Their response: “The nation’s top three drug distributors—McKesson, AmerisourceBergen and Cardinal Health—have verbally offered a $10 billion settlement with state attorneys general, according to the news service. AGs hit back with a much higher demand of $45 billion”
By Mark A. York (August 8, 2019)
(MASS TORT NEXUS MEDIA) Opiate drugmaker stocks fell sharply after Bloomberg reported that a coalition of state attorneys general had demanded $45 billion from the three leading drug distributors in the U.S. to settle litigation over opioids.
According to Bloomberg, the counteroffer came after the distributors proposed a $10 billion settlement. The reported offers were made in negotiations between the National Association of Attorneys General andMcKesson (ticker: MCK), Cardinal Health (CAH), and AmerisourceBergen(ABC).
The report appears to be spooking investors. Shares of Cardinal were down 6.4% in afternoon trading, McKesson fell 5.9%, and AmerisourceBergen declined 6.1%.
Generic drugmakers also suffered large drops – . Teva Pharmaceutical Industries(TEVA) was down 8.7%, Mylan (MYL) was down 6.6%, and Endo International(ENDP) and Mallinckrodt (MNK)—which both released earnings Tuesday—were down 19% and 11.7%, respectively.
Those amounts appear to be far higher than investors expected. In a note Tuesday, Evercore ISI analyst Ross Muken wrote that investors he had spoken with had expected the distributors to pay $5 billion.
The motion excludes state attorneys general, some of whom have brought lawsuits in state courts across the country, and sets up a procedure in which 24,500 cities, counties and other smaller governments could resolve their claims. It comes two days after Alabama Attorney General Steve Marshall voluntarily dismissed the state’s case in federal court and as Oklahoma Attorney General Mike Hunter is in the midst of the first opioid trial in the nation against manufacturer Johnson & Johnson.
Ohio AG Response
The Ohio AG wrote a letter to Federal Judge Dan Polster, where he challenged the legitimacy of the strategy pursued by private plaintiff attorneys, some of them veterans of the 1997 settlement between the states and the tobacco industry, who have signed up thousands of individual cities and counties as clients to try to pressure opioid manufacturers and distributors into a multibillion-dollar settlement. Private lawyers reaped some $14 billion in fees from the $260 billion tobacco settlement.
Yost criticized “the self-admitted power grab being made by unelected private attorneys to control the distribution of public moneys within the States.”
“The proposed negotiating class, and perhaps this very litigation, threatens the sovereignty of the States like nothing else in recent history,” he wrote. “It seeks to represent not a single political subdivision asserting parens patriae standing, but all of them. In other words, this motion seeks to permit the class to stand in the shoes of the States — nothing short of usurpation.”
Yost also criticized the allocation mechanism the lawyers have proposed. According to an “Allocation Map” the lawyers have placed online, Coshocton County, Ohio, would get $1.99 per capita or a total of $73,265 out of a $1 billion settlement, after lawyers claimed $100 million in fees.
“Distributing a few thousand dollars to local communities is meaningless.” Ohio was among 27 states, including Texas and California, that filed a letter in June asking Judge Polster to delay any decision on a class.
The motion also comes as U.S. District Judge Dan Polster of the Northern District of Ohio has pushed for global settlement talks while setting the first trial in the MDL for Oct. 21. In a brief supporting their motion a settlement class, which included 40 class representatives, including counties in California, Florida, Georgia, New Jersey and New York, and major cities such as Atlanta, Chicago, Denver, Los Angeles and San Francisco.
“This precise vehicle has never been used before, but we are very confident that this is a valid use of the procedure and that the court will, we are hopeful, welcome this as an opportunity to move the resolution of these cases forward,” said co-lead plaintiffs attorney Paul Hanly of Simmons Hanly Conroy in New York.
The federal litigation link is, Opiate Prescription MDL 2804, US District Court of Ohio link.
The move is also designed to provide some assurances to defendants—manufacturers and distributors of the prescription painkillers, as well as pharmacies—about the total scope of lawsuits that are out there.
The federal judge overseeing multidistrict litigation against opioid manufacturers and distributors left little doubt he supports a plan developed by private lawyers to assemble an unprecedented “negotiating class” consisting of every city and county in the U.S.
Rejecting complaints that the proposal would violate federal law and trample on states’ rights, U.S. District Judge Dan Aaron Polster repeatedly said “there has to be a vehicle” for resolving the nearly 2,000 cases by cities and counties that have been concentrated in his court. Along with hundreds of lawsuits still in state court and litigation by individual states, Indian tribes and other entities such as healthcare agencies and pension funds, Judge Polster said, the mass of litigation must be settled somehow.
“Everyone knows that trying 2,500 cases would sink the state and federal judiciaries, but also the amount of private resources would also be staggering and no one would want that,” the judge told lawyers for both sides during 1.5-hour hearing in Cleveland Tuesday morning.
