The State AG Report - Volume 7, Issue 29 | July 2021

Cozen O'Connor

Drug Distributors and Major Pharmaceutical Company Reach $26 Billion Global Settlement with States to End Opioid Litigation

  • A bipartisan group of AGs reached a $26 billion global settlement with three major drug distributors and Johnson & Johnson (“J&J”) (collectively “Companies”), pending approval by the vast majority of states and municipalities, to release the Companies from all civil liability relating to the opioid crisis.
  • Under the terms of the agreement, negotiated by a team of lawyers that included Cozen O’Connor’s JB Kelly, the three distributors collectively will pay up to $21 billion over 18 years and J&J will pay up to $5 billion over nine years, with the substantial majority of the funds to be spent on opioid treatment and prevention. In addition, the distributors will establish an independent clearinghouse to provide aggregated data and analytics about drug distribution nationwide and will use data-driven systems to detect suspicious opioid orders from customer pharmacies. J&J agreed to stop selling and promoting opioids, and to share clinical trial data under the Yale University Open Data Access Project.
  • States and municipalities have 30 days to review the deal and provide formal approval.

Prominent 2020 Election Critic Announces Run for Michigan AG

  • Private-practice attorney Matthew DePerno announced his run for Michigan AG. DePerno, who was one of the attorneys challenging in court the 2020 presidential election results in northern Michigan’s Antrim County, has not yet specified his party affiliation.
  • Incumbent Michigan Democratic AG Dana Nessel is seeking reelection for a second term.
  • To “meet” the state AGs across the nation and read more AG election news and insights, visit The State AG Report.

Septic Tank Cleaning Products Company Settles Over Millions of Alleged Illegal Robocalls

  • The Federal Trade Commission (“FTC”) reached a settlement with septic tank cleaning products company Environmental Safety International, Inc. and related individuals (collectively “ESI”) to resolve allegations that it made tens of millions of illegal robocalls in violation of the Telemarketing and Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule.
  • The complaint alleged that, among other things, ESI and its telemarketer made misleading calls, including to numbers on the Do Not Call Registry, misidentifying ESI as an environmental company. The calls offered free information, but when consumers indicated interest in the free information they received a sales pitch instead. The complaint also alleged that ESI falsely threatened customers with unpaid balances on their accounts with referrals to a collection agency or an attorney.
  • Under the terms of the stipulated order, ESI is subject to a $10.2 million civil penalty judgment, of which it will pay approximately $1.65 million and the rest will be suspended due to inability to pay. ESI will also be permanently banned from telemarketing and is required to notify all ESI customers with unpaid balances that their balances have been canceled and do not need to be paid, among other things.

Fuel Delivery Company Allegedly Sold Petroleum Diesel Fuel but Charged for Biodiesel

  • Massachusetts AG Maura Healey reached a settlement with fuel delivery company Diesel Direct, LLC and related individuals (collectively “Diesel Direct”) to resolve allegations that it delivered nonconforming diesel fuel products to state agencies, overcharged state agencies for fuel delivery, and did not fulfill contract diversity requirements in violation of the Massachusetts False Claims Act.
  • According to the AG’s office, the complaint brought by a whistleblower alleged that Diesel Direct delivered petroleum diesel fuel to state agencies, while charging these agencies the higher rates applicable to biodiesel. The complaint further alleged that Diesel Direct overcharged state agencies by improperly charging a federal fuel excise tax and by using an incorrect higher benchmark price to determine its per-gallon price. In addition, the complaint alleged that Diesel Direct failed to spend two percent of its contract-generated sales with diverse businesses, as required by the contract.
  • Under the terms of the settlement, Diesel Direct will pay $850,000 to the state. Diesel Direct will also be precluded from bidding or otherwise participating in any contract with the state or any state agency for five years.

Du Pont Settles Delaware PFAS Contamination Liability Claims for $50 Million

  • Delaware AG Kathy Jennings reached a settlement with chemical company E.I. du Pont de Nemours and Company and its legacy companies (collectively “du Pont”) to resolve allegations that du Pont’s historic activities caused environmental damage and contamination with per- and polyfluoroalkyl chemicals (“PFAS”), which are associated with increased risk of cancer.
  • PFAS chemicals, also known as “forever chemicals” because they are resistant to environmental degradation, are used in a variety of products, including firefighting foam and water-repellent fabric, and one such chemical is a key component of du Pont’s proprietary product, Teflon™.
  • Under the terms of the settlement agreement, du Pont will pay $50 million to the state, with an additional potential payment of up to $25 million should du Pont settle similar claims with other states for more than $50 million. The funds will be used for environmental restoration, improvement, and monitoring as well as for community environmental justice and equity grants and other natural resource projects. The Delaware settlement is the first to be reached under the binding $4 billion memorandum of understanding that du Pont signed in January 2021 for a global resolution of its PFAS liability.

