Opening Salvos in the Opioid Litigation Wars

State attorneys general from 41 of the 50 states are investigating the opioid industry. New York Attorney General Eric Schneiderman said he is committed to “using every tool at our disposal” to pursue the $500 billion Big Pharma industry, and has unleashed Martin Act subpoenas upon numerous opioid manufacturers and distributors. The press release put out by the Attorney General of Connecticut, George Jepsen, urges haste:

We recognize that time is our enemy and that we should pursue all means to ease this crisis as quickly as possible. For that reason, we have encouraged and will continue to encourage the pharmaceutical industry – both manufacturers and distributors – to engage constructively with the attorneys general towards meaningful agreements that may be achievable sooner than full-scale investigations and litigation may permit. As we have shown in other contexts, broad coalitions of attorneys general can effectively impact national problems through litigation or settlements, often more effectively than they can when acting alone. Our collective efforts are particularly important at a time when many Americans despair about the capacity of government to function effectively in the face of challenges. (Emphasis added)

Connecticut AG Jepson’s announcement of the meteoric rise in the number of states joining in the investigations, his jab at legislative passivity while flexing that most unlawful of state powers—namely, regulation by litigation—and the anything-but-subtle suggestion of a fast settlement bodes ill for the rule of law.

Those who watched this play out in the 1990s with the tobacco and gun companies will recognize that a multi-billion dollar settlement of these amassed claims is likely on the horizon. The Financial Times has predicted a “tidal wave” of litigation that will snowball into a global settlement. Once an industry finds itself in a position where it faces a plaintiff at every level of government in nearly every state, cities, towns, counties and states jostle to put their claims into suit to get a piece of the action, “particularly when it doesn’t cost politicians anything,” as Richard Ausness, a professor at the Kentucky College of Law, told the FT.

Which leads to the heart of the question. Any settlement will likely follow the template of the tobacco Master Settlement Agreement, a quarter of a trillion-dollar wealth transfer that bloated state governments, levied unlegislated and cruelly regressive taxes on smokers, and sent $20 billion in unappropriated public money to the state AGs’ favorite donors: the mass-tort trial lawyers who have become government-financed Lawyer Barons.

A similar settlement on opioids would temporarily ease fiscal crises in the many states that have frittered away their tobacco-settlement money; but it would only encourage more such lawless and unlegislated regulation of other targets. Furthermore, it will lead to higher pharmaceutical prices and higher healthcare costs and premiums, in a process that is utterly opaque to the public, taxed without representation to enrich the lawyers (many of them former state Attorneys General stepping into a self-engineered path to personal wealth) and the governments with which they are in league.

The term “regulation by litigation” was coined by Robert Reich, Secretary of Labor in the Clinton administration. To his great credit, in 2000, Reich leveled a blistering charge that these governmental prosecutions were “blatant end-runs around the democratic process” prosecuted with the goal of “threatening the industries with such large penalties that they’ll agree to a deal,” so that “no judge will ever scrutinize these theories.”

Added Reich:

We used to be a nation of laws, but this new strategy presents an entirely novel means of legislating—with settlement negotiations of large civil lawsuits initiated by the executive branch. This is nothing short of faux legislation, which sacrifices democracy to the discretion of administration officials operating in utter secrecy.

Dickie Scruggs, a billion-dollar player in this game, calls it a three-legged stool, of which litigation is the shortest because these cases, brought on dubious legal theories, are “designed to settle.” As Peter J. Boyer wrote in the New Yorker, “the most important player in Scruggs’ informal syndicate was his law school classmate Mike Moore,” Mississippi’s AG at the time of the tobacco litigation, and now an aspiring opioid lawyer for a large consortium of states. Alliances of states are the second leg of the stool, and Scruggs, the impresario of one such alliance, earned over $1 billion in fees because he could bring the power of the states to bear upon these mass tort claims. The trial bar assembles a critical mass of state AGs, piles on billion-dollar claims, and demands discovery so onerous as to force a settlement.

The third leg is to demonize the target in a concerted public relations campaign using heightened rhetoric broadcast by a doting media—and not a day goes by without articles about the opioid epidemic creating a “state of emergency.” These concerted suits and blistering PR rattle Wall Street and scare off investors, a big incentive to push the industry to the table.

Regulation by litigation is a liberating way to practice law. Practitioners like Scruggs admit that “it doesn’t matter what the evidence or the law is.” (Boyer quoted Scruggs’ words from a 2002 panel discussion.) Those engineering the tobacco and gun lawsuits on equally dubious theories in the 1990s confessed that “these cases are not made to win, they are made to settle.”

As to whether these cases would be an effective way to address the problem of opioid addiction, we can say that the press has wised up a little since the 1990s. In a radio piece entitled, “Opioids as the New Big Tobacco,” NPR’s Ailsa Chang trenchantly concluded her interview of Joe Rice, one of the wealthiest of the tobacco litigants, noting that “the tobacco money was never all that useful in preventing addiction.” The Atlantic’s Alana Semuels examined the question, writing that “there’s reason to believe that the windfall, if there is any, from the recent spate of opioid lawsuits may also not be helpful in stopping abuse.” Semuels adds: “there may be no way to guarantee that states are using the money to address opioid addiction,” and concludes: “In the end, looking for someone to blame for the epidemic might be less useful than figuring out how to stop it.”

A compelling reason to watch this situation closely is that a quick settlement allows the Lawyer Barons to siphon off a huge percentage of a multi-billion dollar global settlement and claim it’s a done deal. One clue that this may be happening even as we speak is the Lawyer Barons’ lack of transparency about the fees. In the NPR interview, reporter Chang asks Joe Rice: “May I ask how much money you personally made in the tobacco cases?” His response: “You may ask. I’m not going to answer.”

Similarly, Americanlawyer.com’s reporter got this opaque response from the office of the Attorney General of Kentucky, which “did not provide details about the contingency-fee agreement or the amount recovered by plaintiffs lawyers” in a prior settlement with opioid producers. Interviewed by the Wall Street Journal, Moore, the former Mississippi AG (who, like several former state attorneys general, is now one of the aspiring Lawyer Barons) feigns a studied indifference: Moore “said he had no agreement specifying how he would be paid. It ‘doesn’t concern me.’”[1]

More attention ought to be paid to the Compacts Clause of the U.S. Constitution. The clause provides, in Article 1, section 10: “No State shall, without the Consent of Congress . . . enter into any Agreement or Compact with another State.” The anticipated multistate “global” settlement will involve just this. Widely ignored in the tobacco and other mass settlements, this seldom-enforced clause is a powerful means to put an end to this lawless, costly, and unlegislated form of regulation.

The American legal system, for all its flaws and excesses, used to enjoy the support of most Americans, and command widespread respect abroad. These suits, which flout the rule of law, turn state AGs into hosts of “Who Wants to Be a Billionaire?”, courts into mere functionaries presiding over “Let’s Make a Deal,” and legislatures that have abdicated the exercise of their lawmaking and spending powers into passive and illicit revenue recipients of government for sale—when “The Price is Right.”

[1] Jeanne Whalen, “Lawyers Hope to Do to Opioid Makers What they Did to Big Tobacco,” Wall Street Journal, July 23, 2017.