Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 1 of 43 PageID #: 245
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
`
`UNITED STATES OF AMERICA,
`Plaintiff,
`
`v.
`WALMART INC. AND WAL-MART
`STORES EAST, LP,
`Defendant.
`
`)
`)
`)
`)
`)
`)
`)
`)
`)
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`
`C.A. No. 20-1744-CFC
`
`
`OPENING BRIEF IN SUPPORT OF DEFENDANTS’ MOTION TO
`DISMISS THE COMPLAINT
`
`
`
`
`OF COUNSEL:
`
`Michael A. Carvin
`Benjamin C. Mizer
`Yaakov M. Roth
`William G. Laxton, Jr.
`JONES DAY
`51 Louisiana Avenue, N.W.
`Washington, D.C. 20001-2113
`(202) 879-3939
`macarvin@jonesday.com
`bmizer@jonesday.com
`yroth@jonesday.com
`wglaxton@jonesday.com
`
`Karen P. Hewitt
`JONES DAY
`4655 Executive Drive, Suite 1500
`San Diego, CA 92121-3134
`(858) 314-1200
`kphewitt@jonesday.com
`
`
`
`
`Robert W. Whetzel (#2288)
`Kelly E. Farnan (#4395)
`RICHARDS, LAYTON & FINGER, P.A.
`920 North King Street
`Wilmington, Delaware 19801
`(302) 651-7700
`whetzel@rlf.com
`farnan@rlf.com
`
`Attorneys for Walmart Inc. and
`Wal-Mart Stores East, LP
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`
`
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`

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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 2 of 43 PageID #: 246
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`
`Jason S. Varnado
`Laura Jane Durfee
`Andrew J. Junker
`JONES DAY
`717 Texas, Suite 3300
`Houston, TX 77002-2172
`(832) 239-3939
`jvarnado@jonesday.com
`ldurfee@jonesday.com
`ajunker@jonesday.com
`
`David W. Ogden
`Charles C. Speth
`WILMER CUTLER PICKERING
` HALE AND DORR LLP
`1875 Pennsylvania Avenue, N.W.
`Washington, DC 20006
`(202) 663-6000
`David.Ogden@wilmerhale.com
`Charles.Speth@wilmerhale.com
`
`
`
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`

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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 3 of 43 PageID #: 247
`
`TABLE OF CONTENTS
`
`
`Page
`TABLE OF AUTHORITIES .................................................................................... ii
`NATURE AND STAGE OF PROCEEDINGS ......................................................... 1
`SUMMARY OF ARGUMENT ................................................................................. 1
`STATEMENT OF FACTS ........................................................................................ 4
`ARGUMENT ............................................................................................................ 5
`I. THE COMPLAINT DOES NOT PLAUSIBLY ALLEGE THAT ANY WALMART
`PHARMACIST KNOWINGLY FILLED AN INVALID PRESCRIPTION (COUNT I) ......... 5
`A. The Government Cannot Establish a Violation by Aggregating
`Knowledge from Employees Not Involved in the Dispensing.................. 6
`1. A corporation acts with scienter only if a particular agent
`acts with the relevant state of mind ................................................... 7
`2. The Government never alleges that any particular Walmart
`employee knew these prescriptions were invalid ............................ 10
`B. The Complaint’s Categorical Approach Provides No Basis To
`Infer That Walmart Knowingly Filled Invalid Prescriptions .................. 13
`II. THE COMPLAINT DOES NOT STATE VIABLE CLAIMS FOR RELIEF
`UNDER 21 C.F.R. § 1306.06 (COUNT II) .......................................................... 18
`A. Violations of § 1306.06 Cannot Give Rise to Civil Penalties
`or an Action for Injunctive Relief ........................................................... 19
`B. Section 1306.06 Does Not Prohibit Every Deviation from
`Standards of Professional Conduct .......................................................... 23
`III. THE GOVERNMENT CANNOT RECOVER CIVIL PENALTIES FOR ALLEGED
`HISTORICAL FAILURES TO “DETECT AND REPORT” SUSPICIOUS ORDERS ......... 28
`A. Before October 2018, the CSA Did Not Authorize Civil
`Monetary Penalties for Failing To Report Suspicious Orders ................ 29
`
`i
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`

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`
`TABLE OF CONTENTS
`(continued)
`
`Page
`
`
`
`B.
`
`In Any Case, the CSA Did Not Authorize Monetary Penalties
`for Suspicious Orders That Escaped Detection ....................................... 31
`CONCLUSION ....................................................................................................... 33
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`
`
`
`
`-ii-
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`