Hospital System and Doctors Pay Over $37 Million to Resolve State and Federal False Claims Allegations

  • California AG Rob Bonta and the U.S. Department of Justice reached a settlement with hospital system Prime Healthcare Services System, Prime Healthcare’s founder and chief executive officer, Dr. Prem Reddy, and related entities (collectively “Prime Healthcare”), and a Prime Healthcare interventional cardiologist, Dr. Siva Arunasalam, to resolve allegations of kickbacks and improper billing of state and federal health benefits programs in violation of the federal and California False Claims Acts.
  • According to the AG’s office, two complaints filed by whistleblowers alleged that Prime Healthcare paid kickbacks by intentionally overpaying to purchase Dr. Arunasalam’s practice and surgery center, and overcompensated Dr. Arunasalam in its employment agreement with him to induce him to refer patients to one of its hospitals. In addition, Prime Healthcare and Dr. Arunasalam allegedly used Dr. Arunasalam’s billing number to bill Medicare and Medi-Cal for services provided by a physician whose billing privileges had been revoked. Prime Healthcare also allegedly made false claims to Medi-Cal and two federal health benefits programs by inflating invoices for implantable medical devices.
  • Under the terms of the settlement, Prime Healthcare paid over $33.7 million, Dr. Reddy paid nearly $1.8 million, and Dr. Arunasalam will pay $2 million, and the United States will receive $35.24 million while California will receive $2.26 of the settlement proceeds.

House Passes Bill Authorizing FTC to Seek Monetary Damages in Federal Court

  • The U.S. House of Representatives passed the Consumer Protection and Recovery Act, H.R. 2668, giving the Federal Trade Commission (“FTC”) an explicit authorization to seek monetary redress for consumers for harm caused by scams and antitrust violations.
  • H.R. 2668, which was supported by a bipartisan group of 28 AGs, allows the FTC to seek disgorgement in federal court and provides guidelines for calculating penalties. The bill was introduced following a unanimous Supreme Court decision in AMG Capital Management v. FTC, holding that existing laws do not allow the FTC to seek disgorgement in federal court.
  • Cozen O’Connor State AG Group member Meghan Stoppel recently analyzed the practical impact of the AMG Capital decision and predicted that this decision will further strengthen collaboration between the FTC and state AGs.

Nebraska Attorney General Asked to Weigh In on Legality of Delta-8

By: Meghan Stoppel and Mira Baylson

Senate Majority Leader Chuck Schumer reinvigorated the federal marijuana debate last week with the introduction of his Cannabis Administration and Opportunity Act, which seeks to de-schedule cannabis and regulate cannabis sales, possession and use in a manner that balances individual liberty with public health and safety. Already a majority of states have legalized the use of cannabis for either recreational or medicinal purposes. A critical step in the legalization process is defining what cannabis is (and isn’t). But, defining cannabis (for whatever purpose) is proving to be no easy task. If the definition is drawn too broadly, state and federal laws are criticized for their “unintended consequences”. If drawn too narrowly, law enforcement may find their hands tied either by statutory text or by the state attorney general’s interpretation.

Nebraska remains one of the few states where cannabis has been legalized only for limited hemp-farming purposes. Late last week, local media reported that Nebraska’s Governor Pete Ricketts asked his Attorney General Doug Peterson to review whether Delta-8 falls within the state’s definition of marijuana. The federal definition of marijuana does not capture Delta-8 and neither do most state definitions. Specifically, the federal 2018 Farm Bill applies to, and makes legal, hemp containing less than 0.3 percent Delta-9 THC, but the bill does not explicitly address other derivatives of hemp. Delta-8 is one of those cannabinoid derivatives, usually created in a lab. Because it does not contain Delta-9 THC, it is arguably “legal,” and has largely been unregulated at the federal and state level. Those in the industry are well aware that Delta-8 may affect the body in ways similar to Delta-9 THC, but often with less potency. That said, falling outside of the definition of marijuana means that Delta-8 is essentially an unregulated substance and as such presents a public health and safety risk. Hence, the request from Governor Ricketts.

One of the largest police departments in the state currently considers Delta-8 legal under Nebraska law, and has said they will not arrest anyone using or possessing the substance. Where will the state attorney general come out on this issue? This situation, like the situation in South Dakota we described in a previous article, highlights the state attorney general’s role in interpreting existing state laws and, just as importantly, ensuring local law enforcement acts in accordance with those laws.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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