Chapter 29
Huntington, West Virginia, 2017
Paul Farrell settled into his windowless law office in an old bank building in downtown Huntington and fired up his computer. He clicked on a link to the website of the U.S. Court of Appeals in Washington and began listening to a recording of the January 12 oral arguments in a case that could well determine his own ability to take on the opioid industry.
During his weeks of research, Paul had come across the efforts of DEA supervisor Jim Geldhof and his investigator, James Rafalski, to sanction drug distributor Masters Pharmaceutical. After a seven-year odyssey, the matter was finally before a three-judge panel on the U.S. Court of Appeals for the District of Columbia Circuit.
Richard T. Lauer, an attorney based in Cincinnati who served as the general counsel for Masters, was trying to convince the judges that the DEA had no authority to require drug companies to monitor orders of narcotics, report suspiciously large shipments, or work to keep painkillers out of the hands of the pill mills. If Lauer prevailed, any civil litigation would be stopped in its tracks. The ruling would set a precedent for the industry and the DEA.
Lauer began by telling the judges that the DEA had saddled the drug industry with new regulations without going through the federal government’s rule-making process. Under the law, he argued, drug distributors like Masters were not responsible for what happened to the pills once they reached the pharmacies. The DEA, he said, was not only demanding that distributors monitor their customers and withhold suspiciously large orders, it was also requiring that the companies conduct “due diligence” investigations when there was reason to believe the pills were being siphoned off to the black market.
“Do you agree that there was a duty in place already to disclose suspicious orders?” U.S. district judge Sri Srinivasan asked Lauer.
“There is a duty to identify and report suspicious orders, yes,” Lauer conceded.
“So, a lot of the things that you’ve ticked off sound like they’re just commensurate with the duty to identify and report suspicious orders,” noted the judge, who served as principal deputy solicitor general and argued two dozen cases before the U.S. Supreme Court before being named to the bench by President Obama.
Lauer countered that the DEA had crafted “an entirely new definition of suspicious orders, which has to do with the pharmacy placing the order. It is simply not a reasonable—”
“I’m not entirely following what you’re saying,” Srinivasan interrupted.
It was still early in the forty-six-minute-long hearing, but Paul sensed that Lauer was in trouble. The judges’ questions were sharp and skeptical and Lauer was rowing against a bad set of facts.
Masters had paid a $500,000 fine in 2009 for supplying the internet pharmacies with “extraordinarily large amounts” of hydrocodone, the highly addictive opioid contained in pain pills such as Vicodin. To settle that case, Masters promised the DEA that it would track its shipments and set limits for how many pills its pharmacy customers could order. The company also pledged to set up a suspicious order monitoring system to flag and stop dangerously large orders of drugs. But a year after paying the fine, Masters shipped another thirty-eight million tablets of oxycodone across the country, twenty-five million of them to its Florida customers. Rafalski discovered during his investigation that oxycodone 15mg and 30mg pills accounted for 60 percent of the narcotics Masters distributed in 2009 and 2010—and forty-four of its top fifty customers were based in Florida. He also found that Masters ignored the customer limits it had set. He noted in legal filings that the company had deleted or edited excessive orders to make them appear to fall below the limits.
Lauer tried to stay on message. The DEA was requiring his company to monitor and stop large orders of pain pills, he told the judges. The agency was also demanding that companies like Masters investigate the conduct of their customers. Lauer countered that the agency was being “unreasonable” and misinterpreting existing laws. If the DEA wanted to go that far, it should have given notice to the drug companies and sought their input.
Judge Cornelia T. L. Pillard interjected, asking a question that dripped with skepticism: Did Lauer really think companies had no duty to investigate if they knew pharmacies were engaging in illegal practices?
“I’m just trying to understand your position,” she told him.
Lauer agreed there was a duty. But he maintained that his client didn’t know its customers were engaged in illegal activity, an argument the DEA dismissed as disingenuous. The company had to know—or should have known—that the pharmacies were not following the law because of the enormous amounts of oxycodone tablets it was pouring into Florida, many of them the 30mg “blues” made by Mallinckrodt.
The attorney representing the Justice Department in the case, Nicolas Y. Riley, urged the judges to look at the facts the DEA had uncovered. Rafalski had examined twenty-one of Masters’s pharmacy customers and found glaring violations at eight of them in Florida and Nevada. Riley highlighted one of the stores for the judges, Englewood Specialty Pharmacy near Fort Myers on the west coast of Florida. Between April 1, 2009, and September 30, 2010, Masters had shipped 1.2 million pills to Englewood. Masters had set a 50,000 monthly limit for that store, but was sending it 70,000. Riley told the judges that Masters reduced that number on paper to 50,000, and then shipped 20,000 additional pills to Englewood without recording the additional sales in a way that would have flagged them under reporting requirements. It was straight-up deceit.
Riley told the judges that Masters had been warned by Joe Rannazzisi in the letters he sent to the drug distributors in 2006 and 2007. He also noted that the DEA had met one-on-one with Masters executives in 2009. During that meeting, the DEA warned that some of their shipments appeared to violate the law. Despite the warnings, Masters kept shipping—even when it became clear to the company itself that the orders were suspect.
“Masters,” Riley noted, “believes some of these orders were suspicious.”
“And, therefore, should have been reported?” Srinivasan said.
“And, therefore, should have been reported,” Riley responded. “Exactly.”
Listening to the hearing at his office, Paul was exhilarated. He thought the arguments by Lauer were “tone deaf” and made no sense. The company had agreed in its settlement with the DEA to follow the reporting requirements—the same requirements it was now challenging in federal court.
Paul couldn’t have hoped for a better hearing. He played back the arguments over and over, before signing out of the court’s website. He would have to wait months for the appellate panel to hand down its decision.
But he was confident of how the judges would interpret what Masters had done.
They’re gonna get hammered.