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Okla. AG's $260M opioid settlement could foreshadow future settlements and fights over who gets the money

By Daniel Fisher | Apr 3, 2019


Hunter  

OKLAHOMA CITY (Legal Newsline) - A week after Oklahoma Attorney General Mike Hunter announced a $270 million settlement with Purdue Pharma, lawmakers are questioning why they weren’t consulted on the deal or how to distribute the money. 

Meanwhile, Oklahoma City and four other cities also want to make sure the settlement doesn’t preclude them from separately pursuing damages from the company.

Oklahoma’s agreement with Purdue, reached a little more than a month before a trial was scheduled to begin in state court, is the first in what will likely be a wave of settlements with the opioid industry over claims manufacturers, distributors and pharmacies all contributed to the addiction crisis. 

But the fight between Oklahoma lawmakers and local governments on one side and the AG on the other is also likely to be repeated around the country as officials argue over how to appropriate the billions of dollars that are expected to flow from the opioid industry. 

It also highlights the role of private lawyers, frequently campaign contributors and political allies of the officials who hired them, who stand to make billions of dollars in fees.

The controversy in Oklahoma is reminiscent of similar battles before, during and after state attorneys general negotiated a $260 billion settlement with the tobacco industry in 1998. That agreement was highly favorable to Philip Morris, the biggest cigarette manufacturer, because it insulated the company from future competition. 

Some critics also complained the money – in economic terms indistinguishable from a tax on cigarettes – mostly flowed into state general funds instead of being used to treat tobacco-related disease. The lawyers who negotiated the deal, many of whom are also prominent in the opioid litigation, won some $14 billion in fees, which is still being paid to them by the tobacco companies at a rate of $500 million a year. 

Under the terms of the Oklahoma settlement, Purdue agreed to pay $200 million into an Oklahoma State University center for addiction treatment, plus $12.5 million to local governments and $60 million to private lawyers who were entitled to a percentage of any recovery under their contract with the state. Hunter, a Republican, is an OSU grad.

The arrangement angers some Republican lawmakers who told an Oklahoma publication this week they were concerned the AG sidestepped the normal appropriations process. Under Oklahoma statute, the state Treasurer is supposed to receive all fines, fees, forfeitures and costs received by any state officer “under color of office.” The Oklahoma Constitution says “no money shall be paid out of the treasury... except in pursuance of an appropriation by law.”

“I think everybody there was very frustrated and concerned about the process,” House Majority Whip Terry O’Donnell told NonDoc, a local news organization. Legislators weren’t consulted about the settlement beforehand, he said, despite ethical rules requiring attorneys to consult with their clients, in this case the state of Oklahoma.

“I’m extremely concerned that any executive agency could seemingly sidestep the Legislature and circumvent the constitution and direct funds to a public trust or a nonprofit entity,” O’Donnell told NonDoc.

Lawyers for Oklahoma City and four other cities also asked the judge overseeing the case to clarify the settlement language to ensure they cans still pursue claims against Purdue, according to The Oklahoman. Purdue was just one of a number of companies, including distributors like McKesson and Cardinal Health, facing trial in May. No others have announced settlements.

A spokesman for AG Hunter declined several requests for comment. Under the settlement, Purdue also agreed to “make a $60 million payment to offset all litigation costs up to this point,” according to a news release by the AG’s office. That refers to costs the state was legally obligated to pay under a contract with outside lawyers in Oklahoma and Texas who, along with family members, contributed nearly $100,000 to Hunter’s $3 million reelection campaign last year. Those firms are Whitten Burrage, Nix Patterson and Glenn Coffee & Associates.

Hunter’s rival for the Republican nomination last year, Gentner Drummond, harshly criticized the AG for entering into the contingency fee contract, saying the deal they got was "just wrong" and "too rich" for litigation that poses little risk. 

While Hunter characterizes the payment for the state’s legal expenses as coming from Purdue, legal doctrine holds all money obtained in a settlement belongs to the client until it is distributed according to contracts like a contingency fee agreement. Purdue has also agreed to pay $500,000 directly to Hunter’s office, “for costs associated with the prosecution” of the case. 

Hunter, in an interview with NonDoc, said paying the money directly to the state “just wasn’t on the table given the nature of what Purdue’s requirements were to settle.”

“As conversations developed, their challenge was, ‘We don’t want this to be a precedent for the rest of the country. Help us think that through. Give us an idea of how we can help distinguish Oklahoma from the rest of the country,'” Hunter said.

The state is supposed to set up a foundation to receive the money for OSU, although the exact process and who will oversee that foundation is still unknown. The Sackler family, which owns Purdue, will pay $75 million over time into the foundation and Purdue will supply $20 million in drugs to the state.

The question of whether government legal officials can distribute settlement money without the approval of legislators is still unsettled. The federal Miscellaneous Receipts Act requires most entities to deposit money they win on the federal government’s behalf immediately with the Treasury. 

Most states have similar laws. For example, Kansas law dictates “all moneys received by the attorney general belonging to the state shall be remitted to the state treasurer.” Courts in Louisiana, Mississippi and West Virginia have separately mandated settlement money be appropriated by the legislature.

But many states, including Kansas, also have exceptions that allow attorneys general to “eat what they kill,” or keep a percentage of what they win in court to fund their departments. Oklahoma law requires 25% of money recovered by the AG – with the exception of tobacco settlement money --  to be deposited in a treasury fund for the use of the AG’s office. The AG’s office declined to comment on whether that statute applies to the Purdue settlement.

The “eat what you kill” philosophy can breed problems. Congress amended the MRA in 1984 to allow the Justice Department to keep the proceeds of asset forfeitures instead of turning them over to the Treasury, in an effort to stimulate more forfeitures and distributions to crime victims. Forfeitures soared from $27 million in 1985 to $1.4 billion in fiscal 2018, with many states following suit with their own laws. 

That has sparked accusations of police overreach and the U.S. Supreme Court in February ruled unanimously that the Eighth Amendment’s Excessive Fines Clause applies to asset forfeitures by the states.

There are striking similarities between the tobacco litigation and the direction opioid litigation seems to be heading, as well as some differences. The most prominent law firms in the tobacco litigation included Motley Rice, Hagens Berman, Lieff Cabraser and Don Barrett. All have leadership positions in the opioid multidistrict litigation. 

One big difference is the number of individual plaintiffs. While cities, counties, hospital districts and other plaintiffs sued the tobacco industry in the 1990s, state attorneys general negotiated the settlement and took in most of the money. To try and avoid that fate this time, private lawyers fanned out across the country and signed up more than 1,600 smaller governments as clients, each with a separate claim. Most of those cases are concentrated in the Ohio court of U.S. District Judge Dan Aaron Polster, who has tried to force all sides to hammer out a global agreement. 

Legal experts say it is difficult to see how that can be accomplished amid competing claims by the states, which aren’t subject to the jurisdiction of federal court, and differences between large and small plaintiffs. Some states can force their political subdivisions to accept any deal negotiated by the attorney general, while others have strong home-rule laws making that more difficult or impossible. 

The growing controversy over the Purdue settlement in Oklahoma illustrates how these competing forces may leave defendant companies in a quandary about how to settle litigation that threatens their existence without leaving themselves open to thousands more similar lawsuits.

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Organizations in this Story

Cardinal Health Mckesson Corporation Motley Rice Nix, Patterson and Roach Oklahoma Attorney General's Office Purdue Pharma

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