurance carriers.

Delaware federal court initially granted Walmart’s motion to dismiss the shareholders’ complaint in April 2024.

U.S. Circuit Judge Anthony Scirica, a Ronald Reagan appointee, rounded out the panel Thursday.