May 23, 2024
N.Y. may have to refund millions to opioid companies after appellate court ruling
The companies are seeking a refund of $57.4 million from the state, which the court said violated their due process rights.
New York may have to pay out potentially millions of dollars to opioid companies because that revenue was collected in a way that violated their due process rights, an appellate court ruled Thursday.
- The money was collected for the purpose of funding opioid addiction treatment programs and resources.
This goes back to 2018, when the Legislature passed the Opioid Stewardship Act.
- At the time, that law required opioid companies to pay into the Opioid Stewardship Fund. That money would then be used to combat opioid addiction.
- The fund was intended to collect $100 million from opioid companies each year. The amount each company paid was based on their share of sales on the market.
So, if I operated the Dan Clark Opioid CompanyTM and my sales accounted for 20 percent of the market, I would have had to pay $20 million into the $100 million fund.
But here’s the thing: the first round of payments were based on each company’s share of sales from 2017 — more than a year before the legislation was approved.
- So, it wasn’t until lawmakers passed the bill in 2018 that those companies learned they would have to pay millions of dollars based on their business in 2017.
That law was replaced by the Legislature in 2019 with a straightforward excise tax for companies that sell opioid
medications.
- As a result, opioid companies were only required to pay into the original $100 million fund based on their share of business in 2017 and 2018.
A coalition of opioid companies led by AmerisourceBergen — now called Cencora — then sued the state in an effort to strike down the law and avoid the payments.
- A separate case in federal court had already tossed one part of the law that would’ve prevented those companies from passing the cost of the payments to customers.
- In this case, AmerisourceBergen argued that, if one part of the law was unconstitutional, the whole thing should be thrown out.
The opioid companies lost at the trial court level and appealed that decision.
That brings us to today, when the Appellate Division, Third Department handed down its decision in the case.
It wasn’t complicated andhanded a half-win to the opioid companies:
- The payments made by opioid companies into the $100 million fund based on their share of sales in 2018 were allowed to stand.
- But the payment requirement based on their business in 2017 was determined to be unlawful.
The reasoning boils down to two words: due process.
Taxes are sometimes allowed to be based on retroactive activity, but that’s not the case here, Associate Justice L. Michael Mackey wrote in the court’s opinion.
“The primary purpose of the (Opioid Stewardship Act) was to raise money,” Mackey wrote.
“Balancing that against the 15½-month period of retroactivity and the lack of forewarning to plaintiffs, we conclude that the (law), as it pertains to calendar year 2017, is violative of plaintiffs’ substantive due process rights.”
Because the law was enacted in early 2018, the payments from opioid companies based on that year’s share of business were fine, he wrote.
- That’s because the bill became law in April of that year.
“We conclude that the length of the retroactive period – about 3½ months from the beginning of 2018 to its enactment on April 12, 2018 – was not excessive,” he wrote.
Two of the court’s justices disagreed with Mackey, writing that, because one part of the law was struck down in federal court, the rest of it should be scrapped as well.
“We would find that severing the passthrough prohibition and giving effect to the remainder of the OSA is not appropriate,” they wrote.
The decision ordered the case back to the trial court level, where Mackey wrote that the amount of refunds due to those opioid companies could be determined.
“We find the (law) valid for 2018 and invalid for 2017. We therefore remit the matter to (the trial court) for a determination of the amount of any refund due to plaintiffs,” he wrote.
- It’s not guaranteed they would get the amount they asked for — that’s up to the judge.
But there’s a different way this could go.
Because the decision was split with three judges on the opinion and two judges dissenting, the case will likely have an automatic right to be appealed to the state’s highest court: the Court of Appeals.
- That would be the final stop for the case in state court.
The state attorney general’s office and the Department of Health said they are reviewing the decision and AmerisourceBergen did not return a request for comment. (Source: Dan Clark, Capitol Confidential, 5/23/24)