The Program Review and Investigations Committee met on Thursday, October 12, 2017, at 10:00 AM, in Room 131 of the Capitol Annex. Representative Lynn Bechler, Chair, called the meeting to order and led the audience in the Pledge of Allegiance. A moment of silence was observed for the death of former Senate President Pro Tem Dick Roeding and the victims of the Las Vegas shooting. The secretary called the roll.
Present were:
Members: Senator Danny Carroll, Co-Chair; Representative Lynn Bechler, Co-Chair; Senators Tom Buford, Dan "Malano" Seum, Reginald Thomas, Stephen West, and Whitney Westerfield; Representatives Chris Fugate, Brian Linder, Ruth Ann Palumbo, Rob Rothenburger, Arnold Simpson, and Walker Thomas.
Guests: Andy Beshear, Attorney General, J. Michael Brown, Deputy Attorney General, and Holly McCoy-Johnson, Administrative Services, Office of the Attorney General; and John Roach, Ransdell Roach & Royce.
LRC Staff: Greg Hager, Committee Staff Administrator; Chris Hall, Colleen Kennedy, Van Knowles, Jean Ann Myatt, William Spears, Shane Stevens, Joel Thomas; and Kate Talley, Committee Assistant.
Minutes for September 14, 2017
Upon motion by Representative Thomas and second by Representative Fugate, the minutes for September 14, 2017, were approved by voice vote.
Presentation on Potential Legal Action Against Drug Industry for Contributing to Opioid Abuse in Kentucky; Purdue Pharma Settlement
General Beshear said the opioid epidemic is the largest challenge the state has ever faced. In the audience are parents from the North Kentucky Hates Heroin organization. There are more grandparents raising children than ever in the state’s history. Since 2000, deaths have increased 570 percent. Since 2009, the overdose rate has doubled. Heroin is one of the scariest drugs, but fentanyl is 30 to 50 times more powerful than heroin. Carfentanil is 10,000 times more powerful than morphine. New analogs of these drugs appear weekly.
Through the DEA [US Drug Enforcement Administration] Task Force, more than 114 overdoses were connected to one bad batch of fentanyl. It started in Huntington, WV, moved to Cincinnati to Indiana to Mount Sterling, and ultimately into Louisville. Staff of the Attorney General’s Office, working with the federal government, were able to make a high-level arrest primarily because of the number of overdoses in Mount Sterling, the largest single-day number of overdoses in the state.
The opioid epidemic also affects economic development. Many businesses cannot find healthy workers to employ. He said that a recent personal experience made a big impression. Four weeks ago, while sitting at a red light at a downtown Lexington intersection at 4:00 PM, Attorney General Beshear and a staff member responded to an overdose. The passenger of the car next to them overdosed on carfentanil. They performed CPR until a police officer arrived with Narcan. It took four doses of Narcan to revive the individual.
The Attorney General’s Office is taking a comprehensive approach to the opioid epidemic. First, there are three units in the law enforcement category that fight this epidemic every day. The Attorney General’s Office has two investigators on the DEA Task Force, which chases the worst fentanyl and carfentanil dealers. The Appalachian High Intensity Drug Trafficking Area Task Force is dedicated to making sure rogue doctors and clinics are not flooding communities with prescription pills illegally. They perform investigations that go to the US Attorney’s Office and Kentucky’s Medicaid Fraud Unit. There have been several prosecutions of individuals who have broken the law for profit. Recently, the first set of search warrants was served on a string of rogue Suboxone clinics. Legislation is needed to address these clinics, much like the legislation that was enacted on pill mills.
Second, prevention is key to addressing the opioid epidemic. There are a number of counties in which a staggering number of opioids are prescribed, for example, Perry County (202 opioid pills per resident) and Crittenden County (145 opioid pills per resident). This epidemic is driven by prescription medications. Currently, 80 percent of people using heroin became addicted through prescription pills. Of those addicts, 70 percent acquired prescription pills from a family member or a friend, not a doctor. In August, the Attorney General’s Office launched the Kentucky Opioid Disposal Program, a pilot project to clean out home medicine cabinets. Currently, there are over 50,000 drug deactivation pouches that can eliminate over 2.24 million opioid pills. This is the first program that allows people to safely dispose of medication in their own homes. Each pouch can deactivate 45 pills and is environmentally friendly. The Attorney General’s Office has teamed with West Virginia Attorney General Morrisey to pressure national and state insurers to prioritize non-opioid alternatives to dealing with pain. The Attorney General from Ohio and Attorneys General Morrisey and Beshear are holding faith-based drug forums.
Third, treatment and recovery are needed to address the opioid epidemic. Along with 38 other state attorneys general, Attorney General Beshear is calling for Congress to pass the Road to Recovery Act, which will help open new avenues for addiction treatment while maintaining appropriate restrictions on mental health facilities. The Attorney General’s Office is also asking the national government not to cut funding for addiction treatment. Over $8 million has been provided to drug treatment centers from the appropriation of the $24 million OxyContin settlement. Freedom House, Hope in the Mountains, and Mary Hurst are organizations that have benefited from the settlement. The only other state to have a similar settlement was West Virginia in 2004 for $10 million. In 2007, the United States settled with a fine of $634 million, which went to Medicaid, of which Kentucky received $500,000. Canada also recently settled a case against Purdue Pharma totaling up to $20 million.
