In re Opioid Litig.

Full title: IN RE OPIOID LITIGATION

Court: SUPREME COURT - STATE OF NEW YORK NEW YORK STATE OPIOID LITIGATION PART 48 - SUFFOLK COUNTY

Date published: Apr 9, 2020

2020 N.Y. Slip Op. 30937 (N.Y. Sup. Ct. 2020)

Opinion

INDEX NO. 400000/2017

04-09-2020

IN RE OPIOID LITIGATION

HON. JERRY GARGUILO SUPREME COURT JUSTICE

NYSCEF DOC. NO. 5639

SHORT FORM ORDER

ORIG. RETURN DATE: 2/26/20
FINAL SUBMITTED DATE: 2/26/20
MOTION SEQ #146, 147, 149, 151, and 160
MOTION: MOTNDECD PRESENT: HON. JERRY GARGUILO SUPREME COURT JUSTICE

DECISION AND ORDER ON PHARMACY DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

Submitted to the court for decision are the following motions: (i) Motion Sequence No. 146, joint motion of Pharmacy Defendants (CVS Pharmacy, Inc., Rite Aid of Maryland, Inc., Rite Aid of New York, Inc., Walgreen Co., Walgreen Eastern Co., and Walmart Inc.) for summary judgment; (ii) Motion Sequence No. 147, individual motion of defendant Walmart for summary judgment; (iii) Motion Sequence No. 149 of Rite Aid of Maryland, Inc. and Rite Aid of New York, Inc. for summary judgment; (iv) Motion Sequence No. 151 of defendants Walgreen Co. and Walgreen Eastern Co. for summary judgement; and (v) Motion Sequence No. 160 of CVS Pharmacy, Inc. for summary judgment.

Upon review of all of the above-referenced motions of the Pharmacy Defendants, joint and individual, as well as all opposition submitted thereto by Plaintiffs Nassau County and Suffolk County, and the reply papers of the Pharmacy Defendants submitted in further support of their joint and respective motions, the Court grants the motions in part, and denies the motions in part, as explained below.

In this action, the Pharmacy Defendants have been sued by Nassau and Suffolk Counties both in their capacities as dispensers and distributors of prescription opioids. The court analyzes the claims against the Pharmacy Defendants in their capacities as dispensers, and distributors, of prescription opioids, separately.

CLAIMS AGAINST PHARMACY DEFENDANTS AS DISPENSERS OF

PRESCRIPTION OPIODS

The Pharmacy Defendants argue that: "The obligation to evaluate a prescription resides not at the corporate level, but rather at the level of the individual pharmacists, and it arises when the pharmacist is presented with a prescription." NYSCEF No. 2564, at 7. The Pharmacy Defendants also argue: "Dispensing transactions are also different from distribution transactions because prescription medications can be dispensed only by a licensed pharmacist to an individual patient, who has presented a valid prescription from a licensed prescriber." Id., at 8.

It is instructive to review what the County Plaintiffs themselves have said about the basis for the alleged liability of the Pharmacy Defendants with respect to their dispensing duties:

In addition to the obligations they owe as distributors, the Chain Pharmacies are subject to additional duties that require them to ensure that opioids are dispensed pursuant to legitimate prescriptions. Specifically, as dispensers of opioids, the Chain Pharmacies are required to ensure that the prescriptions dispensed at their stores are dispensed pursuant to a legitimate prescription, and must not fill prescriptions without resolving 'red flags' of diversion. These duties are not limited to individual

pharmacists or particular retail stores, or to the company that holds the CSA registration for dispensing controlled substances. Rather, the corporate parent of the retail pharmacy stores is obliged to ensure that prescriptions are dispensed only pursuant to valid and medically legitimate prescriptions.⁸⁸

NYSCEF No. 3715, at 42.

88 The Chain Pharmacies before this Court are not the individual retail stores operated by each chain, but rather the parent corporations that own the stores. The duties at issue here are the duties owed by these parent corporations, based on the dispensing activities of the stores they own.

The Plaintiffs explain the basis for why they believe the Pharmacy Defendants have liability for the conduct of their subsidiaries as follows:

The responsibility for dispensing is not limited to pharmacists, pharmacies, or holders of DEA dispensing registrations. Rather, the corporate parent of a pharmacy may be responsible for the dispensing practices of its pharmacies and pharmacists. See United States v. City Pharmacy, LLC, No. 3:16-CV-24, 2016 WL 9045859 (N.D. W.Va. Dec. 19, 2016); United States v. Stidham, 938 F. Supp. 808, 814 (S.D. Ala. 1996); Poulin, 926 F. Supp. at 250, 253; United States v. Robinson, No. 12-20319-CIV, 2012 WL 3984786 (S.D. Fla. Sept. 11, 2012). This is so regardless of whether the parent is a CSA registrant or whether the parent is the entity or person actually doing the dispensing.

Id., at 47.

The Plaintiffs have not demonstrated why the retail chain Pharmacy Defendants have vicarious liability for the conduct of their subsidiaries. The cases cited by Plaintiffs are all federal cases construing the federal Controlled Substances Act ("CSA"), and the circumstances under which a non-registrant owner may nonetheless have liability under the federal CSA. That there may be liability for a non-registrant owner under the federal CSA, however, is not instructive as to whether the corporate parent would have personal liability for the dispensing conduct of its subsidiaries under New York law in a common law public nuisance cause of action.

