Lost Leverage Complicates Opioid Deal Talks for Cities, Counties

Cities and counties pushing for a global settlement in a sprawling opioid lawsuit lost a powerful negotiating tool when the Sixth Circuit opened the door to new lawsuits targeting the same drug distributors.

Thousands of cities and counties are suing drug distributors McKesson Corp., Cardinal Health, AmerisourceBergen, and a group of retail pharmacy chains over their alleged role in the opioid crisis.

The defendants persuaded the U.S. Court of Appeals for the Sixth Circuit Sept. 24 to reject the novel “negotiation class,” which created a system for the plaintiff local governments to settle together and divvy up resulting dollars based on a pre-determined formula.

The class would have automatically opted municipalities into the multidistrict litigation, while preventing any cities and counties that didn’t formally opt out from suing the defendants after a settlement was reached. Now those cities and counties are free to bring additional lawsuits targeting the companies.

They’ve now lost that ability to use limited liability as leverage for reaching a deal, said Elizabeth Chamblee Burch, a professor at the University of Georgia School of Law.

“Without the negotiation class, the 30,000-some odd cities and counties that haven’t sued cannot be bound by the MDL because they’re not parties,” she said.

As lucrative settlements are struck, that could get the attention of additional cities and counties in a position to sue, extending the scope of liability.

“The cities and counties want to provide a unified front in settlement negotiations, and they want to do that because they think the defendants won’t make a deal unless there’s a threat of additional cities and counties entering,” said David Noll, a professor at Rutgers Law.

Lawyers for the cities and counties downplayed the effect the loss of the negotiation class will have on reaching a global settlement.

“The only downside that comes out of the Sixth Circuit opinion is that defendants, who want closure, have lost a tool in their arsenal,” said Hunter Shkolnik, a partner with Napoli Shkolnik PLLC who is on the executive committee for plaintiffs in the multidistrict litigation. “It’s going to be hard for them, but it’s not going to stop a settlement.”

In addition, the negotiation class had yet to settle a case, and “there was no indication that would have happened, even if the Sixth affirmed,” said Paul Geller, a Robbins Geller Rudman & Dowd LLP attorney who represents plaintiffs in the litigation.

“There really are many ways to reach a global settlement that involves cities and counties, and the 6th Circuit decision doesn’t change that,” he added. “You have a lot of very experienced lawyers on both sides of this case—and nobody ever thought that the negotiation class was the ‘only way.’”

The Novel Class

U.S. District Court Judge Dan Polster approved the novel negotiation class on Sept. 11, 2019. The concept was designed to allow more than 34,000 local governments across the U.S. to enter into a universal settlement with some of the largest companies in the nation, including Cardinal Health.

The goal was to help speed a settlement by offering a more complete liability resolution to the drug distributors in the massive litigation.

The class united the negotiating power of the many local governments, but required buy-in of a supermajority of at least 75% of plaintiffs in order for the class to have the power to proceed with any settlement offers.

The drug distributors never bought in and fought the class, likely because they prefer to negotiate with a smaller group of state attorneys general instead of thousands of local governments, Burch said.

Alternatives

The lead lawyers in the multidistrict litigation could take negotiations in any number of directions.

For example, one possibility would be allowing the states and counties to take on the resolution of towns and cities, Shkolnik said. Smaller entities could have less say in any final settlement as a result.

“We want closure as well as the defendants, herding cats is never easy—herding 10,000 is even harder,” Shkolnik said.

Another option would be asking the court to certify a settlement class, which could better limit liability, depending on how it was structured, Burch said. A settlement class is set up to approve a settlement that’s already been negotiated, while the novel negotiation class was designed to actually allow for negotiations in the first place as group.

A third possibility “is that they try to work more closely with the state AGs,” she said. “The question has always been, ‘can state AGs prevent their local governments from suing if they were to settle with the manufacturers?’”

What Remains

The framework for divvying up any final settlement between thousands of municipalities vying for money in the opioid multidistrict litigation will likely endure in some form or another, despite the dissolution of the novel class.

“The hard work that went into coming up with the calculator, which was a centerpiece of the class, is still there,” Shkolnik said.

The plaintiffs’ attorneys developed a “thoughtful, data-driven method” for allocating any settlement money among municipalities, Geller said.

It included a variety of factors for determining how much each municipality should get, including population, rate of opioid abuse and deaths, and the volume of pills that were pumped into each community.

However, that calculation “’is not tied specifically or solely to the use of the negotiation class concept,” Geller said.

The case is In RE National Prescription Opiate Litig., 6th Cir., No. 19-4097, 9/24/20.