Rebooting its massive civil suit against Walmart Inc. following a major Supreme Court decision interpreting a provision of the Controlled Substances Act (CSA), the Department of Justice (DOJ) has filed an amended complaint accusing the retail giant of violating DEA requirements for dispensing controlled substances and reporting suspicious orders of controlled substances. The company has asked a federal district court to dismiss most of the civil allegations brought against it by the government (United States v. Walmart Inc., No. 1:20-cv-01744-CFC (D. Del.)).

The DOJ originally filed its civil action against Walmart in the U.S. District Court for the District of Delaware in December 2020, alleging that through its dispensing pharmacies and by acting as a distributor for those pharmacies before May 2018 the company violated the CSA and aggravated the nation’s opioid crisis.

In February 2021, Walmart asked the federal district court to dismiss the government’s complaint.

Oral argument on the motion was scheduled for November 2021, but upon Walmart’s motion, which the government originally opposed, the court stayed the case pending the resolution of two criminal cases then before the Supreme Court. The cases — Ruan v. United States, No. 20-1410 (U.S.), and Kahn v. United States, No. 21-5261 (U.S.) — focused on physicians’ potential criminal liability under the statute for the improper dispensing of controlled substances.

The Supreme Court issued its ruling in the cases in June 2022, holding that in such a criminal action, the government must prove that the physician knowingly or intentionally acted in an unauthorized manner or intended to do so (Ruan v. United States, 142 S. Ct. 2370 (2022)).

Renewed DOJ Accusations

As in its original complaint, the DOJ said in the amended complaint that Walmart failed to fulfill its “critical gatekeeping responsibilities under the CSA” — both “when deciding whether to fill individuals’ prescriptions for controlled substances and when deciding whether to fill its pharmacies’ wholesale orders for controlled substances from its distribution warehouse” — as the opioid epidemic ravaged the United States.

In dispensing prescriptions, the government alleged, Walmart failed to ensure that:

• controlled substances were dispensed only for a legitimate medical purpose and by a medical practitioner acting in the usual course of his or her professional practice (21 C.F.R. §1306.04(a)); and
• its pharmacists adhered to the usual course of professional pharmacy practice in filling a prescription, in part by identifying and resolving red flags suggesting that a prescription is invalid and by documenting the resolution (21 C.F.R. §1306.06).

The DOJ alleged that Walmart failed to meet these requirements “through the actions of both its compliance team members and its pharmacists.”

Compliance staff. First, the government alleged, members of the corporate compliance team “knew that certain prescribers were operating as ‘pill mills,’” particularly because of “thousands of ‘refusal-to-fill’ forms, which Walmart collected and maintained as a result of a 2011 administrative enforcement action by DEA,” as well as emails to the compliance team from pharmacists seeking guidance on whether to fill prescriptions.

These showed that Walmart pharmacies “continue[d] to receive thousands of invalid prescriptions from the same pill-mill prescribers,” the DOJ said. “Yet the compliance team members who knew about the reported conduct of pill-mill prescribers took actions that they knew would result, and did result, in Walmart pharmacies filling thousands of invalid prescriptions written by the same prescribers.”

The compliance staff also allegedly did not provide “derogatory information” about these physicians to Walmart pharmacists, and it allegedly “decided against instituting controls that would have prevented, and instead adopted policies that further led to,” the filling of prescriptions from pill-mill prescribers.

The amended complaint specifically criticized a compliance team policy, POM 1311, which — although it instructed pharmacists to evaluate the patient-practitioner relationship and to document refusals to fill — prohibited blanket refusals to fill a particular prescriber’s prescriptions.

Pharmacists. Walmart pharmacists “filled prescriptions they knew were invalid,” the DOJ alleged — specifically, prescriptions from prescribers whom they knew to be acting outside the usual course of professional practice or that had “obvious red flags.” Some prescriptions allegedly were filled at Walmart pharmacies after being refused by other Walmart pharmacies.

Also, the government alleged, Walmart pharmacists “filled prescriptions while acting outside the usual course of professional pharmacy practice, which requires that pharmacists identify and resolve all red flags before dispensing any controlled substance.” Moreover, to the extent that they resolved the red flags, they allegedly did not document the resolution.

