Drugmakers in N.H. Opioid Probe Lose Bid to Oust Cohen Milstein

By Samson Habte

A New Hampshire assistant attorney general expressed relief about a recent court ruling that will allow his office to retain a prominent plaintiffs’ law firm to investigate whether five U.S. pharmaceutical giants fueled opioid addiction through deceptive marketing practices.

The drugmakers have “an army of lawyers” defending them, and the small staff of lawyers in the N.H. Office of Attorney General (OAG) would face a “David and Goliath” situation if they couldn’t rely on outside counsel, assistant attorney general James Boffetti told Bloomberg BNA.

The state retained on a contingent fee basis the class action firm Cohen, Milstein, Hausfeld & Toll PLLC to investigate—and, if necessary, litigate—claims New Hampshire may bring against a slate of drugmakers, including Teva Pharmaceuticals Inc. and Janssen Pharmaceuticals Inc., a Johnson & Johnson subsidiary.

The drug companies challenged that outside counsel arrangement as unlawful and unethical, but the New Hampshire Supreme Court rejected those arguments in a unanimous June 30 decision ( State v. Actavis Pharma, Inc. , 2017 BL 230370, N.H., No. 2016-0199, 6/30/17 ).

Boffetti said that ruling “clears the way for [New Hampshire] to go forward” with one of the several high-stakes consumer protection investigations and lawsuits that states and municipalities across the country have launched against some of the biggest opioid manufacturers in the U.S.

“From the perspective of a small AG’s office, [the decision] is very important,” Boffetti told Bloomberg BNA. These types of consumer protection probes are “increasingly complex,” he said, and New Hampshire retained Cohen Milstein because the state’s lawyers lacked the resources and expertise “to compete against these big corporate interests that have unlimited funds.”

Contingent Fee Challenge

The pharmaceutical companies challenged the legality and ethical propriety of New Hampshire’s contingent fee agreement with Cohen Milstein, which agreed to investigate and litigate the state’s claims against the drugmakers in exchange for 27 percent of any judgment or settlement obtained from them.

The drug companies said the retainer represents an improper delegation of governmental police power that runs afoul of constitutional principles, lawyer conduct rules and a statute that governs the state’s retention of outside counsel.

In March 2016 the pharmaceutical companies persuaded a state trial court to void the contract and issue a protective order barring the OAG from engaging Cohen Milstein to handle the investigation and any ensuing litigation against the drugmakers.

The New Hampshire Supreme Court reversed. Voting 4-0, it said the trial judge erred in finding that “the OAG acted outside its statutory authority to hire outside counsel, and the retainer agreement is therefore ultra vires and void.”

Writing for the court, Chief Justice Linda Stewart Dalianis said “the defendants lack standing, at this time, to challenge the contingency fee agreement based upon” New Hampshire statutes that govern state officials’ retention of outside counsel.

The court also rejected the argument that the fee agreement violated ethics rules because it gave Cohen Milstein a “financial stake” in the putative litigation that “will create a conflict of interest [and] negatively impact the public trust and the fair administration of the law.”

Finally, the court held that “because the contingency fee agreement provides for the OAG to retain ultimate control over the investigation, the agreement does not violate due process.”

Chronic Pain

Boffetti, who heads OAG’s consumer protection bureau, said the ruling would enable the state to hold the pharmaceutical companies accountable for allegedly fraudulent marketing practices that have contributed to skyrocketing opioid addiction rates.

In addition to Teva and Janssen, the probe targets Actavis Pharma Inc., Purdue Pharma L.P. and Endo Pharmaceuticals Inc.

Boffetti told Bloomberg BNA that the investigation is going to determine whether those companies “marketed [opioid drugs] in a way that downplayed the risks—that downplayed the addiction risks, especially—and overstated the benefits” for people who suffer from chronic pain and were seeking long term prescriptions.

“There’s really no good science that says for chronic pain users the risks are small enough to justify long-term prescription use,” Boffetti said. “In fact, there’s evidence that the [effectiveness] diminishes over time and the addiction rates skyrocket.”

Boffetti said his office simply lacked the resources to “compete with these big corporate interests that have unlimited funds.” The drug companies brought in “an army of lawyers” to stall the probe, he said, and the state retained Cohen Milstein because OAG would face a “David and Goliath” situation if forced to go it alone.

The high court probed both sides on that claim during oral arguments in this case. Dalianis asked whether the court should be concerned that “the AG’s office would be hobbled in its ability to bring” the suit if it were deprived of the ability to retain outside help.