Attorneys general across the US are beginning to file lawsuits against opioid manufacturers, national wholesalers, and distributors. Over 23 Kentucky counties have filed lawsuits. An RFP was issued to aid the Attorney General’s Office in handling the lawsuits. The RFP asked for extensive experience, background knowledge, speed, and keeping costs within the parameters of HB 281. A team of two merit and two non-merit employees scored the RFP bidders. The RFP was awarded to a team of law firms including Joseph Rice of Motley Rice, Mark Lanier of The Lanier Law Firm, James Young of Morgan & Morgan, and John Roach of Ransdell Roach & Royce.
Justice Roach said that he was shocked by the statistic that 80 percent of heroin addicts began with opioids pills. The opioid epidemic is not a partisan issue. Mark Lanier is considered the premier trial lawyer and has gotten over three $1 billion verdicts. Linda Singer, who works for Motley Rice, is the former attorney general for the District of Columbia. She is leading the efforts in the opioid litigation for Alaska and New Hampshire. Joe Rice and his partner were the leaders in the tobacco master settlement agreement. Our team has people that have been part of the biggest pieces of litigation in American history.
Attorney General Beshear said it is important that we move quickly. Based on statistics from 2000, four people die of overdoses each day. It has been 21 days since the Office of the Attorney General submitted the contract to the Finance and Administration Cabinet (FAC) for approval. That period of time represents 84 overdoses. As attorney general, he has not restricted settlement funding. He will be encouraging the General Assembly that money that has caused addiction should be used to get us out of addiction, such as treatment, law enforcement, and education, but the Attorney General’s Office will not restrict appropriations from any funds received from these cases.
Representative Palumbo thanked Attorney General Beshear for his work on this issue. The $24 million received is incredible given that Canada received $20 million. She thanked Justice Roach for the work that he will be doing.
Attorney General Beshear said that $9 million from that settlement remains to be appropriated by the General Assembly over the next three budget sessions.
Representative Fugate said that he served 20 years with the Kentucky State Police, including the last 9 1/2 years as part of a task force that did drug investigations. He has had direct experience with the opioid epidemic and has seen lives destroyed because of some doctors who only care about money. He has also seen this become a political issue.
In response to a question from Representative Fugate, Attorney General Beshear said that Deterra makes the deactivation pouches. He learned about these from the attorney general of Pennsylvania, where the pouches are distributed through pharmacies.
Representative Fugate asked whether any settlement funding goes to faith-based rehabilitation facilities. Attorney General Beshear said that a number of facilities use a faith-based approach, including Hope in the Mountains. Freedom House uses a portion of its funding for a faith-based approach. Most of the recipients have 12-step programs, which would include a faith-based component. The only thing the Attorney General’s Office looked for in the programs it recommended to the General Assembly was effectiveness.
Senator Carroll thanked Attorney General Beshear for his testimony and said that we are all in agreement about the opioid epidemic. He has relevant experience, having served 24 years in law enforcement, including commanding a drug unit. Some of the things that we will get into today have nothing to do with that. There will be some difficult questions today that will be separate from this.
Senator Carroll asked why it was necessary to go outside the Attorney General’s Office to pursue these cases. Attorney General Beshear said that the costs of staying in house, which could be in the millions of dollars, would require an additional appropriation. Funding for hiring more staff would be required. Private firms are handling this on contingency. They bear all the costs and take the risk. No tax dollars are going to the firms. The Attorney General’s Office cannot afford to hire someone like Mark Lanier, who has secured more than three $1 billion verdicts. This gives Kentucky the chance to have attorneys with similar experience to the hundreds of attorneys that the drug companies will have.
Senator Carroll said that there have been questions about the contracts. The RFP was approved June 16. He asked whether the contracts have been approved by FAC. Attorney General Beshear said that it is an award when the top bidder is determined and the contract is signed. He is comfortable that the Attorney General’s Office followed the proper policies and procedures of FAC. There has been no communication from the cabinet in the 21 days since submission. If something else is needed, he would be happy to comply. It has taken FAC so long that the contract will have to be resubmitted because the start work date has lapsed. He is willing to work with the cabinet to resolve this.
Senator Carroll asked whether it would have alleviated some of the problem if this had been submitted to FAC earlier. Attorney General Beshear said that this was done in the same way as every other RFP from the Attorney General’s Office. The announcement and submission of the contract were the same.
Senator Carroll asked how there could be an announcement when the contract has not been approved by FAC. Attorney General Beshear replied that once the contract is awarded, you have to notify everyone and it becomes an open record. This is standard operating procedure for his office and, he believes, for others. FAC’s authority is to make sure all documents are in order and all steps are followed. The actual contracting authority is with the Attorney General’s Office.
Senator West thanked Attorney General Beshear and Justice Roach. He said that we can agree that this is a bipartisan issue. He asked what type of work has been done within the Attorney General’s Office. Attorney General Beshear said that he would have to be careful in answering, to not give anything away. He can say that the Attorney General’s Office has done significant research, identifying at least eight causes of action. He feels comfortable today, without extra assistance, suing at least one company. With extra assistance, there could be a better complaint that would allow cases to move faster from day one.
Senator West asked whether all the work will be on contingency. Attorney General Beshear said that it will be 100 percent contingency except for four attorneys from the Attorney General’s Office, which will retain control of the litigation.
Senator West asked whether there is an agreed-upon percentage for the contingency. Attorney General Beshear said that there is a cascading fee structure from HB 281 based on the amount recovered.
Senator West asked what percentage the state of Kentucky can expect to receive and what attorney fees will be. Attorney General Beshear said that costs are paid first, then the contingency. There is also the cost of the Attorney General’s Office staff working on this. Justice Roach said that for a $20 million recovery against one entity, the contingency is around 16 percent. Attorney General Beshear said that the specific contingency fee structure is 20 percent of first $10 million recovered, 15 percent for $10 million to $15 million, 10 percent for $15 million to $20 million, and 5 percent for more than $20 million.
