By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Last Tuesday, the Department of Justice (DoJ) filed a civil lawsuit against Walmart alleging that the company “unlawfully dispensed controlled substances from pharmacies it operated across the country and unlawfully distributed controlled substances to those pharmacies throughout the height of the prescription opioid crisis.”
According to the DoJ:
The complaint alleges that this unlawful conduct resulted in hundreds of thousands of violations of the Controlled Substances Act (CSA). The Justice Department seeks civil penalties, which could total in the billions of dollars, and injunctive relief.
The result of a multi-year investigation by the department’s Prescription Interdiction & Litigation (PIL) Task Force, the complaint filed in the U.S. District Court for the District of Delaware alleges that Walmart violated the CSA in multiple ways as the operator of its pharmacies and wholesale drug distribution centers. The complaint alleges that, as the operator of its pharmacies, Walmart knowingly filled thousands of controlled substance prescriptions that were not issued for legitimate medical purposes or in the usual course of medical practice, and that it filled prescriptions outside the ordinary course of pharmacy practice. The complaint also alleges that, as the operator of its distribution centers, which ceased distributing controlled substances in 2018, Walmart received hundreds of thousands of suspicious orders that it failed to report as required to by the DEA. Together, the complaint alleges, these actions helped to fuel the prescription opioid crisis.
Walmart faces significant civil penalties, but no criminal charges. According to the DoJ:
If Walmart is found liable for violating the CSA, it could face civil penalties of up to $67,627 for each unlawful prescription filled and $15,691 for each suspicious order not reported. The court also may award injunctive relief to prevent Walmart from committing further CSA violations.
Trump DoJ Eschews Criminal Corporate Charges, Following Predecessor’s Policy
Wait a minute. I thought the penalty for drug pushing, particularly for controlled substances, was jail time. Not just big fines. But apparently, I’m mistaken. Beginning in earnest under Trump’s predecessor, the DoJ largely stopped bringing criminal charges against corporations and their officers for most of the alleged wrongs they commit, confining its charges to civil ones alone. Now the Trump DoJ has continued to follow a similarly relaxed approach, even to corporate drug pushing policies.
The misguided policy first put forward by Obama Attorney General Eric Holder – the so-called ‘Holder Doctrine’ – eschewed criminal charges against corporations and their officers, The Obamamometer’s Toxic Legacy: The Rule of Lawlessness. As regular readers are well aware, the erosion in the rule of law in these United States thus well predates Trump, as I wrote in that 2016 post summarizing the Holder Doctrine and its consequences:
Federal prosecutors, and regulatory agencies, have turned into toothless tigers when it comes to prosecuting C-suite types, and pursuing corporations seriously, for economic crimes. Both financial institutions and their management got virtually a free pass for their activities that led to the Great Recession. And not only for those, but for subsequent foreclosure abuses, LIBOR and other market manipulations, money laundering, tax scams, and doing business contrary to US sanctions policy. Yet to date, not a single C-suite type has been indicted.
It’s not just financial institutions that’ve received a free pass. Big Pharma, for example, has also been lucky, as have companies that have engaged in creative tax minimization strategies (Apple, anyone?). And if looked at from the perspective of legal topics, rather than corporate actors, entire areas of law– antitrust, for example– are not really relevant anymore.
You don’t have to take my word for it. No less a source than the NY Times’ DealBook column– not a venue, incidentally, renowned for its trenchant, timely critiques of either Wall Street or other corporate behavior– in September lamented, Law Enforcement ‘Not Winning’ War on White Collar Crime. I wrote about this article in a September post and so won’t rehash all the arguments I made then here. But a few points are in order.
The lack of enforcement not only means that the guilty don’t pay. It also determines what corporate strategies get pursued, which business models are developed or rejected, what attitudes corporations take to risk, and how resources get allocated to name just a few consequences. And as I’ll discuss below, it also shapes how attorneys practice law, and the impact their advice carries in deterring certain types of corporate behavior.
