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HomeMy WebLinkAboutCC 2025-08-26_09c Settlement Agreements with Dist of OpioidsItem 9.c. MEMORANDUM TO: City Council FROM: Matthew Downing, City Manager BY: Nicole Valentine, Director of Administrative Services SUBJECT: Opting into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement DATE: August 26, 2025 RECOMMENDATION: 1) Adopt a Resolution authorizing the City Manager to enter into the National Opioid Settlement Agreement with Opioid Distributers, Purdue Pharma, L.P., and the Sackler Family; and 2) Find that adopting the Resolution opting-into the settlement agreements is not a project subject to the California Environmental Quality Act (“CEQA”) because the adoption in itself has no potential to result in either a direct, or reasonably foreseeable indirect, physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (b)(2)-(3), 15378.) IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: California is to receive approximately $440 million from the settlements and is required to distribute these funds pursuant to intrastate allocation agreements for the new settlements. The City has been allocated 0.024% of the approximate $440 million. The City can opt into this settlement and potentially receive up to $73,920 in direct funding. This amount will be disbursed over a period of 15 years, with payments decreasing as each settlement finishes paying out. The first payments are scheduled to occur in the latter half of 2025. BACKGROUND: The national opioid crisis created by opioid manufacturers, distributors, and dispensers has been well-documented over the last decade as communities have struggled to address its devastating impacts. Since 2018, numerous jurisdictions across the country have been engaged in a multi-jurisdictional lawsuit against some of the principal parties responsible for creating the crisis. After years of Court-supervised negotiations, the parties reached a resolution of the case against several defendants. Page 37 of 98 Item 9.c. City Council Opting into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement August 26, 2025 Page 2 Litigation brought by states and cities across the United States against the three largest pharmaceutical distributors of opioid painkillers, Amerisource Bergen, Cardinal Health, and McKesson (the “Distributors”), and the opioid painkiller manufacturer, Janssen (owned by Johnson & Johnson) (“J&J”), resulted in two proposed settlements totaling approximately $26 billion dollars. The City has previously opted into the Distributors and the J&J Settlements on December 14, 20211, and has started receiving payments. Between November and December 2022, five additional parties , including Walgreens, Walmart, CVS, Teva, and Allergan, entered into National Opioid Settlements with terms identical to the Distributors/J&J Settlements. The City opted into the settlements with these parties on April 11, 20232. In 2024, Kroger Co. reached a tentative settlement regarding its outstanding opioid distribution claims and the City opted into this settlement on July 23, 20243, as well. In March 2024, the State of California entered into a Subdivision Agreement Regarding Distribution and Use of Settle Funds with Purdue National Opioid Settlement with terms identical to the previous opioid settlements. The deadline to opt into the settlements with the New Parties is September 30, 2025. ANALYSIS OF ISSUES: Allocation of Funds Additional litigation brought by states and cities across the United States against Kroger National Opioid Settlement has resulted in a proposed settlement totaling approximately $1.2 billion. As outlined in the Intrastate Allocation Agreements, Settlement Fund payments due to the State of California are allocated as follows: 15% to the State Fund; 70% to the California Abatement Accounts Fund; and 15% to the California Subdivision Fund. This results in the State receiving 15% of the payments allocated to California and local subdivisions receiving the remaining 85%. The percentages paid out to the California Subdivision Fund are reserved for entities that participated in the litigation of the claims giving rise to the settlement agreements. The percentages paid out to local subdivisions that did not litigate but chose to opt into the settlements come from the share of the settlement proceeds that are placed in the California Abatement Accounts Fund (70% of the total allocated to the State). Essentially, this means that the City of Arroyo Grande, if it chooses to opt into the settlement, is entitled to receive a percentage share from the California Abatement Accounts Fund. Of the amounts above, California is to receive approximately $440 million and is to distribute these funds pursuant to intrastate allocation agreements for the new settlement. 