Legal Intelligencer: Individual Liability in the Opioid Epidemic: An Examination of Recent Developments

Throughout the past decade, the country has been battling a raging epidemic and public health crisis: opioid addiction. In 2021, over 80,000 people died from opioid overdoses. Pennsylvania has one of the highest rates of opioid overdose deaths in the country. The crisis in Pennsylvania is so severe that it is decreasing the life expectancy in the commonwealth.

In the July 29, 2022 edition of The Legal Intelligencer, Edward T. Kang wrote “Individual Liability in the Opioid Epidemic: An Examination of Recent Developments.“

Throughout the past decade, the country has been battling a raging epidemic and public health crisis: opioid addiction. In 2021, over 80,000 people died from opioid overdoses. Pennsylvania has one of the highest rates of opioid overdose deaths in the country. The crisis in Pennsylvania is so severe that it is decreasing the life expectancy in the commonwealth.

Corrupt pharmaceutical companies, like Purdue Pharma and Insys Therapeutics that prioritize profits over patient care and safety, have exasperated the opioid epidemic. The extensive fraud of these two companies was recently highlighted in Hulu’s “Dopesick” and HBO’s “The Crime of the Century.” Through this column, we examine the recent developments in civil and criminal opioid litigation, in an increased effort to hold wrongdoers, at every level, responsible.

In 2015, after receiving criticism for a number of criminal investigations that resulted in high-profile settlements with companies, but not their top executives, the Department of Justice (DOJ) changed course. That year, then-Deputy Attorney General Sally Yates released a policy titled, “Individual Accountability for Corporate Wrongdoing,” which has become known as the “Yates Memo.” The Yates Memo explicitly outlined guidance for the civil and criminal departments of the DOJ that focused on holding individuals responsible for corporate misconduct. The Yates Memo directly encouraged that the best way to combat corporate misconduct and fraud is to “seek accountability from the individuals who perpetrated the wrongdoing to deter future illegal activity, incentivize change in corporate behavior, ensure that the proper parties are held responsible and promote public confidence in the justice system.”

In 2018, the Trump administration narrowed the Yates Memo by only requiring companies to identify individuals “substantially involved” in the misconduct to receive criminal cooperation credit, as opposed to all culpable individuals involved in the corporate misconduct, as required under the Yates Memo. In October 2021, the Biden administration announced that the DOJ was returning to the approach outlined in the Yates Memo, a sure move toward tougher white-collar enforcement. When examining corporate action in pharmaceutical companies, and the opioid crisis since the release of the Yates Memo seven years ago, while there has certainly been a general uptick in the prosecution of individual bad actors, there have also been some mixed results—namely, the failure to hold the individual actors of Purdue Pharma criminally liable.

It is now widely known that, for over two decades, Purdue, under the control of the Sackler family, unlawfully marketed OxyContin since it came to market in 1996 by misleading doctors and regulators about the drug’s potency and potential for abuse. In 2020, Purdue pleaded guilty to felony violations for conspiracy to defraud the Unites States and to violate the anti-kickback statute (AKS), admitting to paying prescribers kickbacks to induce them to prescribe OxyContin and to misrepresenting to the DEA that Purdue maintained an effective anti-diversion program when, in actuality, Purdue marketed OxyContin to over 100 health care providers who the company knew were diverting opioids, and agreed to pay $5.5 in criminal fines and forfeiture— the largest financial penalties ever imposed against a pharmaceutical manufacturer.

Purdue’s 2020 criminal plea was not its first. In 2007, Purdue pleaded guilty to felony charges of misbranding OxyContin in connection with lying about OxyContin’s potential for abuse and addiction, and was fined more than $600 million in criminal penalties. Three executives of Purdue also pleaded guilty, but only to a misdemeanor that did accuse them of wrongdoing. At that time, for executives to face any accountability for corporate wrongdoing was rare. The discrepancy between the punishment imposed on Purdue versus its then-executives underscores why the DOJ—eight years later—committed to focusing on individual accountability for corporate misconduct. The punishment imposed on Purdue and its then-executives in 2007 was obviously insufficient to stymie the company’s illegal activity since, as it admitted in the 2020 plea, the company’s illegal schemes continued for the next decade, directly fueling the opioid crisis.

Despite Purdue’s criminal conduct occurring while members of the well-known Sackler family were at the company’s helm, none of the Sacklers have faced criminal charges, or admitted liability. While it is unclear why the Sacklers were not held criminally responsible in connection with Purdue’s 2020 plea, the issue appears far from over.

In February 2022, seven U.S. senators called on Attorney General Merrick Garland and the DOJ to investigate members of the Sackler family for criminal conduct in connection with Purdue’s admitted criminal wrongdoing in 2020. While acknowledging that the DOJ reached a civil settlement with some of the Sacklers, the senators explained that “real justice in this case means holding individual lawbreakers criminally accountable.” Last month, Connecticut Attorney General William Tong announced that he was asking the state’s top prosecutor to consider criminal charges against members of the Sackler family.

Relatedly, on Dec. 16, 2021, the U.S. District Court for the Southern District of New York rejected a September 2021 bankruptcy court order confirming the Chapter 11 plan of Purdue, which contained broad nonconsensual releases of the Sacklers. In response to appeals from the U.S. trustee, and the states of California, Connecticut, Delaware, Maryland, Oregon, Rhode Island, Vermont, Washington and the District of Columbia, the court held that the Bankruptcy Code does not authorize the plan’s nonconsensual release of third-party nondebtors, like the Sacklers, thus leaving the states’ authority to file further actions against the Sacklers intact.

