SHERMAN, Texas (Legal Newsline) - Walmart is betting on an 86-year-old law that companies most commonly use to fend off lawsuits over insurance coverage or trademarks to block an expected government suit over how its pharmacists filled opioid prescriptions.
The odds against Walmart are long, since the law doesn’t require courts to hear the company’s case, let alone rule in its favor. The most the retailer can hope for is a declaratory judgment stating that some or all of the government’s legal arguments are invalid, which the company could then use to knock out similar claims in other courts.
By filing a lawsuit in federal court in Texas under the Declaratory Judgment Act, Walmart has lodged a loud complaint against what it believes to be prosecutorial overreach in an area where there are few statutory requirements and unclear advice on how to avoid breaking the law.
Walmart’s 54-page complaint, filed Oct. 22, anticipates a government lawsuit accusing it of violating the federal Controlled Substances Act by failing to heed suspicious “red flags” that opioid prescriptions might be diverted for improper use. But the CSA doesn’t specify what those red flags are and the Drug Enforcement Administration has only offered informal guidance on when pharmacists should refuse to fill a prescription from a DEA-licensed practitioner, Walmart says.
“Regulatory contradiction and the threat of massive liability inhibit Walmart’s and its pharmacists’ efforts to fully comply with all applicable laws while serving the public,” the company says in its complaint.
Congress passed the Declaratory Judgment Act in 1934 at least partly for this exact purpose: To allow potential defendants to get a court ruling on whether a specific activity was illegal, without having to break the law to find out. This “federal defense” option was discussed during Congressional deliberations and was one of two main justifications for the law, according to a 2018 article by Texas Tech Law School Professor Robert T. Sherwin, “Shoot First, Litigate Later: Declaratory Judgment Actions, Procedural Fencing, and Itchy Trigger Fingers.”
In that article, Sherwin traces legal procedure back to ancient Roman law that was adopted in Europe and England. By the early 1900s, 60% of the equity cases in Great Britain were declaratory judgment actions, he writes. (Equity cases seek injunctive relief, or a court order instead of money damages.)
States began passing declaratory judgment acts around that time, despite U.S. Supreme Court rulings barring federal courts from hearing cases based on anticipated litigation, not an actual “case or controversy” as required under Article III of the Constitution. Congress acted after the Supreme Court softened its stance in the 1930s. Now declaratory judgment actions are common in insurance and intellectual property law, where they give companies the opportunity to decide a critical legal question before entering lengthy and expensive litigation.
One thing is certain about declaratory judgment suits: Courts can decide whether to hear them. The Supreme Court established that rule in the 1950s, saying in one decision: “Congress sought to place a remedial arrow in the district court’s quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants.”
McKee Foods Corp. successfully lodged a declaratory judgment act suit in Tennessee in 2005 to try to fend off expected litigation by Kellogg Foods over its “Little Debbie Marshmallow Treats,” which Kellogg said infringed on its own Rice Crispies Treats. Kellogg complained that McKee sprang the suit on it while they were still in negotiations to steer any litigation to more a more favorable court in its home turf.
A year earlier, however, a federal judge in Texas rejected discount retailer Tuesday Morning’s attempt to block a lawsuit over allegedly counterfeit reproductions of Thomas Kinkade paintings. Tuesday Morning’s lawyers filed the declaratory judgment complaint at the same time as its executives were on the phone with Kincaid’s representatives and didn’t tell them until the next day. This time, the court criticized what it called a distasteful “race to the courthouse.”
And the U.S. Court of Appeals for the Third Circuit, in a case similar to Walmart’s, last year threw out a declaratory judgment case brought by Sherwin-Williams to try to block anticipated litigation over lead paint by Delaware County, Pa. In that decision, the court said the paint manufacturer’s complaint was "dependent upon some future, contingent act” by the county.
“Thus the matter, as pled, is not ripe for review,” the appeals court ruled.
The Fifth Circuit, where Walmart sued, is more hospitable to declaratory judgment cases. The appeals court in 2003 revived an earlier case involving Sherwin-Williams and threatened lead paint litigation by municipalities in Mississippi. Sherwin-Williams wanted a ruling saying claims based on its membership in an industry association would violate its First Amendment right to free speech.
The appeals court ruled the lower court, in dismissing the case, failed to give enough consideration to the federal claim.
“A proper purpose of (the Declaratory Judgment Act) is to allow potential defendants to resolve a dispute without waiting to be sued or until the statute of limitations expires,” the Fifth Circuit ruled.
“The mere fact that a declaratory judgment action is brought in anticipation of other suits does not require dismissal of the declaratory judgment action by the federal court.”
Walmart isn’t making any First Amendment claims but it is seeking declaratory judgment on a number of claims based on federal narcotics law. Courts in the Fifth Circuit are authorized to consider declaratory judgment cases based on federal law, although not required to do so.
In its suit, Walmart says the Controlled Substances Act gives pharmacists a general duty to investigate suspicious orders but leaves the primary responsibility for preventing drug diversion to prescribers. Pending lawsuits against pharmacies also claim their corporate parents failed to install effective suspicious order monitoring systems, but Walmart says that wasn’t required under the CSA until Congress amended the law to add that requirement.
"(B)ut civil penalties cannot be imposed retroactively on Walmart for conduct that occurred before the statute was amended," the company says.
“Indeed, Congress’ decision to make this change strongly reinforces that penalties were not available under prior law."