The DOJ asserted that for each violation of the two regulatory provisions, Walmart was liable for a civil penalty.

Distribution. Moreover, the government alleged, as a distributor Walmart failed to recognize and report to the DEA orders for controlled substances that were unusual in size, pattern or frequency.

“For years,” the DOJ said, “Walmart maintained a wholly inadequate system for reporting suspicious controlled substance orders placed by its pharmacies,” routinely failing to report these unusual orders.

Walmart’s system for reporting suspicious controlled substance orders placed by its pharmacies was “wholly inadequate,” the government alleged. Some compliance team members allegedly complained that the system allowed only “limited time for evaluation” of each order, that there were “too many orders to review each line [of alerts] in detail,” and that the system “did not allow alerted orders to be ‘held’ pending evaluation.”

The DOJ also alleged that the company’s compliance officials knew in 2014, according to an email from the director of compliance at the time, that it needed to modify its system to “avoid DEA enforcement as a result of noncompliance with 21 C.F.R. §1301.74(b)” but that, in the words of the government, Walmart “opted for years not to spend the time, money, and effort needed to bring its system into compliance with the law.”

“Because Walmart prioritized speed over compliance,” the government stated in the amended complaint, “it failed to report at least hundreds of thousands of suspicious orders that it received from its pharmacies.”

The DOJ noted that between June 2013 and November 2017, Walmart shipped an estimated 37.5 million controlled substance orders to its pharmacies, but it reported only 204 suspicious orders to the DEA. During the same period, according to the government, the company’s backup distributor, McKesson Corp., which filled orders when Walmart could not, reported more than 13,000 suspicious orders from Walmart pharmacies.

“Even when Walmart did identify a suspicious order,” the DOJ alleged in the amended complaint, “it often already had shipped the order and chose not to have it shipped back or report it.”

For each occasion when it violated its obligation under 21 U.S.C. §842(a)(5) to report a suspicious order to the DEA, “Walmart is liable for a civil penalty,” the government said (21 U.S.C. §842(c)(1)(A), (B)).

“Walmart recognized the growing and deadly opioid epidemic but nevertheless routinely ignored the very legal requirements that could have helped to stem the epidemic,” the DOJ alleged.

Partial Motion To Dismiss

In an Nov. 7 memorandum filed in support of its motion to dismiss parts of the amended complaint, Walmart said that the DOJ had been “forced back to the drawing board” after the Supreme Court “rebuked its overreaching CSA theories in Ruan.” However, the company said, the government’s amended complaint “continues to press a raft of novel theories that sweep too broadly and stretch the CSA and its regulations past the breaking point.”

Walmart noted that in the amended complaint the DOJ “alleges — for the first time after nearly six years of investigation — that particular Walmart pharmacists filled particular prescriptions those same pharmacists allegedly knew were invalid.”

Although it said that it did not seek to have the court dismiss those prescription-by-prescription claims brought by the government and would “vigorously defend those claims on the facts,” the company asked the court to dismiss the rest of the DOJ’s case, which Walmart said amounted to “an effort to manufacture new legal duties, punishable by massive civil penalties, through retrospective litigation instead of prospective regulation.”

Alleged Section 1306.04(a) violations. As previously, Walmart insisted that 21 C.F.R. §1306.04(a) forbids a pharmacist from filling a prescription only if he or she knows that it was issued outside the usual course of professional treatment. “Pharmacists have neither the expertise nor the information to second-guess highly individualized medical judgments by state-licensed and DEA-registered doctors,” the company told the court.

“As the Supreme Court observed in Ruan,” Walmart continued, “the line separating medically valid and invalid prescriptions is ‘ambiguous’ even for the prescriber; it is much harder for a pharmacist standing outside the doctor-patient relationship to determine whether a particular prescription was written for a valid medical purpose” (citing Ruan, 142 S. Ct. at 2377).

“The government claims Walmart violated this rule,” the company said, “but its primary theory focuses on corporate compliance employees who never even saw the disputed prescriptions (or the patients who presented them), much less filled them. … Alleging that compliance employees could have set more aggressive corporate policies does not state a Section 1306.04(a) claim for knowingly filling an invalid prescription.”