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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 5 of 43 PageID #: 249
`
`TABLE OF AUTHORITIES
`
`
`Page(s)
`
`Ardestani v. INS,
`502 U.S. 129 (1991) ............................................................................................ 30
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) ............................................................................................ 13
`Chaney v. Dreyfus Serv. Corp.,
`595 F.3d 219 (5th Cir. 2010) ................................................................................ 8
`City of Roseville Emps.’ Ret. Sys. v. Horizon Lines, Inc.,
`713 F. Supp. 2d 378 (D. Del. 2010)...................................................................... 9
`First Equity Corp. v. Standard & Poor’s Corp.,
`690 F. Supp. 256 (S.D.N.Y. 1988) ....................................................................... 9
`George v. Rehiel,
`738 F.3d 562 (3d Cir. 2013) ................................................................... 13, 15, 17
`Gonzales v. Oregon,
`546 U.S. 243 (2006) ............................................................................................ 26
`Gutter v. E.I. Dupont de Nemours,
`124 F. Supp. 2d 1291 (S.D. Fla. 2000) ............................................................... 10
`In re Cable & Wireless, PLC,
`321 F. Supp. 2d 749 (E.D. Va. 2004) ................................................................. 10
`In re Cognizant Tech. Sols. Corp. Sec. Litig.,
`No. 16-cv-6509, 2018 WL 3772675 (D.N.J. Aug. 8, 2018) ............................... 10
`In re Tyson Foods, Inc.,
`No. 01-cv-0425, 2004 WL 1396269 (D. Del. June 17, 2004) .............................. 9
`ING Bank v. PNC Fin. Servs. Grp.,
`629 F. Supp. 2d 351 (D. Del. 2009)...................................................................... 9
`Intel Corp. Inv. Pol’y Comm. v. Sulyma,
`140 S. Ct. 768 (2020) .......................................................................................... 31
`Kucana v. Holder,
`558 U.S. 233 (2010) ............................................................................................ 30
`Leocal v. Ashcroft,
`543 U.S. 1 (2004) ................................................................................................ 26
`
`iii
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`

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`
`TABLE OF AUTHORITIES
`(continued)
`
`Page(s)
`
`Lind v. Jones, Lang LaSalle Ams., Inc.,
`135 F. Supp. 2d 616 (E.D. Pa. 2001) .................................................................... 9
`McNally v. United States,
`483 U.S. 350 (1987) ............................................................................................ 26
`Mizzaro v. Home Depot, Inc.,
`544 F.3d 1230 (11th Cir. 2008) ............................................................................ 8
`Russello v. United States,
`464 U.S. 16 (1983) .............................................................................................. 29
`Silverman v. Eastrich Multiple Inv. Fund, L.P.,
`51 F.3d 28 (3d Cir. 1995) ............................................................................. 22, 24
`Staub v. Proctor Hosp.,
`562 U.S. 411 (2011) .............................................................................................. 7
`Teamsters Loc. 445 Freight Div. Pension Fund v. Dynex Cap. Inc.,
`531 F.3d 190 (2d Cir. 2008) ................................................................................. 9
`United States ex rel. Adams v. Dell Comput. Corp.,
`No. 15-cv-0608, 2020 WL 5970677 (D.D.C. Oct. 8, 2020) ............................... 10
`United States ex rel. Heathcote Holdings Corp. v. William K.
`Walthers, Inc.,
`779 F. Supp. 2d 735 (N.D. Ill. 2011) .................................................................. 10
`United States ex rel. Martin v. Life Care Ctrs. of Am., Inc.,
`114 F. Supp. 3d 549 (E.D. Tenn. 2014) .............................................................. 10
`United States v. AseraCare, Inc.,
`938 F.3d 1278 (11th Cir. 2019) .......................................................................... 16
`United States v. Feingold,
`454 F.3d 1001 (9th Cir. 2006) ............................................................................ 27
`United States v. Harra,
`985 F.3d 196 (3d Cir. 2021) ............................................................................... 13
`United States v. LBS Bank-New York, Inc.,
`757 F. Supp. 496 (E.D. Pa. 1990) ....................................................................... 10
`United States v. Moore,
`423 U.S. 122 (1975) ............................................................................................ 27
`
`iv
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`