A majority of state attorneys general as well as defendants including drug distributors are opposed to the proposal, under which Judge Polster would certify a procedure that specifying how funds from an opioid settlement are distributed to individual counties before any money is on the table. In filings with the court in late July, Ohio AG Dave Yost called the plan a “power grab” by private lawyers who represent most of the cities and counties in the litigation.
August 6, 2019 Development
“The nation’s top three drug distributors—McKesson, AmerisourceBergen and Cardinal Health—have verbally offered a $10 billion settlement with state attorneys general, according to the news service. AGs hit back with a much higher demand of $45 billion”
Among other objections, critics of the plan say it would violate Rule 23 of the Federal Rules of Civil Procedure, which governs class actions, and U.S. Supreme Court decisions requiring class action lawyers to fairly represent both their own clients and so-called “absent” class members who aren’t participating in settlement negotiations or may not even be aware of the litigation.
In a back-and-forth exchange with Sonja Winner, a Covington Burling attorney representing McKesson, the judge dismissed the idea the proposal might violate the most important Supreme Court precedent, Amchem v. Windsor. In that 1997 decision, the court said any class action must satisfy Rule 23 requirements, including that the claims are typical across the entire class and the interests of absent class members are represented.
Winner said the proposed mechanism for allocating money under a settlement only reaches as far as the counties, leaving cities to negotiate their share of the money with the counties that theoretically represent them in the class. The conflict between the two groups would be fatal under Amchem, she said.
“I’m not worried about the Supreme Court — the issue is what I will do,” Judge Polster responded.
“I’ve got 2,000 cases. There has to be a vehicle for solving them as a group.”
According to a calculator the plaintiff lawyers have put online, Fremont County in Wyoming would get $98,000 of a hypothetical $1 billion settlement, while the town of DuBois would get nothing because its $98 payout would fall below a $500 minimum. Winner said that was typical of the uneven results that individual cities and counties might not be aware of before they are asked to decide whether to sign off on the settlement procedure or opt out.
The judge also brushed aside objections from other AG’s, who stated that the complex allocation formula would intrude on the power of the states to allocate money among their political subdivisions as they see fit. Judge Polster said he wouldn’t approve any language undermining state sovereignty, but went on to say he also won’t approve any settlement that directs all of the money into state treasuries, as some politicians demand.
He cited the 1997 tobacco settlement, in which little of the money paid over by cigarette companies actually went toward treating smoking-related disease. He said it was a “problem” that “in a number of states any money that the state AG obtains …goes into the general fund.”
Because the litigation in his court “encompasses the cities and counties,” any settlement “has to account for the matter of putting money into state general funds,” the judge said. “Because that idea isn’t going to fly.”
Clearly Judge Polster’s views on the opioid litigation have evolved since the early days, when he envisioned a swift settlement that included significant changes in how the industry does business. He repeatedly agreed with defendant companies that they have no incentive to settle unless plaintiff lawyers can offer them global peace, and that is impossible without the participation of the states and possibly even the federal government.
“Everybody understands no defendant is going to settle with the states alone and not the cities and counties,” or vice versa, he said. “That would be lunacy.”
The judge also told critics, including defendant companies, to come up with a better solution if they don’t like the one the plaintiff lawyers have proposed.
“Nobody has a monopoly on good ideas,” he said. “The more ideas floated, the better.”
He did recognize one glaring conflict of interest in the current proposal: Some of the same lawyers, most prominently Motley Rice, represent states and hundreds of members of the proposed class of cities and counties. He barred those lawyers from participating in the hearing or arguing in favor of the proposal.
“Those lawyers have a conflict at the moment because all or most of the state attorneys general are opposing this motion,” he said.
The judge also said that if he approves the mechanism, which seemed likely from his comments, he will appoint an independent representative on behalf of the tens of thousands of cities and counties that haven’t sued but could belong in the class. He also said he would limit settlement releases to claims under federal law and would have 13 nationwide “families” of defendants.
The pharmaceutical industry spent a vast $6.4 billion in “direct-to-consumer” advertisements to hype new drugs in 2016, according tracking firm Kantar Media. That figure has gone up by 62% since 2012, Kantar Media says. This number may seem large at first but compared to the multi-billions in yearly profits just by opioid manufacturers over the last 15 years, the numbers is small. Corporate earnings have risen every year since the push to increase opioid prescriptions in every way possible, to became an accepted business model in Big Pharma boardrooms across the country.
Opioids were involved in more than 42,000 overdose deaths in 2016, the last year for which data was available, according to the U.S. Centers for Disease Control and Prevention. Kentucky, one of the nation’s hardest-hit states, lost more than 1,400 people to drug overdoses that year.
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