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Purdue’s Opioid Payouts Pit Individuals Against Cities, States

Feb. 20, 2020, 10:31 AM

Fearing a repeat of the squandered Big Tobacco settlements, a wave of individuals is expected to join the Purdue Pharma LP bankruptcy to claim money for treatment and care, which could shrink payouts to cities, counties, and states.

The root of the anticipated increase in individual claims: The OxyContin manufacturer is spending a staggering $24 million on a nationwide ad blitz—with exposure everywhere from Facebook to music streaming application Spotify and major television broadcasters—to notify Americans that they may be eligible to bring a claim against the company. The campaign is expected to reach at least 95% of U.S. adults in advance of the June 30 claims deadline.

“What Purdue wants more than anything is to cap its liability, and to know that any claims that are out there are forever dealt with in the bankruptcy,” said Adam Levitin, a professor at Georgetown Law. “Making sure you have a really good public notice out is a way to protect against claims being filed after the bankruptcy by individuals who said they never had notice.”

However, if all of the millions of people who have been affected by the opioid crisis pursue a claim with Purdue, suddenly the slice of the pie that goes to cities, counties, and states could shrink considerably, said Edward Neiger, a partner at ASK LLP in New York who represents the ad hoc committee of individual victims in the Purdue bankruptcy.

By going after Purdue in bankruptcy court—and after other companies in the opioid supply chain through separate litigation—individuals may have a shot at getting money that can help address the needs they have now, whether it’s a grandparent struggling to raise a child orphaned by overdose or someone who can’t afford to get treatment for addiction, Neiger said. They want to avoid a repeat of the Big Tobacco settlements where state lawmakers appropriated that money for their general funds rather than earmarking it for smoking prevention programs.

“The states, cities, and counties can’t be relied upon to use the money to remediate the crisis, or otherwise help the victims in immediate need,” he said.

Cities and Counties

But municipalities also have critical needs that can best be served at the local level, said Paul J. Hanly, co-lead counsel in the federal multidistrict litigation targeting the entire opioid supply chain. Local governments were also left at a disadvantage when state governments siphoned money from the tobacco settlements. The multidistrict litigation is an effort by those municipalities to get funding for the unique needs of each community.

“Cities and counties are in the best position to provide the kinds of services to benefit large masses of victims of the opioid epidemic since they have the infrastructures and protocols to ensure fair allocation of resources,” Hanly said. “Providing sums directly to individual plaintiffs sidesteps the reasoned and time-tested modalities for treating addiction and runs the risk of allocating funds on an inequitable basis.”

Neiger disagreed.

“Even assuming the states’, counties’, and cities’ hearts are in the right places, they don’t have the knowledge, infrastructure, or capacity to get the money in the right place quickly,” he said.

For example, after reaching a $270 million settlement with Purdue, Oklahoma dedicated $200 million of that money to create an endowment for researching addiction and treatment at Oklahoma State University.

“It’s like creating a culinary institute during a famine,” Neiger said. “The money should be spent on the food for the people dying in the street, not creating research centers at universities who have enough money.”

Alex Gerszewski, communications director for Oklahoma Attorney General Mike Hunter, said the research center already treats patients with opioid addictions.

“The OSU Center for Wellness and Recovery made the most sense because it is already a national leader in studying and treating addiction as a brain disease and finding innovative ways to cure it,” he said.

The center “is already providing comprehensive care for those suffering form addiction while advancing treatment through education, research, and policy,” Gerszewski added.

Lessons from Big Tobacco

Neiger and others point to the Big Tobacco settlement of the 1990s—in which the vast majority of money was drained by state governments to close budget gaps instead of its intended purpose of addressing nicotine addiction— as an ongoing practice.

In fiscal year 2020, states across the country will collect $27.2 billion from the tobacco settlement and taxes. But just 2.7% of that—or $739.7 million—will go toward programs to prevent kids from smoking and help smokers quit, according to the Campaign for Tobacco-Free Kids.

“I’m very scared if they [Purdue] settle with counties and states, and individual victims don’t get what they’re due, the money is just going to go where the tobacco settlement money went,” said Garrett Hade, a Las Vegas-based opioid survivor and co-chair of the victims ad-hoc committee in the Purdue bankruptcy trial.

He said he wants to make sure the cities, counties, and states aren’t “building bridges with this money while my friends are dying.”

Hade, who became addicted after being prescribed OxyContin as a teenager following a car accident, said Purdue’s contributions to the opioid crisis “completely destroyed” his life.

Seeing addiction on the front lines, he filed a claim against Purdue with the goal of getting money into the hands of actual people affected by the crisis—and the nonprofits that serve those in need.

“Organizations right now that can’t get funded that are taking people with no money and no insurance—that’s where the money is needed,” he said. “If I can help in any way, filing a claim was my way into doing that.”

Individual Victims

Many of the individuals—including family members of people who became addicted to opiates and infants born with dependency on the drugs—feel that population should get its money first.

“If we can put the money in the hands of victims’ families, it will go to good use,” said Kay Scarpone, of Kingston, N.H., who lost her 26-year-old son to an opioid overdose in 2015. In the years since Scarpone’s loss, she became a leader at a New Hampshire nonprofit supporting families affected by opioid addiction.

“I’ve watched a lot of these grandparents raising their children’s children,” she said. “Who is going to take care of these children? I feel strongly that the grandparents should be awarded the money.”

Scarpone is filing her own claim against Purdue and hopes more people follow suit as a result of the advertising.

Never Enough

While the influx of individuals into the Purdue bankruptcy proceedings could shrink the share that goes to cities, counties, and states, that’s simply that nature of the process, said Jonathan Lipson, a professor at Temple Law School.

“That’s what the process is designed to do,” he said. “A greater failure would be the failure to give adequate notice [of claim eligibility].”

Still, the municipalities seeking a payday from Purdue “may not be all that enthusiastic about this advertising,” said Hugh Ray, the head of McKool Smith’s national bankruptcy practice.

“There just isn’t enough money in the world” to sufficiently compensate the various victims of the opioid crisis—including the municipalities and states still reeling from the destruction caused by addiction, he said.

The case is Purdue Pharma LP, Bankr. S.D.N.Y., No. 19-23649, docketed 9/15/19.

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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