The National Association of Attorneys General and Ohio AG Dave Yost have finally stated what should have been obvious from the beginning: The strategy of recruiting thousands of cities and counties as plaintiffs to sue the opioid industry is a procedural and political fiasco.

In unambiguous July 23 letters to U.S. District Judge Dan Polster, NAAG and Yost both urged the judge to reject any attempt to form a “negotiation class” representing 34,000 potential class members nationwide. Lawsuits by about 1,200 municipalities are currently included in the federal MDL in Cleveland while hundreds more are filed in state courts. That’s created a big problem for plaintiff attorneys who can’t negotiate a global settlement — and get paid fees — unless they can promise global peace to the companies they’re suing.

Federal courts have no jurisdiction over lawsuits by the states, however, and the proposed “negotiation class” doesn’t include Indian tribes, labor-union health plans, hospital districts and the federal government, all of which will demand their share of any opioid settlement. The plaintiff lawyers came up with their proposal after long experience with asbestos bankruptcies, where a federal judge can enforce a settlement on behalf of all present and future claimants. But Judge Polster has no such power in the opioid litigation so the best the lawyers can do is try and assemble a large enough class to entice the defendants to settle their claims — and pay their fees.

The NAAG letter points out the flaws with this strategy. First of all, cities and counties are political subdivisions of the state, created by state statute. They don’t have independent sovereignty and so a class certified by a federal judge cannot overrule the state on how to allocate money from the opioid litigation.

Second, the proposed class structure itself is unworkable under Rule 23 of the Federal Rules of Civil Procedure, which governs federal class actions. The plaintiff lawyers want to use Rule 23(e) governing class-action settlements, NAAG says, but any class must first pass muster under Rules 23(a) and (b)3. And those rules are unlikely to be met, because the “claims and defenses” of the parties are most definitely not the same — some small towns have massive opioid problems, some do not, big cities have different needs and remedies than rural counties — and the class representatives won’t adequately protect their interests. The proposed representatives include cities and counties from 30 states but will inevitably be dominated by big cities like Atlanta, Chicago and San Francisco.

There’s the also not-insignificant problem of conflicts of interest between the private lawyers and their supposed clients. As University of Georgia Law School Professor Elizabeth Burch has explained in meticulous detail in her book Mass Tort Deals, plaintiff lawyers in MDLs frequently negotiate deals that benefit them at the expense of many of their clients. In this case, like in most MDLs, the lead lawyers including Simmons Hanly Conroy, Motley Rice and Seeger Weiss would not only get fees from their individual clients but expect to earn “common benefit fees” even before the settlement is completed, setting up conflicts with class members and other lawyers over a limited pot of money. One tactic MDL lawyers use to stifle dissent is to negotiate settlements with “blow” clauses that allow the defendant to walk away if not enough plaintiffs sign on the dotted line. Another clause they like to use requires lawyers to drop clients who don’t sign. In combination they are powerful tools to get the deal done and the common-benefit fees flowing. But they won’t work in this case unless they can somehow get the states, who have the privilege of litigating in their own courts, to join their deal. Simple question: Why would they?

The proposal also includes an elaborate mechanism for distributing the proceeds of any settlement. You can take it for a trial run here. NAAG did, and determined that more than 52% of Pennsylvania’s municipal class members would get less than $500 out of a $1 billion settlement — effectively nothing under rules that return smaller amounts to the general fund. “The proposed representative class members cannot fairly represent the class if they have assisted in developing the plan for distribution,” NAAG says.

Ohio AG Yost and NAAG also note the proposed “opt-out” structure is probably unworkable. Rule 23 allows opt-out class actions, where representative plaintiffs negotiate a settlement on behalf of class members who are absent from those negotiations. Once the deal is put before the entire class, individual members can opt out to pursue their own litigation. If they don’t opt out, they’re presumed to be in.

Opt-out classes have manifest problems, including the fact only a vanishingly small percentage of class members actually participate in most settlements. (For my oft-cited take on this, see this Forbes article.) That’s why labor relations law requires classes to be opt-in, where class members affirmatively agree to join.

Litigation involving tens of thousands of municipalities, most of them run by elected officials and some, such as in New England, that require a citizen vote to approve major financial matters, simply can’t be run on an opt-out basis, NAAG and the Ohio AG say. The plaintiffs cite Section 3.18 of the ALI’s Principles of Law of Aggregate Litigation  to support their plan. But NAAG says the ALI scenario involves cases where class members affirmatively opt-in, not a “negative option” where they have to opt out to preserve their rights.

Ohio AG Yost uses spicier language in his letter. He attacks “the self-admitted power grab being made by unelected private attorneys to control the distribution of public moneys within the States.”

“Federal courts are not instrumentalities for political subdivisions to restructure the internal affairs of a State,” he wrote. “The federal republic is The United States of America, and not the United City-States of America or the United Counties of America.”

And this historical note:

“A `class’ that includes every Ohio political subdivisions has existed since 1803 when Ohio was granted Statehood and admitted into the Union. It is not within the province of plaintiffs’ counsel or this court to reorder the system of government adopted by State and Federal Constitutions.”

Plaintiff lawyers came up with what they thought was a brilliant way to shock and awe the opioid industry into coughing up a multibillion-dollar settlement by recruiting thousands of cities and counties as plaintiffs and bundling them into a federal MDL. The same strategy has worked like gangbusters in mass torts over pharmaceuticals and defective automotive ignition systems. Facing thousands of lawsuits and an easy, if expensive, way to end them, defendants usually negotiate a settlement. Plaintiff lawyers get rich.

But it’s surprising they didn’t foresee the difficulty in using the same approach toward opioids, where the states have the most powerful claims and the tools to prosecute them. I can’t get into the heads of the plaintiff lawyers but it’s almost as if they took to heart the criticism of the 1997 tobacco settlement, which showered private lawyers with $14 billion in fees but resulted in very little money going toward tobacco cessation and health programs. It was the state’s money after all, and states can do with their money what they please.

Maybe this time the lawyers thought they’d defuse that criticism on the front end by representing cities and counties and winning money for their opioid-related expenses, bypassing greedy state legislators who would otherwise steer it toward roads and pay increases for their friends in public-sector unions. Judge Polster apparently believed the same rosy scenario, in the early stages even predicting he’d preside over a settlement that reformed industry practices and provided billions of dollars for opioid treatment before the end of 2018.

No one on the plaintiff side seemed to think through the basic questions of federalism and constitutional law that any student learns in the first year of law school. States are quasi-sovereigns under our system of government; cities and counties are mere subdivisions of the sovereign. While there were a few tobacco lawsuits by cities and counties back in the 90s, most went nowhere. The Michigan Supreme Court stated it succinctly in 2002 when the Sixth Circuit Court of Appeals asked its opinion on whether the Michigan Attorney General could quash a lawsuit against the tobacco companies after the state had settled its claims.

“Where the state expresses its position on issues clearly of state interest, subdivisions are subordinate to the state’s position,” the court said. “The Attorney General of Michigan possesses the authority to represent the interests of the people of Michigan, and thus the Attorney General has the authority as part of this representation to represent the people of a county who are a part of these same people.”

Lawyers for the cities and counties will of course argue they are suing over their opioid-related expenses, not the state’s, but the AGs argue equally forcefully that the opioid crisis and how to resolve it are questions best answered on a statewide basis. I would add that they should be answered by elected representatives and officials of the state agencies they established for that purpose, and not courts, but that is an issue for another day.