Walmart Leaders Lose Bid to End Lawsuit on Opioid Red Flags (1)

Walmart Inc.'s senior leaders must face investor litigation over the retail giant’s alleged role in fueling the nationwide opioid epidemic, a Delaware judge ruled Wednesday.

Vice Chancellor J. Travis Laster let the case move forward, although he threw out several of its legal theories. The allegations make it plausible Walmart board members knew the company was violating drug trafficking laws “and allowed it to happen, meaning they consciously condoned illegality,” Laster said in a 123-page opinion.

The lawsuit “also points to a motive,” the judge wrote. “Walmart was driving opioid prescription traffic to its pharmacies both to generate pharmacy sales and get customers into Walmart’s stores so that they would buy other products. Walmart was simultaneously incentivizing and pressuring its pharmacists to fill more prescriptions and do it faster.”

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The dispute is part of a wave of shareholder derivative lawsuits in Delaware’s Chancery Court blaming the top executives of drug distributors and major retail pharmacies for penalties and multibillion-dollar settlements they’ve paid to resolve claims they spent years mishandling prescription painkillers.

Walmart announced in November that it would pay $3.1 billion to end opioid-related litigation by state, local, and tribal governments, although a parallel suit by the Justice Department is ongoing. The investor cases in Delaware included another involving AmerisourceBergen Corp.—which has paid $6 billion in settlements—that its board defeated in January.

The new ruling comes two weeks after Laster issued a novel decision in favor of the pension funds leading the Walmart case. They filed their complaint within a reasonable time frame after learning of the company’s alleged violations, the judge found at the time.

Difference ‘of Degree, Not of Kind’

Laster addressed the case’s merits more directly Wednesday, finding that a majority of Walmart’s board either faces significant legal exposure or has extensive ties to the company’s founding family. Under those circumstances, the pension funds didn’t have to request an internal investigation before filing suit, which is normally a prerequisite to bringing shareholder derivative claims, he said.

The judge stressed that the case involves three separate but related liability theories about each of three categories of wrongdoing—breaching a settlement with the Drug Enforcement Administration, failing to fulfill legal obligations as a pharmacy chain, and violating the law as a drug distributor—for a total of nine claims.

But the three types of allegations each reflect a lack oversight that falls under Delaware’s so-called Caremark framework, Laster noted. The difference among intentionally pursuing an illegal business model, ignoring corporate red flags, and failing to monitor major compliance risks “is one of degree, not of kind,” he said.

“Each is a means of identifying bad faith conduct,” and though “treating each type of claim as distinct can be analytically helpful,” it can also be “burdensome,” Laster wrote. Applying a more holistic approach, he dismissed the claims targeting Walmart in its role as a drug distributor but let the rest of the case move forward.

The pension funds are represented by Bernstein Litowitz Berger & Grossmann LLP, Berman Tabacco, and Labaton Sucharow LLP. Walmart and its leaders are represented by Richards, Layton & Finger PA; Latham & Watkins LLP; and Sidley Austin LLP.

The case is Ont. Prov. Council of Carpenters’ Pension Fund v. Walton, Del. Ch., No. 2021-0827, 4/26/23.