I never thought I’d be nostalgic for President George W. Bush’s Department of Justice (DoJ). Now, I’m well aware of the scandal that ensued over Attorney General Alberto Gonzales imposing ideological litmus tests on assistant US attornies. Nonetheless, in the wake of the collapse of the dotcom bubble, the Bush DoJ actually enforced the law. It prosecuted cases and claimed scalps. Companies such as Adelphi, Enron and WorldCom all saw top-level management prosecuted, and malefactors sent to jail.
Alas, you’d never know this if you relied on the mainstream media to parse the Trump record – particularly its record relative to its predecessor. So, in a discussion of three possible candidates for Attorney General, the Washington Post, As Biden zeroes in on attorney general pick, some worry one contender is too moderate on criminal justice issue, sees the task:” As President-elect Joe Biden seeks an attorney general who can restore public faith in the Justice Department as an independent law enforcement institution while boosting internal morale, federal appeals court judge Merrick Garland has consistently found himself on the shortlist.” Jerri-Lynn here (my emphasis):
Garland is among three people, all former federal prosecutors, who remain under consideration by Biden for the attorney general job, according to people familiar with the discussions. The others are Sen. Doug Jones (D-Ala.), who lost his reelection bid, and former deputy attorney general Sally Yates.
Note that the Post piece focuses on criminal justice reform and sentencing, and to the extent it mentions Holder, emphasizes those elements of his record. The article is silent on the approach Biden prosecutors will pursue on prosecuting corporations and how aggressive they will be.
Ongoing Opioids Litigation
I want to mention in passing the status of other significant opioids litigation, where the Trump DoJ has pursued some lawsuits as part of its overall opioids policy. Alas, the COVID-19 pandemic has delayed the trial of the most significant of these, one of the largest civil cases ever brought in U.S. courts, according to the Washington Post, Coronavirus stalls long-awaited day in court for historic opioid lawsuit:
More than 3,000 cities, towns, Native American tribes and other groups have spent years preparing for trials against the nation’s largest drug manufacturers, distributors and pharmacies, alleging that the companies flooded their communities with prescription pills that fueled the opioid epidemic. But the pandemic has stalled their long-awaited day in court: Since the beginning of December, two federal trials have been delayed — a May 2021 trial in Cleveland against pharmacy chains was pushed to next October and a January trial in West Virginia was put off with no rescheduled date.
“The concept of a speedy trial or the right to a trial, we’ve lost that,” Joe Rice, one of the lead attorneys for the plaintiffs, said the day Cleveland’s trial was postponed.
That pushes off resolution of the dispute. And with the trial delayed, the defendants have little incentive to press for settlement. According to the Post:
The pandemic has delayed a resolution of the legal dispute by at least a year, Rice estimates, adding that other delays could push the next trial to late spring or early summer of 2021. Meanwhile, the pandemic has worsened the opioid crisis, which has caused more than 400,000 overdose deaths in the past two decades. More than 81,000 people died of drug overdoses in the 12 months ending in May 2020, a record high, the Centers for Disease Control and Prevention reported Dec. 17.
It is unlikely that the firms being sued will push for a settlement while there is no pending trial, the plaintiffs and legal experts following the litigation predict. A $260 million settlement between two Ohio counties and four drug companies put off the first federal trial in October 2019 when the agreement was reached hours before opening arguments were scheduled to begin.
The Bottom Line
Dealing with the opioid crisis now becomes the responsibility of the Biden DoJ. Given how badly the Democrats muddled U.S. policy towards corporate prosecutions – particularly the issue of bringing corporate charges – I have little confidence that we’ll see any significant tightening in this regard. And that’s likely good news for Walmart. Wouldn’t do for prosecutors to take the same approach to their drug pushing that the NYPD took to the petty dealers in my neighborhood in the late 90s before it gentrified.