Close up of the Lady of Justice statue

The Privatization of Opioid Litigation

By Dan Aaron

As the opioid litigation continues over the shadow of one of our nation’s most pressing public health crises, some criticism has been levied at private lawyers representing the cities, counties, states, and individuals harmed by the crisis. For example, see the following tweet:

Let’s work out tax and healthcare financing policy county by county, with private lawyers taking a 25% cut every time. Judge Polster seems to like this idea.

The critiques are many, but can be summarized: (1) private lawyers are being enriched; (2) private lawyers are setting opioid policy; (3) private lawyers have misaligned incentives; and (4) private lawyers will not support public health.

Arguably, all these arguments bear some truth. However, do they suggest that the opioid litigation is incorrigibly tainted and tort litigation the improper avenue to address mass torts such as the opioid crisis?

Or rather, are these common features to a private system? The critiques do seem short-sighted on considering that private opioid companies, too, were (1) enriched, (2) were setting opioid policy, (3) had misaligned incentives, and (4) did not support public health. Perhaps these are features of many privatized systems.

 

The Privatization of American Society:

Since the 1980s, privatization has become popular around the world. It has been touted as a solution to government failures and a font of efficiency and quality. The principal drive behind privatization is “the lure of market competition—and the concomitant belief that private firms can provide goods and services better, faster, and cheaper than the government.” As described by an article in Harvard Business Review,

This newfound faith in privatization has spread to become the global economic phenomenon of the 1990s. Throughout the world, governments are turning over to private managers control of everything from electrical utilities to prisons, from railroads to education. By the end of the 1980s, sales of state enterprises worldwide had reached a total of over $185 billion—with no signs of a slowdown.

No doubt, privatization has been propped up as a solution in an increasing number of areas in our lives. On the other hand, it has been derided as a source of contemporary inefficiencies and inequalities. Our largely privatized health care system has languished at the bottom of various health care rankings, and private U.S. insurance has been repeatedly shown to have more administrative waste than Medicare. Private prisons may offer a contribution to mass incarceration (though some argue this is overstated). Private probation further impoverishes the poor. Private immigration detention facilities may more easily violate constitutional rights including through medical neglect and abuse. Privatization of the GED quadrupled the price, which slashed test-takers by 2/3 and greatly reduced the pass rate. The list goes on.

When a function is privatized, the key change is the actor who performs the function. The actor has different incentives and may be subject to fewer constraints. The final outcome may or may not support the public good.

Given the critiques of privatization, it is no surprise that the critique has been extended to private lawyers in the opioid litigation. Why are we allowing private attorneys to take millions of dollars out of a settlement that is supposed to benefit the public?

 

Tort Law and Private Attorneys

The United States has an adversarial judicial system, in which a neutral judge listens to the arguments of two parties. Both parties are incentivized to obtain lawyers. If one side does not, it suffers an immense disadvantage.

However, as nobody will dispute, attorneys are expensive. Most people who have been subject to a harm are unable to furnish the funds to hire an attorney. Fortunately, many private attorneys will take the case in exchange for a percentage of the final sum, called a “contingent fee.” Usually it is around 25%.

 

Why Can’t Public-Interest Attorneys Take on Tort Cases?

Well, sometimes they can, but there are restrictions. Many big public health cases are aggregate cases involving numerous harmed individuals, usually class actions. However, attorneys that accept “Legal Aid” money from the federal government (from the Legal Services Corporation or LSC) are barred from participating in class actions. Nor can LSC-funded entities participate in fee-generating cases (such as the opioid litigation). Thus, an organization risks losing its Legal Aid funding if it supports the opioid litigation, even if it uses non-LSC funds to do so. LSC restrictions are not without criticism. Some states have placed similar rules on Legal Aid lawyers.

Beyond Legal Aid organizations, can other non-profit organizations participate in potentially lucrative lawsuits? Internal Revenue Service (IRS) rules indicate that a non-profit organization may lose its tax-exempt status if it is not careful in its litigation activities. The IRS analysis depends on the type of organization. First, a civil rights organization like the ACLU may take a case that protects “human and civil rights secured by law.” However, the opioid litigation is mainly founded on opioid companies creating a “public nuisance” with false marketing, and does not clearly fall under the purview of rights as traditionally understood in the U.S. Alternatively, could a public interest law firm bring an opioid claim? Likely not. In the IRS’s words, “[P]ublic interest law firms are charities only so long as they provide representation in cases of important public interest that are not economically feasible for private firms” (emphasis added). Thus, public interest firms cannot take potentially lucrative cases. Many other restrictions hamper law firms that seek non-profit status. Therefore, IRS rules essentially forbid non-profit organizations from participating in the opioid litigation.

That leaves state attorneys general (AGs) as well as local and county attorneys. However, state attorneys general are often understaffed (especially given the complexity of the opioid litigation), making it integral for many AGs to hire private lawyers. The New York Times describes the limits on state AGs:

[W]ith tight budgets, hiring outside lawyers is often the only tool they have to achieve rough parity with the army of corporate lawyers who are aggressively trying to blunt the lawsuits — in court, through legislation and in elections in which they target certain attorneys general for defeat.

Cities and counties largely hired private lawyers for the opioid litigation.

In Sum

As a society, we could provide more funding to AG offices or other public attorneys, but we don’t. Instead, we have rules that more-or-less privatized the opioid litigation.

Of course, critiques of private attorneys are probably true, just like critiques of other privatized industries. But that doesn’t mean the entire opioid litigation should be discarded. Private attorneys play a large role in tort law. We could make the system better for the public with some simple reforms, as well as by expanding the role of public servants in tort law. Imagine if the big settlement fees going to private lawyers would instead go to a public interest group. No doubt, that would change lives.

Daniel Aaron

Daniel Aaron

Daniel grew up in Newton, MA just outside of Boston. He graduated from Brown University in 2012 and, after spending two years in New York City doing breast cancer research, headed to graduate school. He is currently studying law and medicine between Harvard and Boston University. Daniel Aaron hopes to improve public health by changing law and policy. His research foci include food and drug law, obesity, opioids, tobacco products, constitutional health law, and health contracts, and his research has been covered by the New York Times, CNN, Time Magazine, and others.

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