In an effort to reach a potential $22 billion cash global settlement of opioid lawsuits, lawyers are clashing over a critical obstacle that hit the courts this week: who should get attorney fees, and how much?

The fight over fees reached a pinnacle this week after numerous states, cities and counties filed court papers opposing a proposal that any opioid settlement or judgment would require corporate defendants to holdback 7% for "common benefit fees" to compensate the lawyers in charge of the multidistrict litigation. Even the opioid defendants themselves—the primary distributors and manufacturers of the prescription painkillers named in the lawsuits—said the proposed holdback by the plaintiffs' executive committee would "seriously jeopardize the global settlement."

"The 'common benefit' proposal is a transparent effort by a handful of lawyers to grab settlement funds that are not before this court," wrote their lawyers in a Wednesday court filing. "Indeed, the PEC's proposal would divert billions of settlement dollars that should be used to address the opioid crisis."

The backlash comes as lawyers for the states, as well as 2,600 cities, counties and other governments in the MDL, continue to hash out a proposed deal that could include distributor defendants AmerisourceBergen Corp., McKesson Corp. and Cardinal Health Inc., and manufacturer Johnson & Johnson. A settlement conference is set for Friday.

U.S. District Judge Dan Polster of the Northern District of Ohio, who is overseeing the multidistrict litigation in Cleveland's federal court, also set a Friday deadline to respond to the holdback proposal, submitted Jan. 28.

In an email, the plaintiffs' executive committee in the MDL downplayed the debate, or the impact that fees could have on settlement negotiations.

"As we all gather in Cleveland to discuss the next steps in the negotiations with the distributors, the PEC will be open to the ideas to fairly address this issue," wrote committee members Paul Farrell of The Farrell Law Firm, Paul Hanly of Simmons Hanly Conroy and Joe Rice of Motley Rice.

"Working together, we should be able to reach a full fair resolution with the distributors that can become a global resolution, not only for the small number of supporters of the current proposal of $1 billion a year for 18 years," they wrote this week. "We want to work with the 20 states that have opposed the current proposal to address their concerns and the concerns expressed by the subdivisions we have heard from as well as the more than 2,600 litigating communities."

'Fair' Compensation

The proposed holdback, which is a common fee method used in multidistrict litigation, compensates lead counsel for work done in the lawsuits that helped all plaintiffs, but it also reduces the potential contingency fees that other lawyers earn through their contracts with individual clients.

Common benefit fees have raised controversy in the past, but amplifying the dispute in the opioid lawsuits is the fact that many governments have filed their own cases in state courts, which judges in other MDLs have considered exempt from common benefit fees. Those governments include more than 20 state attorneys general, many of whom filed letters this week opposing the holdback proposal.

"The PEC's proposed order to establish a common benefit fund goes well beyond what is necessary to ensure fair compensation for private counsel," wrote the National Association of Attorneys General in a letter filed Monday and signed by attorneys general from 34 states, Washington, D.C., Guam and the Northern Mariana Islands. "Moreover, if entered, the proposed order will disrupt—perhaps irreparably so—the substantial progress that has been made to negotiate a larger national settlement with several defendants."

The states opposing the holdback proposal include California, Texas, Pennsylvania and New Jersey. In separate filings, the states of Idaho, Connecticut, Delaware and Massachusetts also opposed the proposal, noting that Polster had made previous assurances that they would not have to pay common benefit fees.

"It is impossible to square the motion with these assurances—assurances upon which the state attorneys general have relied," wrote attorneys general in Connecticut, Delaware and Massachusetts in a letter Friday.

Thirty other cities and counties, including those from New Jersey, Connecticut, Florida and Pennsylvania, called the proposal "ambiguous and excessive." Their attorney, Judy Scolnick, a New York partner at Scott + Scott, also said it was unnecessary in light of the settlement talks, given that "any multibillion-dollar resolution spearheaded by the attorneys general would necessarily entail requests by the distributor defendants and Johnson & Johnson for broad releases and the resolution of claims for attorneys' fees, including by the MDL counsel."

A group of governments in a dozen states, including Texas, Virginia, Delaware and Pennsylvania, in a combined opposition Thursday, took aim at the MDL leadership, calling the plaintiffs' executive committee "non-transparent and uncooperative" and noting that they excluded everyone else from Friday's settlement conference with the distributors and attorneys general. They also said the holdback would violate a Texas statute, passed last year, requiring the attorney general to approve all contingency fees.

The city of Baltimore, represented by Seth Ard, a New York partner at Susman Godfrey, called the holdback a "7% tax" that would drive up the cost of state court settlements.

Lawyers for three hospitals, and for the parents of babies addicted to opioids, also opposed the holdback on grounds that the MDL leadership hasn't prioritized their clients. They noted that hospitals and opioid-addicted babies were not parties to a $1.6 billion global deal reached this week with generic pharmaceutical manufacturer Mallinckrodt.

Skyrocketing Costs

In their proposal, the MDL lawyers said they have spent tens of millions of dollars on the opioid litigation. "All of this work has informed and worked to the common benefit of all opioids-related litigation, whether in state court, federal court, or an attorney general action," they wrote.

Rice said a good example of common benefit work for which the MDL leadership should be compensated was the ARCOS (Automated Reports and Consolidated Ordering System) database they obtained from the U.S. Department of Justice. The plaintiffs' executive committee paid millions of dollars for experts who helped them download the database, which Polster ordered them to share with everyone, including attorneys general with lawsuits in state courts.

"That national database is the fundamental way that everybody litigating in opioid case tracks where the pills went and where they came from," Rice said.

(Several governments opposing the holdback said they accepted the ARCOS data with the understanding that they would not need to pay common benefit fees for that work.)

But the opioid lawsuits have gotten more expensive as cases drag on in the courts for years, said Richard Ausness, a professor at the University of Kentucky J. David Rosenberg College of Law. The first bellwether case in the MDL, for instance, involved two Ohio counties that settled with many of the defendants on the first day of the trial.

"By all accounts, these trials are expensive," Ausness said. "Even pretrial stuff is frightfully expensive, and lawyers have to pay that, so I can see why they would need to get back millions of dollars, or they'll lose money."

In fact, on Dec. 11, Polster told the defendants who reached settlements with the Ohio counties to set aside 7.5% of the funds into an escrow account in preparation for a holdback assessment.

But the defendants, in their letter this week, called the plaintiffs' suggested holdback of 7% "staggering," noting that figure would siphon more than $3.3 billion in common benefit fees from a proposed $48 billion global agreement floated last fall that had also included manufacturer Teva Pharmaceutical Industries.

The states, meanwhile, pointed to work they had accomplished in their own cases that benefited all opioid lawsuits. And they insisted that Polster, as a federal judge, did not have jurisdiction over their state court cases.

Yet some governments, which would benefit from a potential global opioid settlement, have not even filed lawsuits. In an interview, Rice said the real issue over which both sides are fighting is whether the holdback would apply to an abatement fund, which would make up the bulk of the proposed global settlement.

"Here's where the problem comes in: this is a case that is generally proceeding on public nuisance, and everybody wants there to be a common abatement fund to help abate the nuisance on Main Street," Rice said. "Everybody's work is contributing, but we have no way of allocating it. That's why their concern is, how does a common benefit fee work on the abatement fund?"