Courtesy of the judiciary, the American public may soon pay for a billion-dollar wealth transfer from the pharmaceutical industry to state and local government.
State and federal civil opioid cases by governments to recover money from the industry have mounted into the thousands, including satellite litigation and appeals to federal appellate courts to sort out the standing and legal basis of states vs. cities and counties to even bring such cases. Meanwhile, a state court in Oklahoma rendered a $572M verdict against Johnson & Johnson, utilizing a novel theory of public nuisance law that is—or should be—vulnerable on appeal. The lawyers in the Oklahoma case, large contributors to the state AG’s campaign, stand to make $90M on that case, if the decision holds up on appeal.
Yet courts in New Haven, CT, North Dakota, and now Hawaii have thrown out the cases altogether, with the Connecticut judge calling the suit “junk justice” and adding that “any distribution of money among the cities would look more like the distribution of alms from the community chest than like the judgment of a court of competent jurisdiction.” The judge also noted that plaintiffs had failed to establish causation and sought to “gain money solely for themselves,” but “not to vindicate the public interest as a whole.” The North Dakota judge ruled that neither the state nor the Eighth Circuit Court of appeals had extended public nuisance statutes to cover sales of goods, and that a drug manufacturer cannot control how doctors prescribe or patients use the drug. A Delaware judge dismissed the state AG’s nuisance claims, leaving only the state’s fraud claims alive, claims that might prove difficult to sustain given that this is such a highly regulated pharmaceutical.
The Pathologies of Regulation by Litigation
Ongoing Multi-District Litigation (MDL) proceedings before Judge Dan Polster in Ohio Federal Court has descended into chaos, with federal and state courts battling it out for control of the beast. The judge himself has disdained any interest in the law or evidence, and has pushed for a rush to settlement almost from the time the case was assigned to him. He has approved an unprecedented device called a negotiation class, seeking to allow contingency fee attorneys to certify all 24,500 local governments as parties for which they can enter into binding and conclusive settlements, when no attorney client relationship exists between counsel and this client-by-almanac roster. State AGs are in state courts, the local governments are in federal court, and the whole thing is a Byzantine agglomeration of weak theories, financed and fueled by lawyer avarice brought to a fever pitch by a well-orchestrated media frenzy that advance the trial lawyer’s narrative over solid science. Further, the federal government has now demanded reimbursement for its 62% share of Medicaid payments recovered in a 2017 Oklahoma settlement with Perdue, something apparently not thought through by the state, although the same issue had plagued the tobacco settlement twenty years ago.
In short, opioid mass tort litigation is exhibiting the full-blown pathologies of an idea—regulation by litigation—that from its inception in the late 1990s flouted the rule of law and state and federal constitutional provisions. Worst of all, it effectuates and perpetrates tragically lethal and misguided public policy.
Boastfully modeled on the tobacco litigation of the late 1990s, opioids litigation is preordained to have an afterlife of maddeningly complex litigation clogging the courts like Kudzu. A robust and fearless reexamination of the mechanisms that have allowed such initiatives to exert such a lawless and powerful influence on our courts, our public governance, public health and our economy is long overdue.
The Tobacco Legacy
Over twenty years have passed since the tobacco settlement. It is now widely understood to be a legal, economic, political and public policy failure that did not benefit a single smoker. Moreover, the public nuisance theory upon which opioid and tobacco litigation rests “was not validated in [a] single tobacco case.” Miniscule percentages of the massive settlement went to smoking cessation education, with little evidence of the efficacy of those efforts. The settlement resulted in the steepest price rise for tobacco products in history. This means that smokers financed payments to the states under the settlements thus unwittingly bloating state treasuries with off-budget revenue spent on unbudgeted state spending sprees to the tune of a quarter of a trillion dollars. Worse, smokers made billions for the litigators because their steep prices also financed the payments to the state lawyers by the tobacco companies. Tobacco’s master settlement agreement is a license in restraint of trade that violates both state and federal antitrust laws, violates the Federal Constitution’s Compacts Clause, and resulted in cruelly regressive taxation without representation of smokers—that unrepresented, low-income, politically powerless group of Americans with an inelastic demand for a lethal, but legal product.
