Walmart Must Turn Over Files on Alleged Opioid Mishandling

(Bloomberg) -- Walmart Inc. must disclose some internal files related to alleged mishandling of opioid painkillers sold through the company's in-store pharmacies, after a judge ruled in favor of investors who claim directors failed in their oversight.

Two pension funds “quite clearly have a credible basis” to probe whether board members wrongfully turned a blind eye to excessively large sales of the highly addictive medicines, Delaware Chancery Judge Travis Laster ruled Monday. Walmart must turn over board discussions about opioid issues stretching back to 2010.

“I don't think this is a close call,” Laster said during a video hearing. “I don't think you can say with a straight face there isn't any evidence of wrongdoing.”

States and local governments are suing numerous drug makers, distributors and pharmacies over the U.S. opioid epidemic, including Bentonville, Arkansas-based Walmart. The retailer faces a November trial in Ohio in which municipalities will seek billions in damages for alleged failures to recognize “red flags” about heavily repeated sales of the painkillers.

Randy Hargrove, a Walmart spokesman, rejected claims that the company's board members or executives fumbled their handling of opioid issues. “Walmart takes its responsibility to shareholders seriously,” Hargrove said in an emailed statement. “We continue to believe that the evidence will show neither Walmart nor its board engaged in any misconduct.”

The funds, which own Walmart shares, contend in court filings that some of the chain's executives ensured a steady stream of the painkillers to doctor-run pill mills that routinely wrote hundreds of prescriptions for opioid painkillers. To support their claims, the investors cite evidence that emerged in the opioid cases consolidated before a federal judge in Cleveland, as well as media reports.

‘Enforcement Action'

When the federal government moved to investigate and then prosecute Walmart, the retailer used its political clout to “thwart any such enforcement action, causing career public servants to quit their jobs in frustration and disgust,” the funds alleged.

David Wales, a lawyer for the funds, told the judge during the hearing Monday that the plaintiffs are seeking the internal files to get a better handle on the board's oversight of opioid distribution. The company agreed with the federal government in 2010 to beef up monitoring of sales of the highly addictive pills.

Still, the company failed to keep an eye on excessively large opioid sales within its 2,700 in-store pharmacies, Wales said. The investigation would focus on whether Walmart “lived up” to its agreement with the government, he added.

The judge overseeing the consolidated opioid claims against Walmart and other pharmacy chains rejected the companies' bid to have the suits thrown out, saying there was enough evidence of lax oversight to raise questions about Walmart's liability, Wales said.

For example, in a January ruling, the judge in Cleveland said Walmart started flagging excessive opioid orders in 2011, but that didn't stop them from being shipped. “Its unclear what, if any, due diligence was done on these flagged orders,” the judge said. “It appears Walmart simply shipped the flagged orders and didn't report them” to federal regulators, according to the decision.

David MacIssac, another lawyer for the funds, said Walmart never disclosed that a federal prosecutor threatened to indict the company for its sloppy handling of opioids, which could lead to more than $1 billion in fines. Shareholders and plaintiffs in the other cases “are being left in the dark on these issues despite Delaware and federal requirements to disclose this information,” MacIssac told Laster, according to a transcript of the hearing.

‘No Evidence'

Ray Dicamillo, one of Walmart's lawyers, told the judge Monday the funds have no evidence directors were involved in the opioid issue and sales of the painkillers was a minuscule part of the chain's business. He said the health and wellness unit -- which sells opioids and many other prescription drugs but also medical and health care products, eye-care services and over-the-counter medications -- generates about 8% of the retailer's revenues, according to a transcript of the hearing.

“What's missing is a direct link” to board members or senior executives in connection with the alleged wrongdoing, Dicamillo said.

Sean Berkowitz, a former Enron prosecutor who is now part of Walmart's defense team, derided part of the funds' document requests as amounting to a “fishing expedition.”

Laster has a track record of making opioid companies turn over internal files to investors' who want to know if corporate directors engaged in wrongdoing. In January, he directed AmeriSourceBergen Corp., one of the largest U.S. drug distributors, to disclose files about its handling of the painkillers to investors.

The Chesterbrook, Pennsylvania-based company is accused of turning a blind eye to excessive opioid orders to rack up billions in profits. AmeriSourceBergen has appealed Laster's ruling to the Delaware Supreme Court.

Walmart has been expanding health-care services this year, introducing low-cost clinics in Georgia, Arkansas and Texas where checkups are just $30. While the retailer hasn't said how many it plans to open, the clinics could bolster services at its 4,750 stores across the U.S. that millions of Americans visit each week.

The Walmart cases are Norfolk County Retirement System v. Walmart Inc., 2020-0482, and Police and Fire Retirement System of Detroit v. Walmart Inc., 2020-0478, Delaware Chancery Court (Wilmington)

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