While the large-level bureaucracy that is Purdue likely made swift results against its leaders more difficult, since the release of the Yates Memo, the DOJ has been able to hold some companies’ bad actors more accountable. In stark contrast to the Purdue saga, at least a dozen Insys employees were criminally prosecuted by the DOJ for Insys’ multiple criminal conspiracies to unlawfully flood the market with an extremely potent liquid fentanyl spray called Subsys. Insys copied many of its illicit strategies from Purdue, including aggressive sales tactics (even hiring a stripper as a regional manager who allegedly gave a Subsys prescriber a lap dance to further induce him to prescribe the drug) and employing a fraudulent “speaker program” through which the company paid dozens of prescribers kickbacks in exchange for prescribing Subsys. Perhaps Insys’ smaller size or the open brazenness with which its employees broke the law (for example, bragging in a rap video about “loving titrations,” and increasing the dose of Subsys for patients while dancing next to a giant 1600 mcg Subsys bottle, a dose that would kill the vast majority of people reading this) made its individual wrongdoers easier for the DOJ to nab than those at the helm of the Purdue empire.

Those criminally prosecuted included Insys’ top executives, including John Kapoor, the founder and chairman. Kapoor, who the DOJ described as the “fulcrum” of Insys’ criminal racketeering scheme, took his criminal RICO case to trial, and after a 51-day trial, was convicted and sentenced to five and half years in federal prison, the harshest sentence in the Insys-employee criminal cases. In January 2022, Kapoor filed a petition for certiorari with the U.S. Supreme Court attempting to appeal his conviction on the basis that a nonphysician cannot be convicted of consenting with a doctor to illegally distribute a controlled substance if the non-physician understood that the doctor believed he was acting in good faith and within the usual course of professional practice in prescribing the controlled substance. In June 2022, the Supreme Court denied Kapoor’s petition for certiorari, leaving the U.S. Court of Appeals for the First Circuit’s 141-page opinion upholding Kapoor’s conviction intact as powerful precedent to use against crooked pharmaceutical executives.

The Insys-related prosecutions also included dozens of high-volume prescribers, who were criminally and civilly prosecuted by the DOJ and state AGs for receiving bribes and kickbacks to prescribe Subsys, and prescribing Subsys outside the usual course of professional practice. Some of these prescribers’ patients died because of their unlawful prescribing. For these prescribers, the sentences have been harsh. For example, U.S. District Court Judge Gregory Wood sentenced Gordon Freedman, who was convicted of receiving kickbacks from Insys, to 17.5 years in federal prison. At least two of Freedman’s patients died from opioid overdoses. At the sentencing, Judge Wood scolded Freedman for contributing to “the scourge of our lifetime, our opioid crisis.”

Xiulu Ruan was another high-volume Subsys prescriber who was convicted for receiving bribes and kickbacks from Insys in violation of the AKS. Ruan was sentenced to over 20 years in prison. The Eleventh Circuit Court of Appeals affirmed the trial court’s decision. Underscoring the importance of opioid-related litigation right now, the Supreme Court granted Ruan’s petition for certiorari on Nov. 5, 2021, and consolidated the appeal with the appeal of another prescriber, Shakeel Kahn.

On June 27, the Supreme Court unanimously ruled in favor of Ruan and Kahn, a decision that went unnoticed in the wake of Dobbs’ overturning of Roe v. Wade. In vacating the convictions of Ruan and Kahn, the Supreme Court upheld the applicability of the traditional “knowingly or intentionally” mens rea, and held that for an individual to be convicted for prescribing controlled substances outside the usual course of professional practice, the government must show beyond a reasonable doubt that the defendant knew his conduct was unauthorized, or that the defendant intended to engage in unauthorized conduct. This decision resolved a circuit split over how a physician’s “good faith” in prescribing controlled substances should factor into an analysis relating to a criminal violation of the Controlled Substances Act (CSA). The Supreme Court rejected the Eleventh Circuit’s holding in Ruan’s intermediate appeal that a physician’s “good faith belief that he dispensed a controlled substance in the usual course of his professional practice is irrelevant” to whether he violated the CSA. Now, under the law of the land, physicians who write prescriptions for controlled substances in good faith cannot be convicted under the CSA.

The Supreme Court’s decision was unsurprising, as it was consistent with the concerns raised at the oral argument in March 2022. Justice Brett Kavanaugh, for example, voiced his objection to a doctor being imprisoned for 20 years for violating some objective, rather than subjective, standard of reasonableness where the doctor legitimately believed the standard was different. Kavanaugh also focused on the phrase “legitimate medical purpose,” which is often the subject of heavy debate by dueling experts in civil False Claims Act cases, as he was troubled that a doctor could go to prison for 20 years for being “on the wrong side of a close call” without any consideration of the doctor’s subjective intent.

But given that circumstantial evidence relating to legitimate medical purpose and the usual course of professional practice can be considered in determining a defendant’s knowledge of lack of authorization, as the Supreme Court correctly pointed out in its opinion, in egregious situations, like Ruan’s (for more on this, check out the book “The Hard Sell”), the results are likely to be the same, and individuals will continue to be held criminally responsible.

In discovering which companies and executives are operating corruptly, whistleblowers have proven to be integral to the government. This was the case with Insys. For attorneys who handle qui tam cases on behalf of Relators, it is important to look to the priorities of the DOJ at any given time since the United States remains the real party in interest in any qui tam case. Right now, there is a strong commitment by the government to prosecuting individuals responsible for the opioid crisis. The same is true with respect to health care fraud more generally, as demonstrated by the $5 billion the government collected in healthcare fraud FCA cases last year, and the Biden administration’s commitment to the directives of the Yates Memo. This means that when filing an action under the FCA, attorneys should strongly consider whether the addition of any individual defendants is appropriate. With the opioid epidemic without an end in sight, and health care fraud running rampant, we are likely to continue to see a trend of civil and criminal prosecution of individuals responsible for corporate wrongdoing.