Senator West asked whether hourly rates are included in the contingency. Attorney General Beshear said that there are no hourly rates, those costs ae included in contingency.
Senator Thomas said that the parameters in HB 281 for contingency fees are conservative compared to the market, which would typically be 33 to 40 percent. To get this quality of lawyers to commit to this is commendable. Average hourly rates for attorneys for Big Pharma are $1,000 per hour for partners, $750 for others.
In response to a question from Senator Thomas, Attorney General Beshear said that he did not know why there has been a delay of 21 days since contracts were submitted to FAC. He hopes there are legitimate reasons.
Senator Thomas said the delay is incomprehensible and immoral given the lives at stake.
Justice Roach said that some work cannot be done without a contract, but the team is already working.
Attorney General Beshear said that there were 17 bidders for these cases. Seven of the top 10 bidders refused to bid within the parameters of HB 281. He is especially concerned that this will be an issue with smaller cases for which outside counsel is needed.
Senator Thomas noted that he was not in favor of HB 281.
Senator Thomas said that one of the presentation slides showed high numbers of fentanyl deaths in Fayette and Jefferson Counties. He asked what are local officials saying about what can be done to address this. Attorney General Beshear said that multiple approaches are necessary. Law enforcement is focusing on fentanyl. Dealers are being prosecuted federally. Regarding prevention, most users do not go from a street-level drug to fentanyl and heroin, pills are a problem. Prescription pills in medicine cabinets are the driver of addiction.
Representative Simpson said that first major issue to be dealt with regarding settlement is to remediate damages caused by business practices through a cash settlement. The second issue is to alter the practice protocol of the industry. He asked whether there is any evidence that the latter has occurred. Attorney General Beshear said that two forms of recovery are being sought: monetary and injunctive, which is through a court order to change practices. We are starting to see change since lawsuits have been filed. CVS will no longer fill opioid prescriptions for longer than 7 days. Kentucky has already been more aggressive than that. He thinks that one of the wholesalers is going to do a Narcan program. Justice Roach said that what is different about this team compared to other states is that it is preparing cases to go to trial, not settlements.
In response to a question from Representative Simpson, Attorney General Beshear said that the attorney general’s office will make the decision to settle or go to trial. He added that appropriation authority for any funding from verdicts or settlements will be with the General Assembly.
In response to a question from Representative Bechler, Attorney General Beshear said that deactivation pouches cost about $4 each if $200,000 worth are purchased. The Attorney General’s Office will be submitting a budget request to the General Assembly for an additional $200,000. Some counties are putting together funding to do their own programs, as are churches and businesses.
Representative Bechler said that there seem to be more overdose deaths in central and eastern Kentucky. He asked why this would be the case. Attorney General Beshear said that western Kentucky still has more methamphetamine, especially crystal, compared to heroin. A lot of heroin comes in through northern Kentucky and Louisville.
Representative Bechler asked whether the slides on the number of prescriptions per county indicated prescriptions or doses. Attorney General Beshear said that both are shown.
Representative Bechler asked how successful the practice of going after the worst of the worst dealers is. Attorney General Beshear said that he would have to get this information; he would have to go through DEA. He can say there is an increase in cases being tried as murder.
Representative Bechler asked whether the first payment from a verdict or settlement is to an outside firm. Ms. McCoy-Johnson said that typically it will be to pay the firm’s costs. Attorney General Beshear said that in some cases, Medicaid will be paid.
Senator Carroll asked whether there is a conflict of interest with any manufacturers or distributors related to the Purdue Pharma case. Attorney General Beshear said that he did not work on the Purdue Pharma case.
Senator Carroll said that the attorney general worked for the firm that represented Purdue Pharma. Attorney General Beshear said that he has not seen a single name on any list that he perceives as a conflict. If that arises, it will go to the Bar Association.
Senator Carroll asked whether the only connection with the Attorney General’s Office is former Attorney General Stumbo being employed by Morgan and Morgan. Attorney General Beshear said that Mr. Stumbo is the only person with the firms who has been in Kentucky’s Attorney General’s Office.
Senator Carroll asked whether former Speaker Stumbo would be working on the case. Attorney General Beshear said that his understanding is that he will not be an active participant. He is the attorney general who filed the Purdue Pharma lawsuit, so he will be available for consultation.
Senator Carroll said that based on his several weeks of research on the Purdue Pharma case, there are blatant concerns with the settlement. In 2007, then Attorney General Greg Stumbo sued Purdue Pharma over its deceptive marketing of the drug OxyContin. He claimed that the case would be worth at least $1 billion to Kentucky. The Attorney General’s Office submitted to Purdue Pharma a request for admissions, which is a request by lawyers that the opponents in a case admit that specified facts are true. Admitted facts are conclusively established and need not be proven. The deadline for answering a request for admissions is 30 days. If the deadline is missed, the request is automatically deemed to be admitted. If a request for admissions addresses the central issues in the case, failure to answer by the deadline means, in effect, that the defendant has conceded that it is liable to the plaintiff.
Stites & Harbison, the law firm Purdue Pharma hired to represent it, moved to remove the case to federal court but did not respond to the request for admissions. The parties disputed whether the case was actually eligible for removal to federal court, and the case was eventually sent back to state court. When the case returned to state court in 2013, the Pike County circuit judge ruled that the request for admissions was deemed admitted and that the admissions were permissible at trial. This essentially ended Purdue Pharma’s defense. Purdue Pharma immediately asked the Kentucky Court of Appeals to overturn the ruling, arguing that it would not be able to survive the effects of the admission as to liability, thereby leaving damages the only remaining issue.
