Organized Crime Claims Won’t Fly in San Francisco’s Opioid Trial

San Francisco lost a powerful tool in its quest to hold drug marketers and distributors liable for the nationwide opioid epidemic when a federal judge threw out racketeering allegations against Purdue Pharma, McKesson Corp., and dozens of other companies.

The lawsuit in the U.S. District Court for the Northern District of California is a bellwether, or early test case, of more than 2,700 cases brought by local governments against the entire opioid supply chain. The court allowed all claims to proceed except for the city’s allegations under the Racketeer Influenced and Corrupt Organizations Act, which provides for triple financial penalties when alleged actions are committed as part of an ongoing criminal organization.

That law “can be very effective in forcing a settlement advantageous to plaintiffs,” Nicolas P. Terry, a professor at Indiana University’s School of Law. “This is a setback.”

Without RICO, San Francisco will have to rely on its other primary claim—that the harm wreaked by a massive influx of opioids into communities across the country violates public nuisance laws.

RICO has been “an attractive ‘Plan B’ for plaintiffs because the broad public nuisance argument they make will not work in jurisdictions that have a far narrower version of public nuisance,” Terry said.

‘Insurance Policy’

RICO has long been viewed as a good backup legal theory in the opioid multidistrict litigation, in case other claims aren’t successful.

“No state supreme court that I’m aware of has accepted the theory that the opioid crisis is a public nuisance,” said David Noll, a professor at Rutgers Law School who focuses on complex litigation. “While I think it’s likely that a majority of supreme courts ultimately will accept that theory, RICO claims serve as a kind of insurance policy for plaintiffs.”

He added that while the loss of RICO claims is a “major” wrinkle, it’s “not fatal to the plaintiffs’ case.”

It’s possible that the U.S. Court of Appeals for the Ninth Circuit could overturn the decision and RICO could re-enter the case, said Richard Ausness, a professor at the University of Kentucky College of Law.

San Francisco still has a valid claim for public nuisance against the drug companies it accuses of misleadingly promoting, distributing, and dispensing opioids despite knowing the hazard that conduct would create, Judge Charles R. Breyer said in the Sept. 30 opinion.

In addition, the court’s decision to let San Francisco’s unfair competition claims proceed could offset some of the lost potential of the RICO claims, said Harry Nelson, a partner and founder of Nelson Hardiman LLP, a health care-focused firm in Los Angeles. That’s because California has a strong unfair business practices law, he said.

“You’re entitled to disgorge all the profits associated with” actions found to run afoul of the law, Nelson said. “That opens up a new level of potential damages risk. It’s a legal theory that’s been very threatening to businesses in California— it’s been fuel to the plaintiff’s bar here.”

Ausness said that while the decision in San Francisco is likely to be “very influential,” it may not have a strong bearing on whether other cities and counties in the multidistrict litigation will be able to pursue RICO claims in their respective jurisdictions.

“The district court relied heavily on Ninth Circuit precedent,” he said. “Courts on other jurisdictions may reach a different conclusion.”

Direct Causation

The district court adopted a restrictive view of whether the drug marketers’ and distributors’ actions caused the injury alleged under RICO laws.

The court relied on two Ninth Circuit decisions in holding that RICO requires direct causation between the defendant’s conduct and the plaintiff’s loss. In other words, there should be no more than one or two intervening causes leading to widespread addiction, Ausness said.

The court in this case “correctly observed that there were many other actors involved, which made the causal link between the defendants’ conduct and the plaintiff’s loss highly attenuated,” he added.

Breyer said that while the city identified several injuries stemming from the opioid epidemic—including its purchase of overdose medication and funding of specialized training sessions—only its allegations of property damage tied to improper needle and syringe disposal qualifies as an injury for RICO purposes.

The chain between that injury and the defendants’ conduct “involves too many links and depends on independent and intervening acts—including criminal conduct—by third and fourth parties,” Breyer said.

The case is San Francisco v. Purdue Pharma. LP, N.D. Cal., No. 3:18-cv-07591, 9/30/20.