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`
`TABLE OF AUTHORITIES
`(continued)
`
`Page(s)
`
`United States v. One Parcel of Land,
`965 F.2d 311 (7th Cir. 1992) ................................................................................ 7
`United States v. Rottschaefer,
`178 F. App’x 145 (3d Cir. 2006) ........................................................................ 26
`United States v. Sci. Applications Int’l Corp.,
`626 F.3d 1257 (D.C. Cir. 2010) ............................................................................ 8
`United States v. Tran Trong Cuong,
`18 F.3d 1132 (4th Cir. 1994) .............................................................................. 27
`Woodmont, Inc. v. Daniels,
`274 F.2d 132 (10th Cir. 1959) .............................................................................. 8
`STATUTES
`8 U.S.C. § 1252 ........................................................................................................ 30
`Controlled Substances Act
`21 U.S.C. § 821 ................................................................................................... 19
`21 U.S.C. § 823 ............................................................................................. 19, 22
`21 U.S.C. § 824 ....................................................................................... 19, 22, 32
`21 U.S.C. § 827 ................................................................................................... 29
`21 U.S.C. § 828 ................................................................................................... 29
`21 U.S.C. § 829 ............................................................................................passim
`21 U.S.C. § 842 ............................................................................................passim
`21 U.S.C. § 843 ................................................................................................... 23
`SUPPORT Act, Pub. L. No. 115-271, 132 Stat. 3894 (2018) ................................. 30
`24 Del. Admin. Code § 2500-5.2.1 .......................................................................... 25
`Del. Code Ann. tit. 24, § 2516 ................................................................................. 25
`Fla. Admin. Code r. 64B16-30.001 ......................................................................... 25
`Fla. Stat. Ann. § 465.0244 ....................................................................................... 25
`OTHER AUTHORITIES
`21 C.F.R. § 1301.74 ............................................................................... 12, 28, 29, 31
`
`v
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`

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`TABLE OF AUTHORITIES
`(continued)
`
`Page(s)
`21 C.F.R. § 1306.04 ..........................................................................................passim
`21 C.F.R. § 1306.06 ..........................................................................................passim
`Mihailis E. Diamantis, Functional Corporate Knowledge,
`61 WM. & MARY L. REV. 319 (2019) ................................................................... 9
`Dispensing Controlled Substances for the Treatment of Pain,
`71 Fed. Reg. 52716 (Sept. 6, 2006) .......................................................... 1, 15, 17
`Regulations Implementing the Comprehensive Drug Abuse Prevention
`and Control Act of 1970, 36 Fed. Reg. 7776 (Apr. 24, 1971) ........................ 2, 24
`Restatement (Second) of Agency (1958) ............................................................. 7, 10
`Restatement (Third) of Agency (2006) ...................................................................... 7
`
`
`vi
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`

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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 9 of 43 PageID #: 253
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`
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`NATURE AND STAGE OF PROCEEDINGS
`In this action, the Government seeks civil penalties and injunctive relief for
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`alleged violations of the Controlled Substances Act (“CSA”). D.I. 1 (“Compl.”).
`
`Walmart moves to dismiss for failure to state a claim.
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`SUMMARY OF ARGUMENT
`The Government has sued Walmart on a set of legal theories that stretch the
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`CSA and Drug Enforcement Administration (“DEA”) regulations past the breaking
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`point. The Complaint fundamentally misconceives the obligations of pharmacies
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`and pharmacists under federal law. The Court should dismiss it entirely.
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`Under the CSA, the Government is responsible for registering and regulating
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`manufacturers that produce prescription opioids; distributors that supply them;
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`doctors who prescribe them; and pharmacists who dispense them. This suit is mostly
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`about pharmacists. Pharmacists are not licensed to practice medicine and rarely have
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`authority to examine patients. Presented with prescriptions from state-licensed and
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`DEA-registered doctors, pharmacists are poorly positioned to second-guess those
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`doctors’ medical judgments, which are highly individualized based on each patient’s
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`unique circumstances. See Dispensing Controlled Substances for the Treatment of
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`Pain, 71 Fed. Reg. 52716, 52720 (Sept. 6, 2006). Identifying an invalid prescription
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`in this context thus requires exercising professional judgment based on all the facts
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`the pharmacist knows.
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`1
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`