1 https://pub-arroyogrande.escribemeetings.com/FileStream.ashx?DocumentId=553 2 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=6230 3 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=11834 Page 38 of 98 Item 9.c. City Council Opting into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement August 26, 2025 Page 3 The City of Arroyo Grande has been allocated 0.024% of the approximate $440,000,000 total settlement amount, which is equal to $73,920. It should be noted that this amount is the maximum amount that the City can receive from this settlement. In order to encourage maximum participation, the amount of funds to be paid to each government entity is tied to the overall number of government entities that opt into the settlements. The more government entities opt in, the higher the amount that the City will receive. The final amount to be received by the City will be finalized after the September 30th deadline, when the total participation in the settlement can be determined. This total amount will be disbursed over a period of 15 years, with payments decreasing as each settlement finishes paying out. The default distribution of funds in the settlement agreements provides th at the funds will go directly to the county in which a city is located. A city can elect to have its funds delivered directly to the city by providing notice in the settlement agreements. Additionally, a city within a county may opt in or out of direct payment at any time, and it may also elect direct payment of only a portion of its share, with the remainder going to the county, by providing notice to the settlement fund administrators at least sixty days prior to a payment date. In deciding whether to allow a city’s funds to go directly to the county in which a city is located, a city should consider the following: (1) whether the amount of money is substantial enough for the city to handle it on its own; (2) whether the city offe rs the services and has the employees to spend the money in accordance with its prescribed uses; and (3) whether the city wants to engage in the reporting requirements over the course of the next sixteen years (fifteen years of distribution and an additional year following final distribution). Use of Received Funds Similar to the other opioid settlements, funds received from this additional settlement must be used for future opioid remediation or abatement. For instance, participating subdivisions may use funds for areas such as services to treat opioid use disorder; support people in treatment and recovery; connect people to care; address needs of criminal justice-involved persons; address the needs of pregnant or parenting women and their families, including babies with neonatal abstinence syndrome; prevent over - prescribing and ensure appropriate prescribing and dispensing of opioids; prevent misuse of opioids; prevent overdose deaths and other harms; provide leadership, planning, and coordination of programs; provide training; and conduct research. In addition to these requirements, there is also a time limit on the spending of received funds. If funds are not expended or encumbered within five years of receipt and in accordance with the settlement agreements and the Intrastate Allocation Agreements, the funds are required to be transferred back to the State. Page 39 of 98 Item 9.c. City Council Opting into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement August 26, 2025 Page 4 Management of Funds Each county and city that receives payment of funds from the settlements must prepare written reports at least annually regarding the use of those funds until the funds are fully expended and for one year thereafter. Each county and city will need to track all deposits and expenditures. These reports will also include a certification that all funds received have been used in compliance with the allocation agreements. The California Department of Healthcare and Services (“DHCS”) may review these reports in order to determine compliance with the settlement agreements and the Intrastate Allocation Agreement. If the DHCS determines that a participating subdivision’s use of abatement funds is inconsistent with the settlement agreements or Intrastate Allocation Agreements, the parties are required to meet and confer. If the meet and confer process does not provide a resolution, the DHCS may conduct an audit, which can lead to a court action if the matter is still not resolved after an audit. Opting In The City must opt into the settlements by September 30, 2025, which requires the City to release its claims against the New Party. If the City takes no action, it will have opted out of the settlements, and its designated funds will flow to the State. The City would still have the opportunity to bring its own action against the New Party. A full copy of the settlement agreement is available through the following link: https://nationalopioidsettlement.com/wp-content/uploads/2025/06/7592-Govt-Entity- Direct-Shareholder-Settlement-Agreement-GESA.pdf To opt in to the settlements, Council may approve the proposed resolution that is included in this staff report as Attachment 1. That resolution will authorize the City Manager to execute the settlement release form that is included as Attachment 2. ALTERNATIVES: The following alternatives are provided for the Council’s consideration: 1. Opt into the settlements and elect to receive the payments directly (subject to the use and reporting requirements); 2. Opt into the settlements, but allow the County to receive the payments (City would not be responsible for any use/reporting requirements and the money would stay within the County); Provide other direction to staff; 3. Do not opt-into the settlements; or 4. Provide other direction to staff . ADVANTAGES: Approval of the settlement agreement will provide funding for training, programs, and interventions to avoid drug overdoses and addiction in the City. Page 40 of 98 Item 9.c. City Council Opting into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement August 26, 2025 Page 5 DISADVANTAGES: Approval of the settlement agreement will increase reporting requirements for the City elects to retain the funding rather than allocate it to the County. However, should reporting requirements prove to be too onerous, the City may allocate its funding to the County to support its addiction programs. ENVIRONMENTAL REVIEW: No