States Launch New Joint Probe into Company Sales and Marketing Practices for Opioids

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.

Last Thursday, four state attorneys general (AGs)– from Illinois, Massachusetts, Pennsylvania, and Texas– announced an ongoing joint investigation to assess whether pharma companies have engaged in any unlawful practices in the marketing and sale of opoids.

Exactly how many states are involved in this probe is unclear. Jurist, in its account, mentions these four states only, State attorneys general announce joint investigation into opioid manufacturer practices. The Wall Street Journal’s account, States Launch Bipartisan Probe of Opioid Marketing and Addiction, notes that the investigation includes a majority of US states– an assertion also echoed in the New York Times report, State Attorneys General Probe Opioid Drug Companies:

It was unclear exactly how many states are involved in the probe, though officials said a majority of attorneys general are part of the coalition. Among those leading the probe is Tennessee Attorney General Herbert Slatery, a Republican.

Officials did not specify which companies were under investigation.

What, exactly, the states are looking into is similarly vague. From the press release issued by Massachusetts AG Maura Healey:

“The opioid epidemic is a public health crisis that is claiming lives in our state and across the country, and we want to assure our residents that we are doing all that we can to combat it,” said AG Healey. “I am working with my colleagues in actively investigating whether manufacturers used illegal practices in the marketing and sale of opioids and worsened this deadly crisis.”

It appears from this press release that it’s early days yet for this particular joint investigation.  What this uncovers, and how assiduously any illegalities will be pursued, is also not clear from Healey’s press release.

The coalition of attorneys general is using its investigative tools, including subpoenas for documents and testimony, to determine the appropriate course of action. Due to the nature of the ongoing investigation, the state attorneys general are not identifying any targets at this time.

AG Healey’s Office is on the executive committee that is leading the investigation.

State AGs and Tobacco Litigation

State AGs face a real choice here in how they pursue this and similar investigations — and then decide how aggressively to litigate based on what they uncover. Past examples show that state legal action can be deployed to force major changes in an industry’s operations.  Permit me to mention some examples.

In 1998, following many years of investigation and litigation, 46 state AGs entered  into a Master Settlement Agreement with the four largest tobacco companies– Brown & Williamson, Lorillard, Philip Morris, and R.J. Reynolds. As part of that settlement,  the companies agreed to pay out more than $200 billion over 25 years, as well as to make significant changes in the way they sold and marketed their products. They also agreed to disband their lobbying organizations,  to fund anti-smoking efforts, and to make public information provided during the discovery process.

As another example of effective action by state AGs, allow me to quote from my earlier post, Mary Jo White Leaves Behind a Weakened SEC for Trump to Weaken Further:

During the administration of President George W. Bush, state attorneys general used state authority to prosecute securities and financial transgressions. Notably, former New York state Attorney General Eliot Spitzer relied on authority provided by the state’s 1910 Martin Act, which predates the federal securities law, to take legal action actions against insurance firms for brokerage practices, hedge funds for improper trading practices in mutual fund shares, and investment banks for conflicts of interest that distorted the investment research they provided, to name some of the most significant initiatives. Spitzer’s successors as attorney general, current New York Governor Andrew Cuomo and current Attorney General Eric Schneiderman, have not had the impact that Spitzer had when he was lauded as the Sheriff of Wall Street.

And one further point, a state officer needn’t even be an AG to have a major impact on enforcement and policy, as is demonstrated by the example of Benjamin Lawsky, one-time New York State Superintendent of Financial Services,  and the subject of this post by Yves, Wall Street’s Nemesis, Benjamin Lawsky, to Resign in June. Over to Yves:

Yesterday was a sad day for American citizens. Benjamin Lawsky, the Superintendent of the New York State Department of Financial Services, announced that he was resigning in June.