One of the lead attorneys for Stites & Harbison indicated that there was a potential $1 billion settlement, which meant that the firm could be facing at a legal malpractice liability of the same amount because of the missed deadline. Senator Carroll said that among the materials distributed to Program Review and Investigations members at today’s meeting was an April 15, 2013 letter from the Attorney General’s Office to the chairman of Stites & Harbison stating that the failure to timely respond to the request for admissions constitutes a possible basis for a legal malpractice claim by the firm’s clients. Jack Conway was attorney general at the time. Andy Beshear, as a Stites & Harbison partner, might have been liable for a portion of any malpractice claim.
Attorney General Beshear noted that he wanted to clarify for the record that he was not an equity partner.
Continuing, Senator Carroll said that in August 2013 Attorney General Conway told CN2 Pure Politics that liability was essentially established and the remaining issue was damages. The following month, in response to questions about settling the case, Conway told CN2 that he would not be negotiating much less than nine figures and that he wanted something well into nine figures. In 2014, the Court of Appeals rejected Purdue Pharma’s request, thereby leaving in place the ruling of the Pike County circuit judge. Purdue Pharma appealed to the Kentucky Supreme Court, where proceedings carried on into 2014 and 2015.
Suddenly, a month after the 2015 election, the Attorney General’s Office settled the case for $24 million, roughly 2 percent of the minimum value placed on the case by former Attorney General Stumbo and a principal with Stites & Harbison. So what had changed? Andy Beshear, a Stites & Harbison partner, was elected attorney general in 2015. In addition to Purdue Pharma getting a low-ball settlement, its law firm, Stites & Harbison, benefited. The agreement contained an unusual provision stating that the request for admissions was deemed not to have been admitted and that the response that Stites & Harbison had submitted to the court was deemed to be properly filed. This ended the possibility that the firm might be sued for malpractice.
Roughly 1 month after the settlement agreement, the Attorney General’s Office, now led by Andy Beshear, entered into a contingency contract with the law firm Dolt, Thompson, Shepherd & Kenny. The contract was for representation of the Commonwealth in the lawsuit against Purdue Pharma, which had been settled in December 2015. The contract stated that it was for settlement distribution only, in effect, giving $3.7 million in settlement proceeds to Dolt, Thompson. Former Attorney General Conway soon joined that firm as a partner. Dolt, Thompson had initially been given a contract to represent the Commonwealth in the Purdue Pharma case in 2014, shortly after Conway announced that he was running for governor. The contract provided that the firm would be paid on a contingency basis, meaning that it would be paid a percentage of any amount recovered from Purdue Pharma. However, the contract expired at the end of June 2015, and the evidence indicates that that it was never renewed. If it had been, there would have been no need for the Attorney General’s Office to enter into a new contract with the firm in January 2016. The firm had continued working the case after its contract expired in June 2015. It did so at its own peril; Kentucky law is clear that a vendor cannot be paid for work that is not performed pursuant to a written contract. There is no question that such a respectable, experienced firm should have known this.
Senator Carroll asked Attorney General Beshear why he entered into a contract with Dolt, Thompson, Shepherd & Kenny at the end of January 2016. Attorney General Beshear said that he wished to apologize to the parents in the audience for what was happening at this meeting. Senator Carroll said that the Attorney General had been asked to come before the committee to discuss law firms. The Attorney General replied that he was called before the committee for a discussion, not to be attacked politically.
Senator Carroll said that he is not a political person and that he is pursuing this matter because his research has raised suspicions. Attorney General Beshear said that he strongly disagreed and that he was surprised at the argument that the state did not have to pay the lawyers who worked the case. He was not involved in the contract renewal. His only participation in the case was to make a recommendation for appropriating funds from the settlement.
In response to further questions from Senator Carroll, Attorney General Beshear repeated that he was not involved in the new contract.
Senator Carroll asked whether he was aware the new contract was being signed.
Representative Palumbo said that the topic on the agenda was potential legal action against the drug industry for contributing to opioid abuse. Senator Carroll responded that the Attorney General was made aware of what was going to be discussed. Attorney General Beshear said that he had emailed Program Review staff to say that he had no knowledge of the Purdue Pharma case and was not a part of any settlement talks. The email advised that another witness would need to be secured to testify about the case.
In response to a question from Senator Carroll, Attorney General Beshear said that his office did not pay Stites & Harbison.
Senator Carroll asked Attorney General Beshear whether his office had paid Dolt, Thompson for its services. He replied that the team of lawyers involved in the Purdue Pharma case was paid under the contingency fee contract. The amount paid would have been determined by the settlement that occurred under the previous administration. The payment to the firm was made during his administration.
Senator Carroll asked whether it was correct that Dolt, Thompson was paid for a settlement that was made in December 2015 and the firm was not under contract then. Attorney General Beshear said that he did not know whether the firm was under contract. He said that it would be difficult to argue before a court that the Commonwealth could get out of paying lawyers who were under a contingency fee contract. To be able to secure future contingency fee work, it would be a concern if the Commonwealth would not live up to its obligations.
Senator Carroll said that the firm was not under contract at the time and that Attorney General Beshear initiated a new contract in order to pay them. The Attorney General said that it is basic contract law that a firm that has been under a contract that secured a legal settlement should ultimately get paid for its work.
Senator Carroll asked whether the contract with Dolt, Thompson that he signed was retroactive. Attorney General Beshear replied that he did not sign the contract.