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`
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`These realities dictate the limited nature of pharmacists’ obligations under the
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`CSA. First, pharmacists are forbidden by statute to dispense controlled substances
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`absent a written prescription from a licensed, registered doctor. 21 U.S.C. § 829(a).
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`Second, they are forbidden by regulation to fill a prescription if they “know[]” it was
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`issued outside “the usual course of professional treatment.” 21 C.F.R. § 1306.04(a).
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`DEA specifically “revised” that regulation in 1971 “to require knowledge” in
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`response to pharmacists’ concerns about bearing “responsibility … to determine the
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`legitimacy of a prescription.” Regulations Implementing the Comprehensive Drug
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`Abuse Prevention and Control Act of 1970, 36 Fed. Reg. 7776, 7777 (Apr. 24, 1971).
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`The Complaint focuses on this second rule, but fails to plead facts sufficient
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`to show that Walmart pharmacists violated the law on even a single occasion.
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`Despite a multi-year investigation, the Government has failed to identify even a
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`single prescription the Government claims was actually invalid, much less that any
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`individual pharmacist knew was invalid but filled anyway. Rather, the Complaint
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`alleges only that Walmart had access to aggregate information suggesting that
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`certain types of prescriptions, or prescriptions written by certain doctors, were
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`subject to doubt and thus might have been invalid. The Government’s Complaint is
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`sensationalist but ultimately hollow, resting on legally impermissible shortcuts that
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`are designed to cast aspersions on large numbers of prescriptions without actually
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`alleging that individual Walmart pharmacists ever knowingly filled invalid ones.
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`2
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`

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`
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`I.
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`Count I. Instead of analyzing the actual knowledge of individual
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`pharmacists, the Government tries to establish scienter by aggregating knowledge
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`across the entire company, challenging prescriptions filled by one pharmacist based
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`on facts that other employees supposedly knew that cast doubt on their validity. That
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`collective approach to scienter is unprecedented under the CSA, flouts agency-law
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`principles, and has been correctly rejected in a wide variety of similar contexts.
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`The Government also claims that certain types of prescriptions are likely to be
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`invalid. But it makes no effort to identify specific invalid prescriptions that Walmart
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`pharmacists—who regularly rejected prescriptions of these types—ever filled, let
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`alone knowingly filled. These generalized allegations are irreconcilable with the
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`regulation’s subjective-knowledge element and with the individualized nature of the
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`practice of both medicine and pharmacy.
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`II. Count II. The Government says every challenged fill also violated a
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`second regulation, 21 C.F.R. § 1306.06, which restricts pharmacists to dispensing
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`“in the usual course” of practice. The Government’s novel reading of that rule would
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`swallow § 1306.04(a)’s scienter requirement, impose duplicative penalties, and hold
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`pharmacies strictly liable for every minor deviation from professional standards.
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`This Court should reject the Government’s sweeping attempts to bypass its
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`burden of proof and impose billions of dollars in liability based on “collective”
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`knowledge, overbroad generalizations, and attempted double recovery.
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`3
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`

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`
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`III. Count III. Finally, the Government asserts that when Walmart self-
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`distributed opioids to its own stores (which it did until 2018), its systems to detect
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`and report “suspicious orders” were inadequate. That is baseless Monday-morning
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`quarterbacking by an agency that has long refused to provide any clear rules.
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`Regardless, the CSA at that time provided only for administrative sanctions, not civil
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`monetary penalties, for these alleged failures—so this claim fails as a matter of law.
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`STATEMENT OF FACTS
`Walmart operates more than 5,000 pharmacies in communities nationwide.
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`Compl. ¶ 3. Each pharmacy is registered with DEA. Id. ¶¶ 47, 67-68. Walmart
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`pharmacists are authorized to dispense controlled substances, including opioids,
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`pursuant to prescriptions from state-licensed, DEA-registered doctors. Id. ¶¶ 69-71.
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`In its Pharmacy Operations Manual, Walmart directed its pharmacists to fill
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`only those prescriptions they “reasonably believe[d]” were valid and identified a list
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`of “red flags” that pharmacists should consider in reaching professional judgments
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`about prescriptions’ validity. Id. ¶¶ 125-34. Following that guidance, Walmart’s
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`pharmacists “regularly” and “repeatedly” refused to fill prescriptions they perceived
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`as invalid based on all of the facts they knew. See, e.g., id. ¶¶ 18, 142-44.
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`Pharmacists completed “refusal-to-fill” forms to memorialize their refusals.
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`Id. ¶¶ 17-18. The forms were sent to a “compliance team” at Walmart’s corporate
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`office, which in turn shared the refusal-to-fill data with DEA. Id. ¶¶ 123, 145-46.
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`4
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`