The handout of $20 billion in legal fees to the tobacco lawyers as well as the state AG’s acceptance of financial contributions to prosecute the disfavored industry violated many state constitutional fiscal laws and state and federal due process. No public official is authorized to divert 25% of the state’s recovery to private lawyers without legislative approval (which was and is lacking in these deals) by the branch that possesses the power of the purse. Similarly, no public official is allowed to accept those lawyers’ payments advancing the costs of the litigation, as state (and federal) laws prohibit such outside funding of government prosecutions. Finally, the direct personal financial stake in the outcome by the private lawyers violate both state and federal due process clauses and ethics laws. The later arbitration awards of fees—designed to make them unreviewable in the courts—were bestowed by laughably conflicted arbitrators doling out public money to private lawyers—entirely out of the public eye. The post-settlement fee fights among the “lawyers of the Sierra Madre” will be epic and are sure to also end up in arbitration where they will be shielded from public scrutiny. Finally, the states’ tobacco bond securitization has threatened the solvency of states.
The economic legacy of the tobacco litigation is that state AGs and their recurring band of contingency fee profiteers have devised a way for the states to collect highly regressive taxes both in and outside their borders, in return for a large piece of the action. And these are taxes that no state AG legitimately has the power to levy, as that power rests solely in the legislature. These taxes, levied in stealth, siphoning off billions that properly belong to the governments, are handed over to lawyers whose contracts would not hold up if ever challenged in court. This is because no state official, not even the highest, has any power to create an obligation of the state, either legal or moral, unless there has first been a specific appropriation of funds to meet the obligation. The object of such constitutional provisions is to secure regularity in the disbursement of public money, and to prohibit expenditures of public funds at the mere will and caprice of those having the funds in custody, without direct legislative sanction therefor. Funds must be first deposited in the state treasury, subject to appropriations for their disbursement, and this is true regardless of the source from which the funds are derived.
And in the case of opioids, as in tobacco, the states all along had powers of taxation that they could have exercised in a public and accountable way, taking into consideration the interests of abusers, responsible users, industry, government, medical and pharmaceutical providers.
The tobacco settlement left a legal legacy of shredded state constitutional provisions and fiscal laws, and violation of state separation of powers in its wake. Reporting on the corrupt and corrupting effects of these illegal contracts won The New York Times a Pulitzer Prize in 2015 for their investigation, and yet the practice persists unchallenged because there simply is not a more lucrative field for lawyers, plaintiff and defense. So it continues unchallenged in the courts that serve not as adjudicators of law, but dealmakers doing the bidding of the bar.
The Lethal Effects of the Illegally Financed Opioids Litigation
The opioid litigation will have the same dire effects on the rule of law as the tobacco deal because they are, in the words of Robert Reich, “blatant end-runs around the democratic process.” Opioid cases stretch public nuisance law beyond anything it was meant to address. This leads to troubling unintended consequences such as interference with physician judgment and patient access to what is already a highly regulated, approved and helpful drug for those suffering from chronic pain. By influencing the availability of opioids, it has resulted in tragically higher mortality among those who turn to fentanyl and street drugs. Years of sustained litigation against the industry, doctors, distributors and pharmacies has resulted in drastic reduction of supply of prescription opioids. This means that real pain sufferers as well as veterans in VA facilities are denied access to pharmaceuticals they need, increasing suicide and alternate drug use. A recent book, compiling extensive empirical work exposing “a tight-knit network of repeat players and judges who use government power to push and enforce private deals,” concludes that this unchecked mass tort dealmaking has bulldozed the legal process into a forum for mass settlements, at the cost of the public’s faith in the system’s legitimacy and even the rule of law.
The wrong parties are at the table trying to address through litigation a crisis that courts were not designed to address. The illegality of the financing of the litigation by contingent fee lawyers is obvious to anyone who has taken a high school civics class, or who believes in transparency and accountability with respect to public funds and knows that governmental functions ought to be performed by salaried public officials, as required by law, not their cronies with a stake in the outcome. The unlawful wealth transfers of public money that work to finance the replication and perpetuation of this unimaginably lucrative scheme should be called out for what they are—illegal. Opioid litigation’s devastating, tragic consequences need to be exposed, for it cruelly exacerbates the plight of chronic pain patients, and, in the case of suicides and fentanyl or street drug abuse, even kills the very population for whom it cynically purports to do justice.