Wilbur A. Glahn III, who represents Endo but argued on behalf of all five defendants, disputed the premise of that question. “There’s nothing in the factual record in this case that establishes that the AG couldn’t handle this case without a contingent fee lawyer,” said Glahn, a partner at McLane Middleton P.A. in Manchester, N.H.

Boffetti begged to differ. The defendants have retained the best New Hampshire firms as local counsel and a phalanx of lawyers from elite Boston firms, he said, and they have “clearly engaged in a strategy to deny us access to their documents and frustrate our investigation.”

Boffetti said that his department has approximately two dozen lawyers. But many of those lawyers are “dedicated to other tasks” because OAG is responsible for enforcing dozens of statutes—laws governing “everything from condominium and subdivision registration, to health club and martial art school registration, to elder fraud [and] financial fraud,” Boffetti said.

The case “really came down to me” and “a couple of paralegals,” Boffetti said. “There was no way we could handle reviewing the millions of [drugmaker marketing] documents—there is just no way.”

Tobacco Playbook

Glahn declined to comment on the court’s ruling when contacted by Bloomberg BNA.

But Glahn’s client and the other drugmakers were likely prepared to lose. Their arguments for invalidating the state’s retainer agreement with Cohen Milstein have failed to convince courts in several other states that have retained private counsel to bring similar consumer protection suits against pharmaceutical manufacturers.

Within the past year, at least 25 states, counties and municipalities have sued manufacturers and distributors in the multibillion-dollar U.S. opioid market. Those suits include pending state and federal court actions in California, Illinois, Mississippi, Missouri, New York, Ohio, Oklahoma, Tennessee, and Washington.

Most of the states and municipalities pursuing those claims are doing so with the assistance of private lawyers who are working on a contingent fee basis.

Those types of arrangements are not new. A 2013 law review article notes that they were pioneered by Richard F. “Dickie” Scruggs, a celebrated trial lawyer who represented the state of Mississippi in tobacco litigation that led to a $248 billion settlement and inspired The Insider, a major motion picture starring Al Pacino.

Other states that sued tobacco manufacturers followed Mississippi’s lead and retained private lawyers who collected nearly $14 billion in legal fees from those cases.

The engagements are not without risk for the private lawyers, however. Cohen Milstein’s retainer contract with New Hampshire, for example, says the firm will advance all of the “costs and expenses of the investigation and any litigation,” and will have no claims against OAG “if there is no recovery or the recovery is not sufficient to cover its time or expenses.”

Does Financial Stake Skew Strategy?

During oral arguments Glahn told the court that the contingent fee agreement violated ethics rules because it could create a conflict of interest for Cohen Milstein that would impact the way it pursued any claims on behalf of the state.

Glahn said that in a “normal” case alleging consumer protection violations, “the state’s principal concern is to stop [the challenged practice] from happening, to get injunctive relief.”

“When you add contingent fees to that what you’re doing is skewing that analysis,” Glahn told the justices. An outside firm, he explained, might be tempted to do things like forgo “a more severe injunction” that would benefit the state and instead pursue “a big settlement.”

“That is the kind of financial interest that causes mischief in these cases,” Glahn said.

That argument didn’t convince the trial court—which rejected the conflict of interest claim and instead based its disqualification of Cohen Milstein on a finding that OAG’s engagement of the firm violated laws that govern the state’s the retention of outside counsel.

The high court also rejected the conflict of interest argument. The terms of the engagement reduced the risk that Cohen Milstein might pursue its own interests at the state’s expense, it said.

“Under the plain terms of the agreement between the OAG and Cohen Milstein, the OAG retains direct authority over all aspects of the investigation,” the court said. It pointed to a provision that says OAG will “make all key decisions” in the case, “including whether and how to proceed with litigation, which claims to advance and what relief to seek.”

“Given these plain terms, we hold that the trial court did not err in concluding that ‘Cohen Milstein … has no authority to make any key administration decisions and therefore lacks the ability to represent the State as a substitute for the OAG,’” Dalianis wrote.

Senior Assistant Attorney General Lisa M. English argued for the state of New Hampshire. The defendants were represented by Boutin & Altieri PLLC; Hinckley, Allen & Snyder LLP; McLane Middleton P.A.; Nixon Peabody LLP; and Preti, Flaherty, Beliveau & Pachios LLP.

To contact the reporter on this story: Samson Habte in Washington at shabte@bna.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bna.com

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