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`
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`(The Complaint does not allege what, if anything, DEA did with the material.) In
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`2015, Walmart introduced a platform that allowed pharmacists to search and review
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`refusal-to-fill forms that other pharmacists had submitted. Id. ¶ 160.
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`Until May 2018, Walmart self-distributed controlled substances to its own
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`pharmacies. Id. ¶¶ 478-82. Over the relevant period, Walmart used several different
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`systems to monitor for suspicious orders from its own stores. Id. ¶ 504.
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`I.
`
`ARGUMENT
`THE COMPLAINT DOES NOT PLAUSIBLY ALLEGE THAT ANY WALMART
`PHARMACIST KNOWINGLY FILLED AN INVALID PRESCRIPTION (COUNT I).
`Count I asserts that Walmart “knowingly fill[ed]” prescriptions “issued not in
`
`the usual course of professional treatment,” contrary to 21 C.F.R. § 1306.04(a). It
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`identifies three sets of prescriptions: (1) those written by doctors who had written
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`other prescriptions that other Walmart pharmacists had rejected (“problematic-
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`prescriber theory”); (2) those that allegedly presented “red flags” about their validity
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`(“red-flag theory”); and (3) those that one Walmart pharmacist filled after another
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`Walmart pharmacist refused (“rejected-prescription theory”). Compl. ¶¶ 22-26.
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`The problematic-prescriber theory fails because the Complaint alleges
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`knowledge only by “Walmart,” i.e., the corporation, rather than by any particular
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`employee involved in the dispensing. Yet when the law forbids taking an action
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`“knowingly,” “willfully,” or with some other mental state, a corporation violates that
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`rule only if a particular employee involved in that action has that scienter.
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`5
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`

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`As for the other theories, the Complaint fails to plead facts supporting a
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`plausible inference that the dispensing pharmacists knew the prescriptions were
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`invalid. It identifies types of prescriptions that may be—but are not necessarily—
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`problematic. Walmart pharmacists allegedly filled some prescriptions of those types
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`but the Government concedes that they refused to fill others. The Complaint alleges
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`no basis to infer that the pharmacists filled invalid ones, let alone that they did so
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`knowingly at the risk of personal criminal and civil liability.
`
`A. The Government Cannot Establish a Violation by Aggregating
`Knowledge from Employees Not Involved in the Dispensing.
`The Complaint admits that § 1306.04(a) imposes liability “only” on persons
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`who “knowingly” fill invalid prescriptions. Compl. ¶ 91. A corporation, all agree,
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`can be liable if its agent does so. Id. ¶ 94. But the Complaint’s lead theory is that
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`“Walmart”—not any given pharmacist—knowingly filled prescriptions that were
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`likely invalid, because its pharmacists filled prescriptions written by certain doctors
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`after other pharmacists had refused to fill other prescriptions by those doctors and
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`reported as much to a corporate compliance unit. Id. ¶¶ 22, 108, 177-79.
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`This is a “collective knowledge” theory, seeking to establish liability not by
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`showing that any individual Walmart employee who filled a prescription knew it
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`was invalid, but by attributing to “Walmart” facts allegedly known by different
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`employees, including those who had no hand in filling the disputed prescriptions.
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`That approach is contrary to established law and finds no basis in the CSA.
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`6
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`

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`
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`1.
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`A corporation acts with scienter only if a particular agent
`acts with the relevant state of mind.
`Agency law informs “[c]orporate criminal and civil cases” because “[a]
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`corporation and its agents relate to one another like a principal to its agents.” United
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`States v. One Parcel of Land, 965 F.2d 311, 316 (7th Cir. 1992). Under agency law,
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`“[i]f knowledge ... is the important element in a transaction[] and the agent who has
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`the knowledge is not one acting for the principal in the transaction,” the principal is
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`not charged with that knowledge. Restatement (Second) of Agency § 275 cmt. b
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`(1958); see also id. § 272. In those situations, “the principal is not affected by the
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`fact that the agent has the knowledge” and is not “responsible” for it. Id. § 275 cmt.
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`b; see also id. § 268 cmt. d; Restatement (Third) of Agency § 5.03 cmt. d (2006).
`
`Describing these longstanding principles, the Supreme Court has explained
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`that “the malicious mental state of one agent cannot generally be combined with the
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`harmful action of another agent to hold the principal liable.” Staub v. Proctor Hosp.,
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`562 U.S. 411, 418 (2011). That is, in seeking to establish corporate liability, the
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`Government cannot rely on the mental states of disparate employees who played no
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`role in the transaction or conduct in question.
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`Although the Government has never pursued this theory under the CSA,
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`courts in many other contexts have rejected using collective knowledge to establish
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`corporate liability. Imposing liability by piecing together the knowledge of various
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`agents and the acts of others misses the fundamental point of a scienter element.
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`7
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`