environmental review is required for this item. Adopting the Resolution opting-into the settlement agreements is not a project subject to the California Environmental Quality Act (“CEQA”) because the adoption in itself has no potential to result in eith er a direct, or reasonably foreseeable indirect, physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (b)(2)-(3), 15378.) PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance w ith Government Code Section 54954.2. ATTACHMENTS: 1. Proposed Resolution 2. Opt-in Release Form Page 41 of 98 ATTACHMENT 1 RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE AUTHORIZING THE CITY MANAGER TO ENTER INTO THE NATIONAL OPIOID SETTLEMENT AGREEMENT WITH OPIOID DISTRIBUTORS, PURDUE PHARMA, L.P., AND THE SACKLER FAMILY WHEREAS, the United States is facing an ongoing public health crisis of opioid abuse, addiction, overdose, and death, forcing the State of California and California counties and cities to spend billions of dollars each year to address the direct consequences of this crisis; and WHEREAS, pending in the U.S. District Court for the Northern District of Ohio is a multidistrict litigation (“MDL”) being pursued by numerous public entity plaintiffs agains t the manufacturers and distributors of various opioids based on the allegation that the defendants’ unlawful conduct caused the opioid epidemic; and WHEREAS, in 2024, the State of California entered into a Subdivision Agreement Regarding Distribution and Use of Settle Funds with Purdue National Opioid Settlement with terms identical to the previous opioid settlements; and WHEREAS, Purdue shall be referred in this Resolution as the “Settling Defendant”; and WHEREAS, as part of the settlements with the Settling Defendant, local subdivisions, including certain cities, that are not plaintiffs in the MDL may participate in the settlements in exchange for a release of the Settling Defendant; and WHEREAS, copies of the proposed terms have been set forth in the Master Settlement Agreements with the Settling Defendant; and WHEREAS, California local governments in the MDL have engaged in extensive discussions with the State Attorney General’s Office (“AGO”) as to how the California Opioid Funds will be allocated, which has resulted in the Proposed California State - Subdivision Agreements Regarding Distribution and Use of Settlement Funds (“Allocation Agreement”) from the settlements with the Settling Defendant; and WHEREAS, copies of the Allocation Agreement for the settlement with the Settling Defendant have been provided with this Resolution; and WHEREAS, the Allocation Agreement allocate the California Opioid Funds as follows: 15% to the State Fund; 70% to the Abatement Accounts Fund; and 15% to the Subdivision Fund. For the avoidance of doubt, all funds allocated to California f rom the Settlements shall be combined pursuant to the Allocation Agreement, and 15% of total from each settlement shall be allocated to the State of California (the “State of California Allocation”), Page 42 of 98 RESOLUTION NO. PAGE 2 70% to the California Abatement Accounts Fund (“CA Abate ment Accounts Fund”), and 15% to the California Subdivision Fund (“CA Subdivision Fund”); and WHEREAS, under the Master Settlement Agreement, certain local subdivisions that did not file a lawsuit against the Settlement Defendant may qualify to participate in the settlements and obtain funds from the Abatement Account Fund; and WHEREAS, the City is eligible to participate in the Settlement and become a CA Participating Subdivision; and WHEREAS, the funds in the CA Abatement Accounts Fund (the 70% allocation) will be allocated based on the allocation model developed in connection with the proposed negotiating class in the National Prescription Opiate Litigation (MDL No. 2804), as adjusted to reflect only those cities and counties that are eligible, based on population or litigation status, to become a CA Participating Subdivision (those above 10,000 in population). The percentage from the CA Abatement Accounts Fund allocated to each CA Participating Subdivision is set forth in Appendix 1 to the Allocation Agreements and provided to the City Council with this Resolution. The City’s share of the CA Abatement Accounts Fund will be a product of the total in the CA Abatement Accounts Fund multiplied by the City’s percentage set forth in Appendix 1 of the Allocation Agreements (the “Local Allocation”); and WHEREAS, a CA Participating Subdivision that is a city will be allocated its Local Allocation share as of the date on which it becomes a Participating Subdivision. The Local Allocation share for a city that is a CA Participating Subdivision will be paid to the county in which the city is located, unless the city elects to take a direct election of the settlement funds, so long as: (a) the county is a CA Participating Subdivision, and (b) the city has not advised the Settlement Fund Administrator that it requests direct payment at least 60 days prior to a Payment Date; and WHEREAS, it the intent of this Resolution is to authorize the City Manager to enter into the Master Settlement Agreement with the Settling Defendant by executing the Participation and the Allocation Agreements by executing the signature pages t o those agreements. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE AS FOLLOWS: SECTION 1. The above recitals are true and correct and are incorporated herein by this reference. SECTION 2. The City Manager is authorized to settle and release the City’s claims against the Settling Defendant in exchange for the consideration set forth in the Settlement Agreement and Allocation Agreements, including but not limited to, taking the following measures: Page 43 of 98 RESOLUTION NO. PAGE 3 1. The execution of the Participation Agreement with the Settling Defendant and any and all documents ancillary thereto. 