by Thomas R. Maeglin

Two recent decisions from courts in New York reflect, in different ways, the difficulties posed by efforts to deal with the losses resulting from prescription opioids.

Readers may be familiar with large-scale litigation pending in federal and state courts, in which states, counties, cities and towns are suing drug manufacturers, distributors, and pharmacies to recover damages they allege they incurred as a result of widespread abuse of and addiction to opioid products that were sold in their communities. In addition to massive multidistrict litigation pending in federal court in Cleveland (In re: National Prescription Opiate Litigation, 17-md-2804), separate actions are proceeding in state courts, such as those coordinated in New York (In Re Opioid Litigation, 400000/2017).

However, individuals have continued to press their own separate claims, and legislators have also attempted to impose greater restrictions on the industry. Both approaches are facing serious challenges in the courts.

In Floyd v. Feygin, 2018 N.Y. Slip Op. 33136(U) (Sup.Ct. Kings Cty. Dec. 6, 2018), the court dismissed a state common law negligence claim against Actavis Pharma, Inc. Actavis is described as a “generic drug manufacturer, which manufactures the pain killer, Oxycodone.” The plaintiff alleged he became addicted to opioid pain medications over a four-year period when he visited a defendant pain clinic and received opioid prescriptions that had no legitimate medical purpose. Several defendants (though not Actavis) had been criminally indicted in connection with an alleged Medicare/Medicaid fraud scheme involving unnecessary laboratory testing and reimbursed procedures. Three Brooklyn clinics involved in the scheme allegedly prescribed over 6.3 million Oxycodone pills between 2012 and 2017.

Plaintiff alleged that Actavis had been negligent by ignoring obvious red flags that signaled the operation of “pill mills” by the other defendants. As the court described, the company allegedly “track[ed] the amount of pills being sold to different locations and medical providers, and, therefore, it had actual knowledge of the criminal enterprise perpetrated by the medical provider defendants. Plaintiff asserts that Actavis and other pharmaceutical companies regularly engage in ‘prescription tracking’ through companies, such as IMS Health Corp., which is a market research organization that provides sales and marketing information to the pharmaceutical and healthcare industries. Plaintiff states that IMS Health Corp. allows a pharmaceutical company to track with precision the types, amounts, and frequency of prescriptions for every provider. Plaintiff avers that IMS Health Corp.’s sales tracking reports were available to Actavis on a weekly, monthly, and quarterly basis, and allowed Actavis to track the movement of its products in the United States through all retail channels of distribution, including direct sales by Actavis and indirect sales through its drug wholesale customers, such as AmerisourceBergen, McKesson, and Cardinal Health.”

Plaintiff argued that the company had a responsibility to report suspicious prescribing to authorities under state and federal law. Plaintiff alleged that the company had a duty to ensure that its Oxycodone product was not being prescribed, dispensed, and used in a fraudulent and harmful manner. The company had allegedly breached its duty by failing to take appropriate action to stop and prevent Oxycodone from being prescribed for fraudulent and illegal purposes, and by failing to maintain effective controls against having prescriptions for Oxycodone being written where such prescriptions were not for legitimate medical purposes. It had also allegedly breached its duty by failing to design, implement, and operate a system to disclose suspicious orders of Oxycodone, and by failing to establish, implement, and follow an abuse and diversion detection program consisting of internal procedures designed to identify potential suspicious prescriptions of Oxycodone.

The Court disagreed that such reporting requirements created additional duties. A drug manufacturer’s duty under the Controlled Substances Act and corresponding state regulations is limited to collecting, recording and reporting the data. It has duties to notify physicians of adverse effects of drugs and precautions that must be taken. However, plaintiff had not alleged any breach of such duties. Furthermore, the Court found that intervening criminal acts of the co-defendants broke any causal nexus between the company’s reporting requirements and plaintiff’s Oxycodone addiction. “[I]t took a four-year investigation by seven government agencies to fully uncover the illegal ‘pill mill’ scheme.”

Meanwhile, a legislative approach to seeking recovery for opioid-related losses has also been beaten back. In 2018, New York enacted the Opioid Stewardship Act (“OSA”) which creates a ‘stewardship fund’ to treat existing opioid addiction, prevent future addiction and educate New Yorkers about the dangers of opioid dependence. Under the Act, all licensed manufacturers and distributors that sell or distribute opioids in the state of New York are required to pay an ‘opioid stewardship payment’ into this fund, based ratably upon their sale and distribution of opioids in the state. Critically, under the Act, “[n]o licensee shall pass the cost of their ratable share amount to a purchaser, including the ultimate user of the opioid”. Industry groups challenged the Act, and a federal court has found it unconstitutional. (See Healthcare Distribution Alliance v. Zucker, 18 civ 6168 (S.D.N.Y. Dec. 19, 2018)).

The court held that “while the animating concerns of the OSA are plainly valid, the method by which the Act extracts payments from opioid manufactures and distributors to redress those concerns violates the Dormant Commerce Clause of the United States Constitution. The OSA is not a tax, but is rather a regulatory penalty on opioid manufacturers and distributors. And as currently structured, it improperly burdens interstate commerce. Furthermore, the record demonstrates that New York did not intend the OSA to survive absent the pass-through prohibition.”

Although both decisions may be appealed, both Floyd v. Feygin and Healthcare Distribution Alliance v. Zucker may have their biggest impact, regardless of any appeal, in the concurrent Multidistrict Litigation. Observers have noted how litigants in the MDL have sometimes borrowed decisional law from opioid litigation in state courts, and any holding regarding duties of a drug manufacturer or distributor under federal and state regulatory schemes is likely to resurface there. Indeed, some claims in the MDL rest in part on the existence of voluminous drug records collected in the ARCOS system, which some plaintiffs contend made the defendants aware of wide-spread abuse. Moreover, the difficult process of settling the hundreds of MDL claims against manufactures and distributors might be obviated if there were an effective legislative fix that funded efforts to provide communities with relief. A decision striking down one legislative fix as unconstitutional only makes that possibility more remote.

If you have questions about either of the decisions discussed in this article, or opioid-related litigation in general, please contact Michael E. Gorelick or Thomas R. Maeglin.