Lawsky demonstrated, decisively, that a determined regulator can be effective, even from an unlikely, historically not influential position as a state regulator. The New York attorney general had always been the power player by virtue of wielding New York’s securities law, the Martin Act. But Lawsky was willing to use the weapon that other regulators were too craven to deploy, that of threatening to pull the license of a regulated entity. His first target was Standard Chartered, a bank that had flagrantly, repeatedly violated money laundering laws, with its US general counsel rejecting the advice of outside counsel and presiding over a regime of doctored wire transfers. Lawsky used the power of the threat to revoke Standard Chartered’s license to secure a vastly bigger fine than Federal regulators originally contemplated, in large measure because they were prepared to accept the Promontory Group cover story that hardly any wires were out of compliance. The bank eventually ‘fessed up that the Promontory report came up with a figure that was over four orders of magnitude too low.

I encourage interested readers to read that post, because it spells out the influence a determined state regulator can have.

I’m going to move away from delving further into the specifics of these and other similar efforts here, while reiterating that state AGs and other state certainly can deploy considerable enforcement muscle.  The question is: do todays state AGs remember how to use these muscles?

Ohio AG Mike DeWine’s Lawsuit

One state AG who appears not to be a complete couch potato is that of Ohio, Mike DeWine, who filed suit against five leading prescription opioid manufacturers companies last month, alleging “that the drug companies engaged in fraudulent marketing regarding the risks and benefits of prescription opioids which fueled Ohio’s opioid epidemic”, according to this press release, Attorney General DeWine Files Lawsuit Against Opioid Manufacturers for Fraudulent Marketing; Fueling Opioid Epidemic. From that press release:

“We believe the evidence will also show that these companies got thousands and thousands of Ohioans — our friends, our family members, our co-workers, our kids — addicted to opioid pain medications, which has all too often led to use of the cheaper alternatives of heroin and synthetic opioids. These drug manufacturers led prescribers to believe that opioids were not addictive, that addiction was an easy thing to overcome, or that addiction could actually be treated by taking even more opioids” said Ohio Attorney General Mike DeWine. “They knew they were wrong, but they did it anyway — and they continue to do it. Despite all evidence to the contrary about the addictive nature of these pain medications, they are doing precious little to take responsibility for their actions and to tell the public the truth.”

The complaint was filed in the Common Pleas Court of Ross County, Ohio– which according to the same press release, “was likely the hardest hit area in the nation by the opioid epidemic”. (For a further discussion with DeWine, see this NPR account, Ohio Sues Drug Companies Over Role In Creating Opioid Epidemic) .

Remedies sought include (as summarized in the press release):

A declaration that the companies’ actions were illegal;

An injunction to stop their continued deceptions and misrepresentations and to abate the harm they have caused;

Damages for the money that the State spent on the opioids that these companies sold and marketed in Ohio and for other costs of their deceptive acts; and

Repayment to consumers who, like the State, paid for unnecessary opioid prescriptions for chronic pain.

(Those interested should look at p. 100 of the complaint for further detail, including the tidbit that DeWine seeks punitive and treble damages against the five concerned companies.)

I will also mention in passing that Illinois Attorney General Lisa Madigan– who is a participant in the joint investigation announced last week– also filed suit against Insys Thereapuetics in 2016 for violations of Illinois law related to its sales and marketing of the prescription opioid fentanyl.  See the complaint here. That action remains pending. A suit similar to DeWine’s action has also been filed by Mississippi.

The WSJ account cited above includes extensive detail about other state and non-federal lawsuits that are proceeding independently of the latest activity.  Some states have already sought to hire outside litigators to represent state interests, on a contingency fee basis– a factor that many believe was key to the success of the tobacco litigation. This approach allows states to leverage limited resources in pursuit of a favourable result– as they don’t have to pay to hire the outside counsel, who would only be compensated in the event they either prevail at trial or– which is more likely– secure a settlement.

As the WSJ reported:

[Pharma] companies have resisted turning over any documents and have challenged New Hampshire’s ability to hire an outside law firm under a contingency-fee agreement. That issue is now before New Hampshire’s highest court, and a decision is expected at any time. In a statement, Purdue said it objects to the “delegation of law-enforcement authority to a private law firm with a financial interest in the outcome.”