Senator Carroll asked whether he had knowledge of what goes on in his office. Attorney General Beshear said that he did but that he specifically decided not to be a part of anything having to do with Purdue Pharma.
Senator Carroll asked whether he knew how much Dolt, Thompson was paid under the new contract. Attorney General Beshear said that the amount that was received was negotiated down to the present value because all $24 million does not come in at once. By paying the firm for the first installment that came the amount was lessened. He said that he did not negotiate the amount but that he is aware of it. It was $3,747,502.11.
Senator Carroll asked whether he investigated why there was a need for a new contract. Attorney General Beshear replied that he has intentionally not touched anything having to do with the Purdue Pharma matter.
Senator Carroll asked whether it would be his responsibility to determine whether there was a legal obligation from the state to make the payment. Attorney General Beshear replied that he has intentionally not touched anything having to do with the Purdue Pharma matter.
Senator Carroll asked whether he was going to ignore it if there was something improper about the payment. Attorney General Beshear said that the responsibility would be on the on the chief deputy or others. That is how it would normally be handled. Administrative staff were working on this the entire time. He reiterated that he had made the important decision to not touch the Purdue Pharma litigation in any form or fashion, and that he has not done so.
Senator Carroll asked whether, based on his legal experience, it would be unusual for a firm of that stature to let a contract expire before a settlement was made. Attorney General Beshear responded that based on his knowledge as an attorney one cannot get out of a signed contract for which the work has been performed. It would not say a lot about the Commonwealth to hire an attorney, agree to a fee, have the attorney do the work and secure a settlement that is the largest settlement by any state and larger than the entire country of Canada, and then say that the lawyers would not get paid.
Ms. McCoy-Johnson said that the contract expired prior to Attorney General Beshear assuming office in January 2016. At this point, staff were unaware that the contract had expired and did not allow any law firm to proceed with any work on any contract. The prior administration had proceeded with the negotiations and the settlement on December 22. When it was discovered that there was no active contract, staff discussed this with the FAC. Mitchell Denim, the Assistant Deputy Attorney General for Civil and Ms. McCoy-Johnson testified before the Government Contract Review Committee. The contract was approved retroactively so that it could be paid and settle the agreement.
Senator Carroll said that as a layperson the question comes from the fact that there was no contract at the time of the settlement. Attorney General Beshear said that if the attorneys had not been paid the agreed-upon amount that, through the court, the Commonwealth could have also owed numerous attorney fees.
In response to a question from Senator West about whether he worked on the Purdue Pharma case while he was at Stites & Harbison, Attorney General Beshear said no, he was not a part of that litigation team.
Senator West asked whether he avoided this case because of a conflict of interest because he worked for the firm. Attorney General Beshear said that he did not think that the Bar would have recognized a conflict but he was unsure. To be cautious since the matter had been settled, the right thing to do was to let others in the office fully decide and control those decisions.
Senator West clarified that Attorney General Beshear did not work on the case at Stites & Harbison but out of an abundance of caution decided to step back. The Attorney General agreed.
In response to questions from Senator West, Attorney General Beshear said that the $3.7 million for Dolt, Thompson was an agreed-upon contingency fee. There were also payments for attorney expenses and document management. Document management cost $418,000, which shows why outside counsel are needed because just managing the millions of documents ended up costing this much.
In response to questions from Senator Thomas, Attorney General Beshear agreed that he was not an equity partner at Stites & Harbison, which means that he could not be liable for any claim against the firm. He said that his understanding is that the decision in this case was the first of its kind, but that he has not researched it and was not part of it.
In response to a question from Senator Thomas, Attorney General Beshear agreed that when this case was finally settled, the matter was before the state Supreme Court on appeal. The court was going to be asked whether this issue, which is the first time that it ever happened, was valid.
Senator Thomas said that, as Justice Roach would acknowledge, when a case is before a court for trial or on appeal, the ultimate outcome is unknown and this was not the first case that had been settled prior to an appellate decision being rendered. Attorney General Beshear agreed.
Senator Thomas said whatever decision was made was based on the fact that the Kentucky Supreme Court could have overturned the appellate court decision. Attorney General Beshear agreed that it could have and that the case would still have had to return to trial court for further proceedings. If the court had overturned the previous ruling, it could have been an additional 10 years.
Senator Thomas said that it would be fair to say that both parties made a reasonable decision given the risks regarding the outcome. As already indicated, the settlement was for significantly more than what Canada received. Attorney General Beshear said that he had not seen a state settlement against a single opioid manufacturer that exceeds $24 million, a $35 million settlement was for multiple states.
Senator Thomas said that we ought to be clear that this case was settled before a final decision was made regarding the case. In response to his questions, Attorney General Beshear agreed that Dolt, Thompson had not been paid before and that by paying them for legal services rendered the state was honoring an obligation.
Senator Thomas said that he did not see what the problem is. If attorneys have done the work, they should be paid. Attorney General Beshear said that is basic contract law.
Representative Linder said that he was trying to understand why former Attorney General Stumbo and then current Attorney General Conway mentioned a $1 billion settlement and then the case was settled, apparently in a rush, for about 2 percent of what they said. He asked for an explanation of the sudden shift from $1 billion to $24 million. Attorney General Beshear responded that former Attorney General Conway should be asked that. He can only show the numbers of actual settlements that are publicly available and how Kentucky’s settlement compares. He was not part of the settlement and has no knowledge of the thinking that went into it.
Representative Linder said that Attorney General Beshear had earlier apologized to the families in the audience for what they see in their government. If this is true, we need to apologize to the families of Kentucky for what they saw with the previous attorney general.
