Walmart successfully defends against shareholder lawsuit regarding disclosure of opioid probe information

Walmart emerged victorious in a legal battle against shareholders who alleged that the company failed to disclose a federal investigation into its opioid-dispensing practices. The 3rd U.S. Circuit Court of Appeals in Philadelphia ruled in favor of Walmart, stating that the retailer did not commit securities fraud by waiting until June 2018 to disclose the investigation, even though the probe had commenced 1-1/2 years earlier and a Texas prosecutor had expressed intentions to indict Walmart 10 weeks before the disclosure.

The investigation into Walmart’s opioid practices came to light after federal agents conducted a raid at one of its stores, seeking records related to two Texas doctors who were prescribing large quantities of painkillers. While the company was not indicted, it faced a civil lawsuit from the U.S. Department of Justice in December 2020, with a trial set for November 2027. Walmart operates over 5,000 pharmacies under the Walmart and Sam’s Club brands.

Shareholders initiated legal action against Walmart following a report by ProPublica in March 2020, which highlighted the near-indictment threat. The news led to a 5.1% drop in Walmart’s share value, resulting in a $16 billion loss in market capitalization. Further decline occurred after the Justice Department announced the civil lawsuit against the retailer.

In a unanimous decision on Friday, Circuit Judge Anthony Scirica emphasized that not all non-disclosures constitute securities fraud. He pointed out that Walmart’s actions were not misleading, as the company disclosed the investigation once its scope became clear. The court held that the investigation did not represent a liability or probable liability for Walmart, and the company’s subsequent disclosures were sufficient to inform shareholders of the situation.

The ruling upheld a previous dismissal by Chief Judge Colm Connolly of the Delaware federal court in April 2024. Responding to the decision, Walmart expressed satisfaction with the outcome, while lawyers for the shareholders refrained from providing immediate comments. Walmart had previously settled opioid-related claims by various governments with a $3.1 billion nationwide agreement in November 2022.

The case, known as In re Walmart Inc Securities Litigation, was heard in the 3rd U.S. Circuit Court of Appeals under docket number 24-1818. The legal proceedings underscore the complexity of disclosure requirements for public companies and the importance of transparent communication with shareholders in addressing investigation-related developments.