It has long been the law of New York that a parent corporation, by mere virtue of its stock ownership of a subsidiary corporation, is not liable for the torts of the subsidiary. See, e.g., Berkey v. Third Avenue Railway Co., 244 N.Y. 84, 87 (1926) (Cardozo, J.). As explained by the Court of Appeals in Billy v. Consolidated Machine Tool Corp., 51 N.Y.2d 152, 163, 432 N.Y.S.2d 879, 885-886 (1980):

As a general rule, the law treats corporations as having an existence separate and distinct from that of their shareholders and consequently, will not impose liability upon shareholders for the acts of the corporation. Indeed, the avoidance of personal liability for obligations incurred by a business enterprise is one of the fundamental purposes of doing business in the corporate form. It is true that on occasion, the courts will disregard the separate legal personality of the corporation and assign liability to its owners where necessary 'to prevent fraud or to achieve equity'. But , such liability can never be predicated solely upon the fact of a parent corporation's ownership of a controlling interest in the shares of its subsidiary. At the very least , there must be direct intervention by the parent in the management of the subsidiary to such an extent that 'the subsidiary's paraphernalia of incorporation , directors and officers' are completely ignored.

(Citations omitted, emphasis supplied.)

In Musman v. Modern Deb, Inc., 50 A.D.2d 761, 377 N.Y.S.2d 17 (1^st Dep't 1975), the Plaintiff was a discharged employee who sought to hold his employer's parent corporation liable for a judgment entered against the subsidiary, which was insolvent. In seeking to hold the parent corporation liable, the Plaintiff pointed out that pursuant to his employment agreement he was required to perform certain services for the parent corporation, as well as two other subsidiaries of the parent, in addition to his primary duties for Modern Deb, Inc., the insolvent subsidiary.

The trial court had found the parent corporation liable, holding that the distinction between the parent and subsidiary corporations was illusory and the parent actively controlled the subsidiary, which became an integral part of the operations of the parent. Id. at 762, 377 N.Y.S.2d at 20. In reversing judgment and dismissing the complaint against the parent corporation, the First Department stated:

It is well settled that there must be complete domination and control of a subsidiary before the parent's corporate veil can be pierced. Stock control, interlocking directors and officers, and the like are in and of themselves insufficient. The control must actually be used to commit a wrong against the Plaintiff and must be the proximate cause of the Plaintiff's loss. (Lowendahal v. Baltimore & Ohio RRR Co., 247 App.Div. 144, 287 N.Y.S. 62 (1^st Dep't 1936).

Id. (emphasis supplied).

The standard established by the Appellate Division in Musman as to the extraordinary circumstances that must exist before a parent corporation will be held liable for the obligations of its subsidiary has been consistently applied. See, e.g., Horowitz v. Aetna Life Insurance Company, 148 A.D.2d 584, 586, 539 N.Y.S.2d 50, 53 (2d Dep't 1989) ("A parent company is not liable for the torts of its subsidiary, even if it is a wholly owned subsidiary, unless it can be shown that the parent's control over the subsidiary disregards its corporate independence") (granting CPLR §3211 motion dismissing complaint against parent corporation); Gulf & Western Corp. v. New York Times Co., 81 A.D.2d 772, 773, 439 N.Y.S.2d 13, 15 (1^st Dep't 1981) ("A parent or affiliated corporation will not be held liable for the contractual obligation of a subsidiary or affiliate, unless it is exercising complete domination and control in that matter ")(granting motion to dismiss complaint against parent corporation)(emphasis supplied).

The separate identities -- and liabilities -- of a parent corporation and its subsidiary is a long-standing and well-established legal concept routinely taught in law schools. In Ahearn v. Gluck, 243 A.D.2d 431, 663 N.Y.S.2d 60 (2d Dep't 1997), the Appellate Division reversed Special Term, and granted the motion of the third-party defendant Bank of New York to dismiss the third- party complaint against it, inasmuch as it alleged nothing more than it was the parent of the Bank of New York Financial Corp., with whom the third-party Plaintiff had dealings.

Indeed, under New York law there is a "presumption of separateness" between a parent and subsidiary corporation. Celi v. Canadian Occidental Petroleum Ltd., 804 F.Supp. 465, 468 (E.D.N.Y. 1992). In order to rebut this presumption of separateness, it must be shown not only that the subsidiary is a "mere instrumentality" of the parent, but that the subsidiary "is being used by the parent corporation in order to commit or conceal a fraud." Id. There is no evidence in Plaintiffs' motion which would rebut the "presumption of separateness," and warrant the "piercing of the corporate veil" of the Pharmacy Defendants. Indeed, Plaintiffs do not even make an attempt in their motion to suggest that there is any such evidence.

Accordingly, the Court grants the motions of the Pharmacy Defendants for summary judgment on the public nuisance cause of action only, to the extent that the Pharmacy Defendants have been sued in their capacities as dispensers of prescription opioids.

CLAIMS AGAINST PHARMACY DEFENDANTS AS DISTRIBUTORS

To the extent that the retail chain Pharmacy Defendants have been sued on the public nuisance cause of action in their capacity as Distributors, triable issues of fact preclude the Pharmacy Defendants from being granted summary judgment for the same reasons set forth in this Court's decision and order denying the Distributors' motion for summary judgment, decided herewith.

This decision and order is limited to the public nuisance cause of action interposed against the Pharmacy Defendants by Nassau and Suffolk Counties, which is the subject of the phase one liability only trial on the public nuisance cause of action, and does not address any other cause of action.

The foregoing constitutes the decision and order of this court on motion sequences 146, 147, 149, 151, and 160. Dated April 9, 2020

/s/_________

HON. JERRY GARGUILO, J.S.C.