Now, I’m not one of those who reflexively make the argument that lawyers in the private sector are automatically superior to their public counterparts– particularly at the state level. But trial law is a specialized skill, and some of these private trial lawyers are formidable opponents. So I assume state legal officers know what they’re doing when they seek to hire outside counsel to pursue the state’s interests in the courtroom– not to mention, that this is virtually a cost-free option for the state, as no fee gets paid unless the state prevails, and that comes out of whatever is recovered.

I should point out that the resort to outside counsel is is not limited to New Hampshire, either. Again, according to the WSJ:

Alaska last month began an official search for a law firm to represent it “in the investigation and potential litigation of claims relating to the manufacture, distribution, advertisement and marketing of opioid pain killers,” according to a copy of the state’s solicitation document, provided by the state.

State Lawsuits Will Proceed Independently of Any Action By Trump DoJ 

Allow me to shift focus away from state activities, for a moment, and turn to the feds. It’s a bit too soon to tell how vigorously the Department of Justice (DoJ) under Trump Attorney General Jeff Sessions will be in targeting and prosecuting corporate crime. After the pitiful performance of former AGs Eric Holder and Loretta Lynn– a topic I’ve written about before in The Obamamometer’s Toxic Legacy: The Rule of Lawlessness— I’m not holding my breath.

But I do remember that as odious as some of the practices of former Bush administration AG Alberto Gonzales were, the Doj during his tenure did pursue corporate crime, and actually prosecuted– and secured jail time– for executives from Adelphia, Enron, and WorldCom, among others. Hope springs eternal that the current DoJ might return to these roots, and eschew the soft on corporate crime approach of its Holder and Lynch.  (And, in passing, I should mention, that although the Bush DoJ also targeted insider trading, its enforcement targets weren’t limited to a steady diet of insider trading securities law theatre, as I discussed further in Trump Fires Preet Bharara and 45 Other US Attorneys, Media Hysteria Ensues, and in other posts linked to therein.)

I also noticed an article published yesterday in The Hill, discussing regulatory rollback, Under Trump, focus shifts to scrapping regulations.  Now, some of this putative scrapping of regulations– is just Trumpian sturm und drang, the mere puffery of a used car salesman. And don’t forget that that announced objective– however empty it may be– has been stymied by the administration’s failure to fill necessary policy-making positions, especially on regulatory commissions, as I’ve written here, Business Chafes at Uncertainty Created by Unfilled Seats on Regulatory Commissions.

But some of it is real– such as regulatory rollback using the Congressional Review Act, as I discussed in Trump and Congress Use Congressional Review Act to Roll Back 14 ‘Midnight’ Rules; More to Follow? Other initiatives will no doubt unfold, if and when many of the open regulatory positions get filled.

The Bottom Line

I just want to remind readers that the game is not completely lost, even if the DoJ follows in the ignominious footsteps of its immediate predecessor, and it and other agencies focus on arbitrary regulatory rollback, to the exclusion of other pressing priorities.

State AGs have their own separate legal authority to pursue corporate abuses.  Their initiatives can have a huge impact. Also worth mentioning are citywide, county, and local lawsuits, with the NYT account cited above noting that in addition to the state AG actions, “Similar lawsuits have been filed by local governments, including two California counties, the cities of Chicago, Illinois and Dayton, Ohio, three Tennessee district attorneys, and nine New York counties.”

What I worry about is whether the previous administration’s legacy of rhetoric not backed by effective action has trickled down to the state level as well. Will state AGs grasp the nettle and pursue these investigations wherever they may lead? The tendency to swap rhetoric for action could also be exacerbated by the gains Republicans have made in capturing many state governments– especially of one realizes that that party has always been more hostile to a regulation by litigation approach than the Democrats (this is partly because trial lawyers were long a principal source of finance for the Democrats– but that’s a subject for another post).

The press coverage last week’s announcement emphasize bipartisan support for the latest state AG investigation. Dare we hope that this and other opioid investigations and related lawsuits– pending, and we may hope, forthcoming– could be a harbinger of good things to come?