Representative Bechler said that there was an open records request to the Attorney General’s Office last year asking for documents related to Purdue Pharma. He asked why the request was denied. Attorney General Beshear said that he has not touched anything involving Purdue Pharma, so Deputy Attorney General Brown would need to answer that question. Mr. Brown said that when the open records request was submitted he reviewed two legal documents that were filed. One was a settlement confidentiality agreement, which is not unusual during litigation, in which parties exchange information during the course of litigation and then it is agreed through the court what will be held in confidence until the case goes to trial or there is a settlement. That was in 2013. In the final settlement entered December 22, 2015, there were agreements about records that would either be returned to the parties or destroyed. That was pursuant to the court order in the settlement. When the open records request came in, the office had to conform to the agreement of 2013 and the final settlement order of the court.
In response to a question from Representative Bechler, Mr. Brown said that it is not a matter of redactions so that some materials could be provided, it is a matter of compliance with the court order.
Senator Carroll asked how the money was paid from the Purdue Pharma settlement to Dolt, Thompson. Ms. McCoy-Johnson said that the money was transferred to an off-budget account, and the firm was paid through that before the money was transferred into a restricted fund account.
In response to a question from Senator Carroll, Ms. McCoy-Johnson said those funds were not paid directly from Purdue Pharma to Dolt, Thompson.
In response to a question from Senator Carroll, Ms. McCoy-Johnson said that she did not know when the first payment was made, she would have to check. It would have been very shortly after December 22. She said that she thought that the judgment required payment to come within 30 days of that.
Senator Carroll asked Ms. McCoy-Johnson whether she had discussions of the payment with Attorney General Conway or any of his staff. It was the end of his term and he was going to work for Dolt, Thompson, so there were issues related to paying the firm. She replied that the only staff that that she spoke with were staff who were retained from the Conway administration. She discussed some of the money transfers with Larry Clark, a budget person who worked for about 4 months into this administration. Assistant Deputy Attorney General Mitchel Denhem was part of the transition on this.
In response to a question from Senator Carroll, Ms. McCoy-Johnson said that she did not think there was a delay in payment to wait for the new contract to be in effect.
Senator Carroll said that we have been through the question about providing Purdue Pharma or anyone else acting on its behalf with any legal representation or advice of any kind in relation to the Commonwealth’s litigation. He asked Attorney General Beshear to clarify that he is saying that he had no involvement whatsoever. Senator Carroll said that he seemed to remember a quote the Attorney General made in a recent interview about answering some questions related to the case within his firm. Attorney General Beshear responded that he could have been asked a question about Attorney General Conway or anything dealing with personalities or the like, but that he was not a part of any litigation team or any settlement talks.
Senator Carroll asked Attorney General Beshear whether he had ever talked to John Famularo about the Purdue Pharma case. The Attorney General said that Mr. Famularo has passed away since that case. He did not recall any conversations, but Mr. Famularo could have asked about the players. The Attorney General said that he was not a part of that litigation.
In response to a similar question from Senator Carroll, the Attorney General said that Dan Danford is an attorney in the [Stites & Harbison] Lexington office. He could have asked about the players. Attorney General Beshear said that he was not a part of that litigation.
Senator Carroll asked whether the answer would be the same for Ken Sagan. Attorney General Beshear said that he did not know that Mr. Sagan worked on the matter; he is not a litigator.
Senator Carroll asked Attorney General Beshear whether he was head of the Stites & Harbison Attorney General Defense Practice Group. He replied that ultimately people hire the lawyer they want to hire in any firm, and that person is the head of any suit. He said that he did not participate in the Purdue Pharma litigation or any settlement talks.
Senator Carroll asked whether he had an official title as the head of the Attorney General Defense Practice Group. Attorney General Beshear said that it was not recognized as an official title; it was part of the marketing of the firm. He said that the meeting was drifting into things left over from the last campaign or that are grossly political and have nothing to do with fighting the opioid epidemic. He said that he wants to work in a bipartisan way to hold these companies responsible.
Senator Carroll said that he wanted to focus on what is being discussed today. He asked whether Attorney General Beshear was saying that it was not his job to be involved in cases that involved the attorney general suing one of his firm’s clients. The Attorney General replied that a law firm does not work this way. Someone hires a specific lawyer in the firm. The client decides who does the work. He said that he did not work on the Purdue Pharma matter in any way and was not involved in the settlement talks.
Senator Carroll said that most firms have a system, sometimes called an origination credit, for tracking the amount of business that a lawyer brings to the firm. He asked whether Stites & Harbison had origination credits or something similar when Attorney General Beshear was in practice there. The Attorney General responded that it would definitely be inappropriate to talk about the internal business practices of a law firm that is not present.
In response to questions from Senator Carroll, Attorney General Beshear said that he did not receive origination credit for any work that Stites & Harbison did on Purdue Pharma or any work for subsidiaries.
Senator Carroll asked if subpoenaed records from Stites & Harbison would be consistent with what Attorney General Beshear has been saying. The Attorney General said there would be no record of an origination credit because he did not work on the Purdue Pharma case.
Senator Carroll asked whether this would be accurate for any subsidiary or anyone related to the case. Attorney General Beshear said that not that he was aware of but that he did not know the subsidiaries of Purdue Pharma. He said that he would look at a list of subsidiaries if the committee has one. He said that he was not aware of any Purdue Pharma subsidiaries for which he had ever received any type of origination credit.