“These employees in [the corporate headquarters] did not review particular prescriptions or decide whether to fill them,” the company said. “To the contrary, as the government and the emails it quotes make clear, compliance managers routinely reiterated that it was pharmacists who had the duty and power to exercise their professional judgment and choose to refuse to fill any prescription if they feel it lacks a medical purpose.”

Corporate compliance employees, Walmart said, “did not even see particular prescriptions, much less fill them, much less do so with scienter.” Moreover, the company claimed, the government’s criticisms that the company’s corporate systems and internal policies were negligently designed “do not amount to Section 1306.04(a) claims.”

“The government,” Walmart added, “cannot establish liability by combining one employee’s knowledge with another employee’s unknowing actions — here, the alleged knowledge of compliance employees in the company’s headquarters about certain doctors’ prescribing practices and the actions of pharmacists working in store pharmacies who actually filled particular prescriptions.”

“The government’s Section 1306.04(a) theory is really just a set of policy attacks on Walmart’s systems,” the company argued. “Those objections fail to state a claim. [The regulation] imposes liability for knowingly filling an invalid prescription. It does not require information-sharing or corporate blocking or algorithmic analysis. And it certainly does not impose huge penalties on companies (or their individual employees) who fail to adopt those policies quickly enough.”

“Congress or the DEA could have imposed additional prophylactic duties on pharmacies to mitigate diversion — but never did so,” Walmart told the court. “Neither Congress nor the DEA ever made the policy judgment call that, for example, pharmacies should try to stem diversion by blocking all prescriptions from a licensed prescriber, even at the cost of blocking patients from access to needed medications.”

“In any event,” the company continued, “an agency must have clearly communicated its policies before a private party may be sanctioned. The government cannot weaponize Section 1306.04(a) to enforce nonexistent duties or impose specific policy dictates after the fact, through the backdoor, by pretending that Walmart compliance employees ‘knowingly filled’ invalid prescriptions when in reality they did not fill any prescriptions at all.”

Because the DOJ “fail[ed] to plausibly allege that the compliance team knew of any specific invalid prescription when it was filled (or even after)” and failed to “allege a basis for willful blindness,” Walmart said, “the government alleges that compliance employees knew certain doctors were operating as ‘pill mills’ and therefore knew that every future prescription those doctors wrote would be medically illegitimate under Section 1306.04(a).”

However, “as DEA has long agreed,” the company asserted, “‘each case must be evaluated based on its own merits in view of the totality of the circumstances.’ Certain red flags may warrant case-by-case investigation, but they cannot establish that all of a doctor’s prescriptions are invalid.”

Walmart urged the court to limit the government’s case to the specific prescriptions and alleged pharmacist violations included for the first time in the DOJ’s amended complaint. However, the company argued, “the government cannot use those limited, particularized claims to justify an unbounded, nationwide fishing expedition for unpled violations. … [It] must plead and prove each Section 1306.04(a) violation; it cannot rely on generalizations about entire categories of prescriptions that have concededly valid applications.”

Alleged Section 1306.06 violations. Regarding the government’s contention that Walmart also violated 21 C.F.R. §1306.06 because it allegedly did not limit its dispensing to “the usual course” of professional pharmacy practice, the company argued that the DOJ “misunderstands both the meaning of this rule and its place in the regulatory scheme.”

Walmart contended that Section 1306.06 “does not trigger civil or injunctive relief, but is subject only to administrative enforcement.”

“The CSA imposes civil penalties only for dispensing without a prescription,” the company said, “but that is simply not what the government alleges.” The statute, Walmart argued, “authorizes the attorney general to promulgate rules ‘relating to dispensing of controlled substances’ (21 U.S.C. §821). But it does not impose civil penalties for every violation of a regulation. Rather, it enumerates a closed list of violations that trigger penalties.”

