WILMINGTON, Del. (Legal Newsline) - Walmart has asked a federal court in Delaware to dismiss a shareholder lawsuit accusing it of failing to disclose a federal investigation over its opioid dispensing practices, saying it informed investors about the probe two years before news of it supposedly caused its stock to fall.
Walmart disclosed the Justice Department investigation in a March 2018 filing with the Securities and Exchange Commission and updated regularly after that. Its shares fell briefly in March 2020 after ProPublica published an article stating DOJ lawyers in Texas wanted to criminally indict the company, but were overruled by senior officials in Washington. The shares dipped again in December of last year, after the government filed a civil suit against Walmart.
In an Oct. 8 motion to dismiss, Walmart said plaintiff lawyers failed to establish the company withheld any material information about the government actions, and its share price has risen significantly anyway, undermining shareholder claims they lost money.
“Many problems plague these allegations, any one of which requires dismissal,” the company said.
Walmart disclosed the DOJ investigation in 2018 and said it couldn’t predict how it would turn out. The plaintiffs also don’t identify any Walmart executives who supposedly knew different facts and failed to disclose them, the company said. And their claim that the ProPublica article caused the stock to drop by revealing previously withheld facts should fail because there weren’t any additional facts to disclose.
Walmart first disclosed multidistrict opioid litigation in its March 2018 annual SEC filing and updated it as the cases progressed. It disclosed government investigations beginning in June 2018, also updating.
Two years later, ProPublica published an article stating Justice Dept. attorneys in the eastern district of Texas wanted to file criminal charges in 2018 but were discouraged by senior officials. Walmart said “the article glossed over what really happened,” which it said was the government lawyers threatened criminal prosecution in order to try to force a civil settlement.
Walmart shares fell almost 5% after the ProPublica article appeared, but rebounded to a higher price within five days and by mid-April 2020, the shares were up 20%.
Walmart made further disclosures in October 2020, when it sued the Justice Dept. and the Drug Enforcement Administration, seeking a declaratory judgment that the government’s interpretation of its duties under the Controlled Substances Act was wrong. In that suit, Walmart predicted it would be sued by the DOJ, which happened in December. A federal judge dismissed Walmart’s declaratory judgment suit in February of this year.
The government’s December lawsuit also failed to stop the ascent of Walmart shares, which fell slightly when it was filed but quickly rose to a higher level again.
The plaintiffs also argued Walmart should have disclosed a 2011 confidential settlement with the government that threatened higher penalties if it violated the agreement.
“Instead of disclosing the DOJ Investigation and Walmart’s looming liabilities,” the plaintiffs claimed, “defendants issued boilerplate risk disclosures.”
Walmart argued in its motion to dismiss the securities lawsuit that it had no duty to disclose “CSA violations,” since it hadn’t violated the law.
“Disclosure is `not a rite of confession, and companies do not have a duty ‘to disclose uncharged, unadjudicated wrongdoing,’” Walmart said. “No court has found that Walmart violated the CSA, and Walmart strongly believes it did not.”
Previous court decisions say companies don’t have to disclose investigations, Walmart continued, but it revealed the DOJ investigation anyway in its next quarterly report. The company also challenged plaintiff claims it should have made an accounting reserve for potential penalties under the 2011 agreement, saying it expired a year before the class period began in 2016.
Accounting rules only require companies to make a loss reserve when the amount can be reasonably estimated, the company said, and there is no evidence Walmart executives thought it faced $1 billion in potential litigation losses.
The plaintiffs also claimed Walmart falsely stated it “complied with all laws.” Walmart said it only said it expected employees to be “honest, fair and objective.”
These are `mission statements,’ not `guarantees,’” the company said.
The federal government’s investigation of Walmart began in 2016 with the U.S. Attorney’s Office in the Eastern District of Texas, where prosecutors told the company in 2018 they planned to indict Walmart for failing to block all prescriptions from a suspicious local physician. Walmart cooperated fully with the investigation but says at one point the lead prosecutor “took out her cell phone and read aloud a confidential text message” she said came from the U.S. Attorney directing her to “terminate the meeting, indict Walmart, and settle with the company after the indictment.”
“This was a clear violation of DOJ policy and professional ethics rules that prohibit the use of threat of criminal charges to extract a civil penalty,” Walmart said. One federal prosecutor said Walmart’s $1 billion in charitable contributions the prior year was evidence of what the company could pay. Walmart says it complained to Washington and in August 2018 the Justice Dept. formally declined to prosecute.