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`For example, the Fifth Circuit holds “as a general rule” that if “an essentially
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`subjective state of mind is an element of a cause of action,” it cannot “be met by a
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`corporation’s collective knowledge.” Chaney v. Dreyfus Serv. Corp., 595 F.3d 219,
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`241 (5th Cir. 2010). Instead, that “state of mind” must “‘actually exist’ in at least
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`one individual and not be imputed on the basis of general principles of agency.” Id.
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`Likewise, the D.C. Circuit has explained that the “collective knowledge” or
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`“collective pool of information” possessed by a corporation’s agents “provides an
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`inappropriate basis for proof of scienter,” and “expressed a good deal of skepticism
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`about corporate intent theories that rely on aggregating the states of mind of multiple
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`individuals.” United States v. Sci. Applications Int’l Corp., 626 F.3d 1257, 1273-
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`74, 1276 (D.C. Cir. 2010). Such theories lack “balance and precision,” in that they
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`“allow[] ‘a plaintiff to prove scienter by piecing together scraps of “innocent”
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`knowledge held by various corporate officials,’” not to mention “thousands of
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`ordinary employees,” even if no single agent took the forbidden act with the
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`forbidden intent. Id. at 1275.
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`Other circuits agree that corporate liability cannot be established through a
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`collective approach to scienter. See Mizzaro v. Home Depot, Inc., 544 F.3d 1230,
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`1254 (11th Cir. 2008) (looking to mental states of individual corporate officials);
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`Woodmont, Inc. v. Daniels, 274 F.2d 132, 137 (10th Cir. 1959) (rejecting “composite
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`knowledge” where state of mind was “essential”).
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`8
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`