“The government’s theory is … that any regulatory infraction relating to prescriptions somehow violates [21 U.S.C. §829] and triggers civil penalties,” the company said. “That is wrong. On its face, Section 829 is limited to prohibiting dispensing controlled substances ‘without the written prescription of a practitioner.’ Thus, only dispensing without a prescription triggers a civil penalty for violating that provision. … A bare violation of Section 1306.06 does not itself entail a violation of 21 U.S.C. §829 and therefore does not give rise to civil penalties.”

Moreover, Walmart argued — citing the concurrence by Justice Samuel A. Alito Jr. in Ruan — that “acting outside the usual course means no longer acting as a professional at all — something beyond even malpractice. The amended complaint alleges nothing of the sort.”

“The government maintains that every time a pharmacist fails to meet her ‘professional responsibilities’ — allegedly including duties to ‘identify,’ ‘resolve’ and ‘document’ red flags — the pharmacist has acted outside the usual course of her professional practice in violation of Section 1306.06,” Walmart said. “That is wrong.”

“A pharmacist … does not abandon the ‘usual course’ simply by failing to abide by professional best practices,” the company argued. “She violates this provision only if she effectively stops acting as a pharmacist at all and instead acts as a drug pusher operating for personal profit or other alien objectives — e.g., selling opioids for cash out of a pharmacy’s parking lot. The ‘usual course’ question asks whether the professional is acting as a professional ‘at all,’ not whether she is a ‘bad’ one. That is a much higher standard.”

“The amended complaint fails to state a claim that any of Walmart’s pharmacists filled a prescription while failing to ‘act in the usual course of professional practice,’” Walmart told the court. “it alleges nothing close to suggesting that Walmart or any of its pharmacists were ever pushing drugs or acting for personal profit rather than in a professional capacity. To the contrary, if makes clear that Walmart’s pharmacists took their professional duties seriously, struggled with the decisions they faced, and raised concerns when they had them.”

The company also contended that “treating every departure from professional standards as itself a CSA violation would swallow Section 1306.04(a)’s scienter element, impose duplicative penalties, and transform minor state law infractions into federal felonies.”

Quoting a June 2021 decision by another federal district court, the company said, “all told, the government’s interpretation of Section 1306.06 would ‘nullify the knowledge requirement in Section 1306.04(a),’ contradict the latter’s ‘clearly expressed administrative intent,’ ‘severely interfere with pharmacists’ essential jobs,’ and ‘ultimately damage patients who need these controlled substances for legitimate medical purposes’” (United States v. Ridley’s Family Markets, Inc., No. 1:20-cv-0173-TS-JCB, 2021 U.S. Dist. LEXIS 106883, 2021 WL 2322478 (D. Utah June 7, 2021)).

Alleged distribution violations. With respect to the DOJ’s contention that the company’s distribution systems for detecting and reporting suspicious orders were inadequate, Walmart asserted that at the time the CSA “provided only for administrative sanctions for such regulatory failures, not civil penalties.”

Until amended in late 2018, the company said, the statute did not require distributors to make, keep or furnish reports of suspicious orders. At the time, Walmart said, “DEA could have revoked a distributor’s registration for failure to comply with the regulatory reporting rule — but civil penalties were not available.”

In addition, the company told the court, “the government alleged that Walmart failed to report suspicious orders it did not discover, but the CSA even now does not impost civil penalties for that. … The regulatory reporting duty covers only suspicious orders that the distributor discovers. … On no reading of the statute is a distributor liable for civil penalties for failing to identify suspicious orders in the first place. … The regulation does not expect registrants to report suspicious orders they did not detect.”

“The government’s principal theory,” the company stated, “is … that Walmart’s systems suffered from defects leading to underreporting — not that Walmart failed to report suspicious orders ‘when discovered’ (21 C.F.R. §1301.74(b)). Even the government does not claim, however, that it can obtain penalties for detection failures. The statute authorizes civil penalties only for recordkeeping and reporting violations — not for inadequate monitoring systems” (21 U.S.C. §824(a)(4)).

“Of course,” Walmart acknowledged, “there is a remedy for an inadequate monitoring system: The DEA can revoke a distributor’s registration. But DEA never sought to revoke Walmart’s registration. And Walmart no longer distributes any controlled substances.”