March 3, 2021

Opioid Distributors Get ‘Negotiation Class’ Tossed on Appeal

(Bloomberg) — Drug distributors McKesson Corp., Cardinal Health, AmerisourceBergen, and a group of retail pharmacy chains persuaded a federal appeals court to reject a novel “negotiation class” comprised of all cities and counties suing them over the nationwide opioid crisis.

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The Cincinnati-based court concluded Thursday the judge overseeing opioid cases filed in federal courts exceeded his authority by creating the group lawsuit in a way that violated rules governing such litigation. The ruling isn’t expected to interfere with ongoing talks to resolve more than 2,000 lawsuits filed by state and local governments over the fallout from the U.S. opioid epidemic.

“The primary problem here is that the negotiation class ordered by the district court simply is not authorized by the structure, framework or language” of the procedural rule governing class actions, U.S. Circuit Court Judge Eric Clay wrote. “This novel mechanism is beyond the rule’s scope.”

The multi-district case, centralized before U.S. District Judge Dan Polster in Cleveland, accuses opioid makers, distributors and retail pharmacy chains of working together to mislead doctors and patients about the addictiveness and health risks of prescription opioids and turning a blind eye to red flags about excessive orders of the painkillers.

The governments seek billions of dollars to recover the cost of beefed-up police and emergency-service budgets to deal with fatal overdoses and other consequences of the public-health crisis. So far, the only case to go to trial resulted in a $465 million award to the state of Oklahoma over ex-opioid maker Johnson & Johnson’s marketing of their painkillers in the state.

96 Pills

A trial is set for next month in West Virginia over a city’s and county’s claims that opioid distributors helped create the crisis in that state by pumping in millions of pills into the area — enough for 96 pills for each person living there, according to U.S. Drug Enforcement Administration data.

David Matthews, a McKesson spokesman, didn’t have an immediate comment. Gabe Weissman, a spokesman for AmerisourceBergen, and Lucy Bradlow, a Cardinal Health spokeswoman, didn’t immediately return emails seeking comment.

Tom Claps, a litigation analysts at Susquehanna Financial Group, wrote in a client note Thursday that the appeals court’s ruling shouldn’t interfere with ongoing talks between the distributors and J&J aimed at a global settlement of those companies’ opioid litigation.

However, Randall Stanicky, a Royal Bank of Canada analyst, said Thursday in a client note the ruling was “an incremental negative” because it could reduce the likelihood of a global settlement.

Bloomberg News reported in July state attorneys general are pushing McKesson, Cardinal Health., and AmerisourceBergen Corp. to add $2.3 billion to their current $19.2 billion proposal to resolve government suits over the opioid epidemic. J&J has agreed to pay $4 billion to settle its opioid exposure, people familiar with the talks said.

New Rules

Joe Rice, a South Carolina-based plaintiffs’ lawyer helping to lead the local government cases before Polster, said he was disappointed the negotiating class got rebuffed, but the municipalities are eagerly awaiting new trials of their claims.

“The real focus is trial,” Rice said in an emailed statement. “That is what our clients want. That is where you will disclose the facts and resolve the issues.” Many trial dates have been pushed off to next year as a result of the Covid-19 outbreak.

In an effort to jump start a settlement that would speed relief toward affected communities, Polster last year certified the negotiating class to bring in municipalities who hadn’t yet sued over opioid costs. The idea was to cut the number of cities and counties opting out of a deal. Under the arrangement, cities and counties considering rejecting the class would be required to make that decision during negotiations, rather than after the terms of any potential accord were set.

Allowing all local governments to band together for negotiation purposes offers “the perfect mechanism for allowing the affected cities and counties to negotiate credibly and effectively as a group,” the municipalities’ lawyers said in court filings.

Opioid distributors objected, along with Walmart, Walgreens, CVS, other pharmacy chains, six cities and 37 state attorneys general. When Polster rejected their objections, they asked the Court of Appeals to decertify the class.

Federal Claims

“A new form of class action, wholly untethered from” federal court rules, cannot stand, Clay wrote. Polster “papered over” the required analysis of “whether a class action is the superior method of adjudication” and whether the federal claims shared by the class members dwarf their different state law claims in significance, Clay said.

U.S. Circuit Judge Karen Nelson Moore dissented in an opinion nearly twice as long as the majority’s. She criticized her colleagues for “placing substance over form,” saying federal procedural rules “have never been interpreted to manacle district courts that innovate” within their boundaries.

Polster “breathed life into a novel concept” in the service of his “Promethean duty to secure the just, speedy and inexpensive resolution of this byzantine multi-district litigation,” Moore wrote. “We should be in the business of encouraging, not exterminating, such resourcefulness.”

The appeals court case is In RE National Prescription Opiate Litig., 6th Cir., No. 19-4097. The consolidated case before Polster is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio (Cleveland).

(Updates with excerpt from court filings backing class in 14th paragraph)

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