Senator Carroll asked whether Attorney General Beshear would be willing to provide billing records to the committee. The Attorney General responded strongly that you cannot do that as an attorney because you would violate virtually every ethical obligation that you have, and they are not his records. The attorney general’s office is the only office that has a professional requirement related to it. You have to be a lawyer in good standing. Turning over billing records would change a lawyer in good standing to one that is not and could possibly disqualify you from office.
Senator Carroll asked whether the Attorney General’s father, former Governor Steve Beshear, returned to practice at Stites & Harbison following his term as governor. Attorney General Beshear said that he did but not as an equity partner.
In response to a question from Senator Carroll, Attorney General Beshear said that he did not know any details of his father’s compensation or partnership package.
Senator Carroll asked whether Attorney General Beshear knew whether his father receives origination credit related to Purdue Pharma or any of its subsidiaries. The Attorney General said that he knew nothing about origination credits because he knows nothing about the contract. He said that his father returned to the firm long after the Purdue Pharma settlement.
Senator Carroll asked Attorney General Beshear whether he was aware of the letter dated April 15, 2013, that establishes a notice of potential legal malpractice. The Attorney General said that he had not seen the letter, but that he believes he was told about it at some point.
In response to questions from Senator Carroll, Attorney General Beshear said that he did not remember when he was told about the letter, but it was while he was at Stites & Harbison. He said that he would not have worried about it, the firm’s attorneys can handle their business.
Senator Carroll asked Attorney General Beshear whether he was ever involved in any discussions related to the failure to comply with requests for admission. He replied that he was not involved in any discussion that he could recall on that. He said that he thinks he was told about it.
Senator Carroll said that the Purdue Pharma case started in 2007. He asked Attorney General Beshear why he would not have been involved before he decided to run for attorney general. The Attorney General replied that he did not move back to Kentucky until 2005. The case came to the Lexington office, which chose its own attorneys. At the time, there were more than 200 attorneys in the firm, so it would not be unusual for him not to have staffed one of the tens of thousands of cases the firm had. The same would be true of Governor Bevin’s General Counsel, whose firm had represented Planned Parenthood. That does not mean that he represented Planned Parenthood, it just means that the firm did.
In response to a question from Senator Carroll, Attorney General Beshear said that he did not know whether Stites & Harbison put its malpractice insurance carrier on notice for a potential claim, but that it would be a standard practice.
In response to a question from Senator Carroll, Attorney General Beshear said that his last day of employment with Stites & Harbison was the end of November 2015. He said that this is getting far afield from the opioid crisis that we should all be fighting together. Before they left, the parents who were here who have lost their children said they are ashamed of what was going on here.
Senator Carroll said that is a separate issue on which everyone is on the same page. This has to do with Attorney General Beshear’s credibility and the way this case was handled.
Attorney General Beshear said that it has to do with a political attack.
Senator Carroll said that it has to do with concerns about where Attorney General Beshear is headed and his ability to handle the cases that are coming.
Attorney General Beshear said this is based on a case that he was not a part of.
Senator Carroll said that citizens should decide that for themselves. He asked Attorney General Beshear to describe the transition process that occurred between his election as attorney general in 2015 and his swearing in to replace Attorney General Conway in January. Attorney General Beshear said that he had a conversation with General Conway about staffing, which he said he believed was the only conversation.
In response to a question from Senator Carroll, Attorney General Beshear said that he did not discuss pending litigation with Attorney General Conway. At that point, he was not part of the attorney-client privilege with the office.
Representative Palumbo told Attorney General Beshear that he should not stand for any more of these personal, political attacks. He said that he appreciated this.
Senator Carroll asked Attorney General Beshear whether he or anyone on his staff had conversations with former Attorney General Conway or anyone on his staff about the Purdue Pharma case. Attorney General Beshear said that he did not. There were staff from the previous administration who carried over.
Senator Carroll asked Attorney General Beshear whether he used information that he learned during the transition period to help Stites & Harbison settle the Purdue Pharma case. Attorney General Beshear responded that he was not involved in any way with the settlement.
In response to a question from Senator Carroll, Attorney General Beshear said that he had no knowledge of any settlement discussions between Purdue Pharma and the Commonwealth.
Senator Carroll asked whether the answers of attorneys from Stites & Harbison would be consistent with his if they were subpoenaed. Attorney General Beshear said that he did not know what Stites & Harbison attorneys knew if they were part of the settlement discussions.
Representative Bechler said that given the length of this discussion, there would be no presentation at this meeting on the foster care report. He apologized to staff who were presenting the report and those who were to respond to it. He invited Judge Walker-FitzGerald to testify so that she would not have to return for next month’s meeting. [At this point, it was learned that Judge Walker-FitzGerald was no longer in the audience.]
Attorney General Beshear said that he would be happy to take a few more questions, but that he was here voluntarily. He said that he has not seen a constitutional officer treated this way before this body and that he has not treated legislators in a similar manner. He said that he wants to work with legislators, drugs are not partisan, and today felt like an attack. We ought to be working together to hold these companies responsible for the opioid epidemic.
Senator Thomas said that he agreed with General Beshear and Representative Palumbo that this is a political action. To say that one is not a politician in nature when one is an elected official who conducts an inquiry like this, it is obviously political. Someone is at this hearing who has already announced a decision to run for attorney general in 2019. Senator Thomas said that he wanted to follow up on some of the questions to be clear on the law. He asked whether his understanding was correct that under Kentucky law you cannot enter into a contract for retroactive payments. Attorney General Beshear said that he would have to look into that. Ms. McCoy-Johnson said that the second Dolt, Thompson contract was a renewal, not a new contract.