2. The execution of the Proposed California State-Subdivision Agreement Regarding Distribution and Use of Settlement Funds with the Settling Defendant by executing the signature pages to those Allocation Agreements. 3. Notify the Settlement Fund Administrator that the City requests a direct payment under the Allocation Agreements at least 60 days prior to the Payment Date in the Settlement Agreements. SECTION 3. CEQA. That the City Council finds this Resolution is not subject to the California Environmental Quality Act (CEQA) in that the activity is covered by the general rule that CEQA applies only to projects which have the potential for causing a significant effect on the environment. Where it can be seen with certainty, as in this case, that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA (State CEQA Guidelines, §§ 15060 , subd. (c)(2)-(3), 15378.) SECTION 4. Severability. If any provision of this Resolution or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications, and to this end the provisions of this Resolution are declared to be severable. SECTION 5. Effective Date. This Resolution shall become effective immediately. On motion of Council Member , seconded by Council Member , and on the following roll call vote, to wit: AYES: NOES: ABSENT: the foregoing Resolution was passed and adopted this 26th day of August, 2025. Page 44 of 98 RESOLUTION NO. PAGE 4 CAREN RAY RUSSOM, MAYOR ATTEST: JESSICA MATSON, CITY CLERK APPROVED AS TO CONTENT: MATTHEW DOWNING, CITY MANAGER APPROVED AS TO FORM: ISAAC ROSEN, CITY ATTORNEY Page 45 of 98 K-1 EXHIBIT K Subdivision Participation and Release Form Governmental Entity: State: Authorized Official: Address 1: Address 2: City, State, Zip: Phone: Email: The governmental entity identified above (“Governmental Entity”), in order to obtain and in consideration for the benefits provided to the Governmental Entity pursuant to that certain Governmental Entity & Shareholder Direct Settlement Agreement accompanying this participation form (the “Agreement”)1, and acting through the undersigned authorized official, hereby elects to participate in the Agreement, grant the releases set forth below, and agrees as follows. 1.The Governmental Entity is aware of and has reviewed the Agreement, and agrees that by executing this Participation and Release Form, the Governmental Entity elects to participate in the Agreement and become a Participating Subdivision as provided therein. 2.The Governmental Entity shall promptly after the Effective Date, and prior to the filing of the Consent Judgment, dismiss with prejudice any Shareholder Released Claims and Released Claims that it has filed. With respect to any Shareholder Released Claims and Released Claims pending in In re National Prescription Opiate Litigation, MDL No. 2804, the Governmental Entity authorizes the Plaintiffs’ Executive Committee to execute and file on behalf of the Governmental Entity a Stipulation of Dismissal with Prejud ice substantially in the form found at https://nationalopioidsettlement.com. 3.The Governmental Entity agrees to the terms of the Agreement pertaining to Participating Subdivisions as defined therein. 4.By agreeing to the terms of the Agreement and becoming a Releasor, the Governmental Entity is entitled to the benefits provided therein, including, if applicable, monetary payments beginning following the Effective Date. 5.The Governmental Entity agrees to use any monies it receives through the Agreement solely for the purposes provided therein. 6.The Governmental Entity submits to the jurisdiction of the court in the Governmental Entity’s state where the Consent Judgment is filed for purposes limited to that court’s role as and to the extent provided in, and for resolving disputes to the extent provided in, the 1 Capitalized terms used in this Exhibit K but not otherwise defined in this Exhibit K have the meanings given to them in the Agreement or, if not defined in the Agreement, the Master Settlement Agreement. ATTACHMENT 2 Page 46 of 98 K-2 Agreement. The Governmental Entity likewise agrees to arbitrate before the National Arbitration Panel as provided in, and for resolving disputes to the extent otherwise provided in, the Agreement. 7. The Governmental Entity has the right to enforce the Agreement as provided therein. 8. The Governmental Entity, as a Participating Subdivision, hereby becomes a Releasor for all purposes in the Agreement, including without limitation all provisions of Article 10 (Release), and along with all departments, agencies, divisions, boards, commissions, districts, instrumentalities of any kind and attorneys, and any person in his or her official capacity whether elected or appointed to serve any of the foregoing and any agency, person, or other entity claiming by or through any of the foregoing, and any other entity identified in the definition of Subdivision Releasor, to the maximum extent of its authority, for good and valuable consideration, the adequacy of which is hereby confirmed, the Shareholder Released Parties and Released Parties are, as of the Effective Date, hereby released and forever discharged by the Governmental Entity and its Subdivision Releasors from: any and all Causes of Action, including, without limitation, any Estate Cause of Action and any claims that the Governmental Entity or its Subdivision Releasors would have presently or in the