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`
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`None of this is to say that the specific corporate agent with scienter must be
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`identified by name in the pleading, but the allegations must show that “someone
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`whose intent could be imputed to the corporation acted with the requisite scienter.”
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`Teamsters Loc. 445 Freight Div. Pension Fund v. Dynex Cap. Inc., 531 F.3d 190,
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`195-96 (2d Cir. 2008) (emphasis added).
`
`Put simply, “[a] corporation can be held to have a particular state of mind only
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`when that state of mind is possessed by a single individual.” First Equity Corp. v.
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`Standard & Poor’s Corp., 690 F. Supp. 256, 260 (S.D.N.Y. 1988) (Mukasey, J.).
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`To hold otherwise effectively “treats knowledge as a species of negligence, holding
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`corporations liable not for their knowledge, but for failing to maintain open channels
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`of communication.” Mihailis E. Diamantis, Functional Corporate Knowledge, 61
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`WM. & MARY L. REV. 319, 346-49 (2019). And doing that “punishes corporations
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`more than any intuitive reading of what Congress deemed just.” Id. at 349.
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`The Third Circuit has not directly addressed the collective-knowledge theory,
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`but district courts have “expressed doubts” it could cohere with circuit law, and have
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`rejected bids to establish liability without showing that “any individual employee”
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`involved in the misconduct had the requisite mental state. City of Roseville Emps.’
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`Ret. Sys. v. Horizon Lines, Inc., 713 F. Supp. 2d 378, 402-03 (D. Del. 2010).1
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`1 Accord ING Bank v. PNC Fin. Servs. Grp., 629 F. Supp. 2d 351, 355 (D.
`Del. 2009); In re Tyson Foods, Inc., No. 01-cv-0425, 2004 WL 1396269, at *12 (D.
`Del. June 17, 2004); Lind v. Jones, Lang LaSalle Ams., Inc., 135 F. Supp. 2d 616,
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`9
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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 18 of 43 PageID #: 262
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`
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`2.
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`The Government never alleges that any particular Walmart
`employee knew these prescriptions were invalid.
`Section 1306.04(a) imposes liability for “knowingly” filling a prescription
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`issued outside “the usual course of professional treatment.” Knowledge is thus an
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`“important element” in the “transaction” of filling the prescription. Restatement
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`(Second) of Agency § 275 cmt. b. The Government therefore cannot establish
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`corporate liability by relying on facts known to Walmart employees who did not
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`represent Walmart in—indeed, did not even know about—the specific transaction,
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`i.e., the specific act of dispensing. Rather, Walmart can be liable only if an employee
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`involved in that dispensing knew the specific prescription was invalid.
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`Despite these clear principles, the Complaint’s problematic-prescriber theory
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`does not even try to allege that any single Walmart agent knew any prescription was
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`invalid. Rather, the Complaint alleges that: (1) Walmart pharmacists filled certain
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`prescriptions from certain doctors; (2) other Walmart pharmacists had previously
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`refused to fill other prescriptions from those doctors; and (3) forms memorializing
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`622 n.6 (E.D. Pa. 2001); United States v. LBS Bank-New York, Inc., 757 F. Supp.
`496, 501 n.7 (E.D. Pa. 1990); see also In re Cognizant Tech. Sols. Corp. Sec. Litig.,
`No. 16-cv-6509, 2018 WL 3772675, at *31-34 (D.N.J. Aug. 8, 2018). District courts
`outside this Circuit have done the same. See, e.g., United States ex rel. Adams v.
`Dell Comput. Corp., No. 15-cv-0608, 2020 WL 5970677, at *6 (D.D.C. Oct. 8,
`2020); United States ex rel. Martin v. Life Care Ctrs. of Am., Inc., 114 F. Supp. 3d
`549, 567 (E.D. Tenn. 2014); United States ex rel. Heathcote Holdings Corp. v.
`William K. Walthers, Inc., 779 F. Supp. 2d 735, 738-39 (N.D. Ill. 2011); In re Cable
`& Wireless, PLC, 321 F. Supp. 2d 749, 771-72 (E.D. Va. 2004); Gutter v. E.I.
`Dupont de Nemours, 124 F. Supp. 2d 1291, 1311 (S.D. Fla. 2000).
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`10
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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 19 of 43 PageID #: 263
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`
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`those refusals revealed concerns about the doctors’ “prescribing practices.” Compl.
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`¶ 178. The Complaint concludes that “Walmart knew” of a “very high probability”
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`these doctors’ prescriptions were questionable. Id. ¶¶ 21, 179 (emphasis added).
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`That is an improper collective-knowledge theory. Indeed, the Complaint says
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`Walmart “did not notify its pharmacists” of refusals reported by other pharmacists.
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`Id. ¶ 179. So there is no claim that the dispensing pharmacists knew of others’
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`concerns with these doctors’ practices (let alone that any particular prescriptions
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`were invalid). Nor is there any allegation that the compliance team that collected
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`refusal-to-fill forms and shared them with DEA had any role in making the specific
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`dispensing decisions now being challenged—those decisions were made by Walmart
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`pharmacists at the pharmacy level. The compliance employees did not work at any
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`pharmacy, did not interact with the patients or prescribers, and were not even in a
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`position to form a belief about the validity of any particular prescription.
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`Instead, the Government tries to aggregate information known by different
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`Walmart employees and effectively impute it to the dispensing pharmacist. Some
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`pharmacists had concerns about certain doctors; some compliance employees knew
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`of those concerns; other pharmacists were presented with prescriptions from those
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`doctors. The Complaint combines that “knowledge” and attributes it to a dispensing
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`pharmacist who herself lacked scienter. Because the Government must prove a
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`knowing violation, the law forbids exactly this mixing-and-matching.
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`11
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`Case 1:20-cv-01744-CFC Document 27 Filed 02/22/21 Page 20 of 43 PageID #: 264
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`At bottom, the Government’s theory seems to be premised on a policy notion:
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`that Walmart’s compliance unit should have done more to analyze, share, or act on
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`information it received. To be clear, there is no allegation that anyone at Walmart
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`intended to keep pharmacists in the dark by withholding anything. The Complaint
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`simply alleges that Walmart lacked systems to analyze or share information with all
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`of its pharmacists. See, e.g., id. ¶¶ 148-51, 153, 156-58, 161, 164-65, 176, 179.
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`Even after Walmart adopted a new platform in 2015 to allow pharmacists to search
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`and review other pharmacists’ refusal-to-fill forms, the Government complains that
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`