On The Case

Walmart attacks DOJ’s ‘collective knowledge’ theory in opioids prescription case

(Reuters) - After a failed preemptive maneuver and months of public relations spadework, Walmart finally got its chance Monday to confront head-on the Justice Department's suit accusing the company of dispensing thousands of invalid opioids prescriptions. The company's primary argument for why DOJ’s case must be tossed: The government, according to Walmart is warping the Controlled Substances Act by attempting to impute Walmart’s “collective knowledge” about suspicious opioids prescriptions to the individual pharmacists who filled them.

Walmart’s lawyers at Jones Day argued that the DOJ complaint, filed in federal court in Wilmington, Delaware, failed to allege a single instance of a Walmart pharmacist knowingly filling an invalid prescription for opioids. Instead, Walmart contended, the Justice Department pointed to “aggregate information” held by different people in different parts of the company. That information may have cast doubt on prescriptions written by some doctors or medical practices, but, according to Walmart, individual pharmacists can’t be responsible based on the company’s aggregate knowledge.

The Controlled Substances Act, Walmart said, requires evidence that prescribers knowingly filled invalid prescriptions. “Imposing liability by piecing together the knowledge of various agents and the acts of others misses the fundamental point,” the brief argued.

DOJ did not respond to a query on Walmart’s dismissal arguments. A Walmart spokesman declined to comment beyond the dismissal motion and Walmart’s statement last December accusing DOJ of “inventing a legal theory that unlawfully forces pharmacists to come between patients and their doctors.”

Walmart’s collective knowledge defense is a twist on the suit it brought in Sherman, Texas, last October, before DOJ filed its complaint against the company in December. Walmart’s declaratory judgment action, which acknowledged that the government was on the verge of suing the company for its alleged opioid prescription lapses, asked U.S. District Judge Sean Jordan to enter nine judicial declarations on the scope of the Controlled Substances Act. Taken together, the declarations would have confirmed the limited authority of individual pharmacists to second-guess legitimate prescriptions, -- and would presumably have precluded DOJ from alleging widespread CSA violations for the alleged failure of Walmart pharmacists to refuse to fill prescriptions that might have been considered suspicious based on the company’s own data.

Judge Jordan tossed Walmart’s suit on Feb. 4, concluding that the government did not waive its sovereign immunity. Walmart has said it will appeal.

Neither Walmart’s declaratory judgment complaint nor motion for summary judgment in the Texas case spelled out the “collective knowledge” defense that received top billing in the company’s motion to dismiss DOJ’s suit, though they similarly argued that individual pharmacists can’t be responsible for decisions based on information they did not possess, even if that information was known elsewhere in the company.

Walmart’s new brief argued that several federal circuits, including the 5th, 11th and D.C. Circuits, have disavowed the idea that an individual employee’s scienter, or corrupt intent, can be established by citing information known to the corporation, but not to the individual. The 3rd Circuit, according to Walmart, has not directly addressed whether a corporation’s collective knowledge can be imputed to particular employees but cited rulings by trial judges in the circuit who said they were skeptical of the theory. (The issue, based on Jones Day’s citations, seems to arise with some frequency in shareholder fraud class actions.)

Walmart has a lot more to say about DOJ’s suit, including arguments that the government is trying to double-dip by claiming monetary penalties under two different provisions of the CSA and that the Justice Department is attempting to remake policy by mandating companywide information-sharing that is not required by the law. But if Jones Day is right about collective information – if, in other words, the DOJ suit has failed to allege that any individual Walmart pharmacist filled a suspicious prescription despite knowing about corporate data that raised red flags – then this could be a short-lived case.

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