A federal district court has dismissed some allegations brought by the Department of Justice (DOJ) against Walmart Inc. for purported violations of the Controlled Substances Act (CSA), but it has refused to dismiss the government’s allegations that the company violated its corresponding responsibility to ensure that prescriptions for controlled substances were issued for legitimate medical purposes by medical practitioners acting in the usual course of their professional practices (United States v. Walmart Inc., No. 1:20-cv-01744-CFC (D. Del.)).

In a December 2000 complaint filed in the U.S. District Court for the District of Delaware, the government alleged that Walmart unlawfully dispensed controlled substances from the pharmacies that it operates across the United States.

In a November 2022 partial motion to dismiss the government’s allegations contained in an amended complaint filed by the government, the company said that the DOJ pressed “a raft of novel theories that sweep too broadly and stretch the CSA and its regulations past the breaking point.”

Count IV Dismissed

In Count IV of its second amended complaint, the government alleged that between June 2013 and November 2017, Walmart “refused or negligently failed to report suspicious orders” to the DEA in violation of 21 U.S.C. §842(a)(5) and 21 C.F.R. §1301.74(b). It sought a civil penalty under 21 U.S.C. §842(c)(1)(B) for each violation.

Walmart called for Count IV to be dismissed because nothing in the CSA required a registrant to make or keep reports of suspicious orders or to furnish any such reports to the DEA during that time period.

The DOJ did not dispute that the CSA did not directly impose a suspicious order reporting requirement during the period at issue. However, it said that Section 1301.74(b) had been promulgated “under” the CSA and that Walmart’s failure to submit suspicious order reports therefore “violated a CSA-imposed reporting obligation,” thereby subjecting Walmart to civil penalties.

However, the court pointed out, although the CSA empowered the attorney general to promulgate regulations during the time period, the statute did not require the DOJ to promulgate any regulation, let alone a regulation requiring suspicious order reports.

Consequently, the court said, the reporting requirements in the regulation were not “required under” the CSA during the time period. As a result, failure to comply with the regulation’s reporting requirements during the time period was not unlawful under the CSA and did not trigger civil penalties under the statute.

This reading of the statute was confirmed, the court said, by the fact that Congress later amended the CSA to include the suspicious order reporting requirement set forth in the regulation (21 U.S.C. §832(a)(1), (3)).

On this basis, the court dismissed the DOJ’s contention that failure to comply with the reporting requirement between June 2013 and November 2017 violated the CSA, making Walmart subject to civil penalties under the statute.

Count III Dismissed

In another count, the government alleged that Walmart “repeatedly violated” the CSA because it did not adhere to the usual course of professional practice in filling prescriptions for controlled substances. For each alleged violation, the DOJ sought civil penalties of up to $25,000 and injunctive relief under the statute and 21 C.F.R. §1306.06.

The regulation includes the phrase “usual course of his [or her] professional practice,” but the phrase does not appear in the two CSA sections cited by the government.

In seeking to have Count III dismissed, Walmart made three arguments:

• neither section of the CSA cited by the government makes it unlawful to fail to adhere to the usual course of the professional practice of pharmacy in filling prescriptions for controlled substances;
• civil penalties and injunctive relief are not available remedies for violations of Section 1306.06; and
• the complaint did not allege facts that plausibly implied that Walmart violated Section 1306.06.

The government contended that a pharmacist’s failure to comply with Section 1306.06’s requirement to act in the usual course of the pharmacist’s professional practice constituted a violation of the CSA that could be remedied through the statute’s civil penalty and injunctive relief provisions.

However, the court pointed out, neither section authorizes the dispensing of controlled substances; instead, they “merely prohibit the dispensing of specified controlled substances by a pharmacist without a prescription.” Without a violation of that prohibition, the court said, there is no basis for imposing a civil penalty or granting an injunction under the two CSA sections.

By contrast, the court said, a person violates Section 1306.06 only if “a prescription is filled” — “that is, only if a controlled substance is dispensed with a prescription.”

On this basis, the court dismissed Count III. Neither CSA section “makes it unlawful to fail to adhere to the usual course of the professional practice of pharmacy in filling prescriptions for controlled substances,” the court said, “and civil penalties and injunctive relief are not available remedies for violations of Section 1306.06.”

Count II Not Dismissed

The court, however, refused to dismiss Count II of the complaint, which alleged that Walmart “repeatedly” violated the CSA and 21 C.F.R. §1306.04(a) by knowingly dispensing controlled substances pursuant to prescriptions “that were either not issued in the usual course of professional treatment, not for a legitimate medical purpose, or both.”

Walmart argued that the count should dismiss the count because the government cannot establish a corporation’s liability by combining one employee’s knowledge with another employee’s unknowing actions.

For the court, the issue was whether the knowledge of a corporation’s employee can be aggregated with the act of another employee to impose liability on the corporation.

Citing Browning v. Fidelity Trust Co., 250 F. 321 (3d Cir. 1918) — “a case neither party cited in its briefing or at oral argument” — the court noted that:

• the knowledge of a corporation’s employee can be aggregated with the act of another employee to impose liability on the corporation for knowingly or negligently engaging in a prohibited act; but
• at least in some circumstances, the knowledge of a corporation’s employee cannot be aggregated with the act of another employee to impose liability on the corporation for recklessly, willfully, intentionally, purposefully, or with ulterior motive engaging in a prohibited act.

“Under Browning,” the court said, “a Walmart compliance team member’s knowledge of the ineffectiveness of a prescription is ‘chargeable to the corporation itself’ and the filling of that prescription by Walmart ‘with the knowledge of the [ineffective prescription] imputed to it’ constitutes a violation of Section 1306.04(a). The fact that only a compliance team member … had the requisite knowledge, and that an unknowing pharmacist … filled the prescription is of no moment.”

Walmart argued that it cannot be liable for criminal and civil CSA penalties for “knowingly” filling invalid prescriptions absent “actual knowledge” on the part of the pharmacists “acting for the corporation.”

The court rejected the argument, saying, “there is … no element of intent or willfulness in the prohibitions imposed by Section 1306.04(a). A person violates [the regulation] if she ‘knowingly fill[s]’ an ineffective prescription full stop. … Even though Browning may be old law, it remains good law that I must follow.”

The court also stressed that “it was the business of [Walmart’s] compliance team members to gather and distribute information to ensure that Walmart complied with the law. The knowledge of the compliance team members was therefore knowledge chargeable to the corporation itself” — as under Browning.

“When, as here, the mens rea for liability is ‘based upon knowledge,” the court said, “that one of [Walmart’s] parts was without [that knowledge] while another possessed it is of no consequence. The government’s allegations that Walmart filled ineffective prescriptions known by compliance team members to be ineffective are sufficient to state violations of Section 1306.04.”