Senator Thomas asked whether he was correct that a large law firm could have hundreds of clients, so not every member of the firm works on a particular case. Attorney General Beshear replied that 98 to 99 percent of the members of such a firm would not be working a specific case. In his experience, clients want a small group of people who they trust working on their matter.
Senator Thomas said that he applauded Attorney General Beshear for his ethical decision given the attention given to the Purdue Pharma settlement to avoid any appearance of impropriety by removing himself from anything that the Attorney General’s Office did with case. Senator Thomas said that he would have done the same thing.
Attorney General Beshear said that he appreciated that. In reference to previous questions that mentioned subpoenas, he said that the settlement agreement, which was entered into by the previous administration, could potentially be breached by those actions. The committee should be very careful. If the settlement agreement is breached, the Commonwealth may have to pay Purdue Pharma $24 million. Groups like “Hope in the Mountains” could have to return funds they have received via the settlement.
Senator Thomas said he did not understand the relevance of former Governor Beshear’s compensation. He would welcome an explanation of how this is relevant to the opioid addiction issue or the Purdue Pharma settlement.
Senator Carroll asked Attorney General Beshear whether he was aware that former Attorney General Stumbo was on the record stating that the Purdue Pharma case was worth at least $1 billion dollars to the Commonwealth. Attorney General Beshear replied that if he said it, he said it. Attorney General Beshear said that he was not part of this litigation or the settlement talks.
Senator Carroll asked Attorney General Beshear whether he was aware that then Attorney General Conway said that he would not sit down at the table unless there was a nine figure settlement offer. Attorney General Beshear said that former Attorney General Conway would need to be asked that.
Senator Carroll asked Attorney General Beshear whether he would agree that compared to those statements, a $24 million settlement is low. Attorney General Beshear replied that he had never seen a collected billion dollar settlement against a pharmaceutical company. He continued by saying that, having not been a part of the litigation and not having not seen the documents, all that he can show are the numbers that others have settled for. There is no question that OxyContin ravaged our communities, but so did other opioid pharmaceuticals that he is ready to go after. He said that he wants to move forward together to save a number of our children if we can change the rates of addiction, but we cannot do it that if we are engaged in this.
Senator Carroll said that is why it is so important that we get these questions asked so that we can get it behind us. He asked Attorney General Beshear whether he was aware that the settlement agreement between the Commonwealth and Purdue Pharma specifically states that the requests for admission to Purdue Pharma were deemed admitted by Purdue Pharma under oath by the Pike County Circuit Court dated April 1, 2013, and September 25, 2013, are hereby withdrawn pursuant to CR 36.02 and Purdue Pharma’s April 12, 2013, responses are accepted into the record as proper responses to the Commonwealth’s October 4, 2007, request for admissions. Attorney General Beshear said that he had read the settlement but was not aware of any of the settlement discussions, so he could not testify on any decisions related to the settlement.
Senator Carroll asked Attorney General Beshear whether his legal opinion is that the provisions of the settlement get Stites & Harbison off the hook for any potential malpractice claim. Attorney General Beshear said that he would have to analyze the litigation.
Senator Carroll asked why the Attorney General’s Office would agree to such a provision and whether it was unusual. Attorney General Beshear responded that in every litigation that is settled the discovery ultimately goes away because the settlement says that no one is admitting liability.
In response to questions from Senator Carroll, Attorney General Beshear said that he did not know if anyone at Stites & Harbison receives a success bonus for settling cases. He said he had never received one.
In response to questions from Senator Carroll as to whether anyone connected to Purdue Pharma or anyone from Dolt, Thompson contributed to his campaign for attorney general, Attorney General Beshear said that he did not know.
Attorney General Beshear said that he had been more than patient in answering every question he could. This has moved into issues from a previous campaign. He said that he has been more transparent than any other attorney general, including releasing his tax returns, which no previous attorney general has. He said that he looked forward to working with those who were not leading this questioning to address the opioid epidemic.
[At this point, Attorney General Beshear and Ms. McCoy-Johnson left the meeting.]
Senator Buford asked former Justice Roach if he had any idea of the settlement that would be hoped or asked for with the new cases that are being pursued. He responded that his approach is to treat every case like it is going to a jury, so it would be up to the other side to propose a resolution.
Senator Buford asked whether other states have been successful and whether other states join with Kentucky on this matter. Justice Roach said that the earlier presentation listed some states that have broad actions. Everything is early. There are also county cases.
Senator Buford said that in previous administrations it could take 2 to 3 months to get a response from the FAC.
Justice Roach said that his job is to help this team become acquainted with Kentucky. Ultimately, the attorney general can make a decision about how to resolve cases.
Senator Buford asked Justice Roach whether he had an opinion on how the Purdue Pharma case was so mishandled. He replied that he only knew what he has read in newspapers.
Senator Buford asked whether there was information that could be released as an open record about the Purdue Pharma case since it was resolved. Senator Carroll said Mr. Brown addressed this; there are stipulations in the agreement that say that none of that can be released.
In response to a question from Representative Bechler, Justice Roach said that he did not know what percentage of opioid abusers started with marijuana.
Mr. Brown said that about 6 years into the case a protective order was issued, which is, in effect a confidentiality order concerning the documents that were being produced. During the course of discovery, parties exchanged information and documents as part of civil procedure. When the case was finally adjudicated and settled, there was no admission of liability. Therefore, the information that had been exchanged goes back to the owner or is disposed of as per order of the court. Nothing becomes an open record, it is the opposite of that.
Representative Bechler thanked everyone and said that the next meeting of committee would be November 9.
The meeting adjourned at 12:20 PM.