future been legally entitled to assert in its own right (whether individually or collectively), notwithstanding section 1542 of the California Civil Code or any law of any jurisdiction that is similar, comparable or equivalent thereto (which shall conclusively be deemed waived), whether existing or hereinafter arising, in each case, (A) directly or indirectly based on, arising out of, or in any way relating to or concerning, in whole or in part, (i) the Debtors, as such Entities existed prior to or after the Petition Date, and their Affiliates, (ii) the Estates, (iii) the Chapter 11 Cases, or (iv) Covered Conduct and (B) as to which any conduct, omission or liability of any Debtor or any Estate is the legal cause or is otherwise a legally relevant factor (each such release, as it pertains to the Shareholder Released Parties, the “Shareholder Released Claims ”, and as it pertains to the Released Parties other than the Shareholder Released Parties, the “Released Claims”). For the avoidance of doubt and without limiting the foregoing: the Shareholder Released Claims and Released Claims include any Cause of Action that has been or may be asserted against any Shareholder Released Party or Released Party by the Governmental Ent ity or its Subdivision Releasors (whether or not such party has brought such action or proceeding ) in any federal, state, or local action or proceeding (whether judicial, arbitral, or administrative) (A) directly or indirectly based on, arising out of, or in any way relating to or concerning, in whole or in part, (i) the Debtors, as such Entities exis ted prior to or after the Petition Date, and their Affiliates, (ii) the Estates, (iii) the Chapter 11 Cases, or (iv) Covered Conduct and (B) as to which any conduct, omission or liability of any Debtor or any Estate is the legal cause or is otherwise a legally relevant factor. 9. As a Releasor, the Governmental Entity hereby absolutely, unconditionally, and irrevocably covenants not to bring, file, or claim, or to cause, assist or permit to be brought, filed, or claimed, or to otherwise seek to establish liability for any Shareholder Released Claims or Released Claims against any Shareholder Released Party or Released Party in any forum whatsoever, subject in all respects to Section 9.02 of the Master Settlement Agreement. The releases provided for herein (including the term “Shareholder Released ATTACHMENT 2 Page 47 of 98 K-3 Claims” and “Released Claims”) are intended by the Governmental Entity and its Subdivision Releasors to be broad and shall be interpreted so as to give the Shareholder Released Parties and Released Parties the broadest possible release of any liability relating in any way to Shareholder Released Claims and Released Claims and extend to the full extent of the power of the Governmental Entity to release claims. The Agreement shall be a complete bar to any Shareholder Released Claim and Released Claims. 10. To the maximum extent of the Governmental Entity’s power, the Shareholder Released Parties and the Released Parties are, as of the Effective Date, hereby released and discharged from any and all Shareholder Released Claims and Released Claims of the Subdivision Releasors. 11. The Governmental Entity hereby takes on all rights and obligations of a Participating Subdivision as set forth in the Agreement. 12. In connection with the releases provided for in the Agreement, each Governmental Entity expressly waives, releases, and forever discharges any and all provisions, rights, and benefits conferred by any law of any state or territory of the United States or other jurisdiction, or principle of common law, which is similar, comparable, or equivalent to § 1542 of the California Civil Code, which reads: General Release; extent. A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. A Releasor may hereafter discover facts other than or different from those which it knows, believes, or assumes to be true with respect to the Shareholder Released Claims or such other Claims released pursuant to this release, but each Governmental Entity hereby expressly waives and fully, finally, and forever settles, releases and discharges, upon the Effective Date, any and all Shareholder Released Claims or such other Claims released pursuant to this release that may exist as of such date but which Releasors do not know or suspect to exist, whether through ignorance, oversight, error, negligence or through no fault whatsoever, and which, if known, would materially affect the Governmental Entities’ decision to participate in the Agreement. 13. Nothing herein is intended to modify in any way the terms of the Agreement, to which Governmental Entity hereby agrees. To the extent any portion of this Participation and Release Form not relating to the release of, or bar against, liability is interpreted differently from the Agreement in any respect, the Agreement controls. 14. Notwithstanding anything to the contrary herein or in the Agreement, (x) nothing herein shall (A) release any Excluded Claims or (B) be construed to impair in any way the rights and obligations of any Person under the Agreement; and (y) the Releases set forth herein shall be subject to being deemed void to the extent set forth in Section 9.02 of the Master Settlement Agreement. ATTACHMENT 2 Page 48 of 98 K-4 I have all necessary power and authorization to execute this Participation and Release Form on behalf of the Governmental Entity. Signature: _____________________________ Name: _____________________________ Title: _____________________________ Date: _____________________________ ATTACHMENT 2 Page 49 of 98