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HomeMy WebLinkAboutCC 2025-09-09_09d Opioid Settlement AgreementItem 9.d. MEMORANDUM TO: City Council FROM: Matthew Downing, City Manager BY: Nicole Valentine, Director of Administrative Services SUBJECT: Opting into Settlement Agreements with Manufacturers of Opioids, National Opioid Settlement DATE: September 9, 2025 RECOMMENDATION: 1) Adopt a Resolution authorizing the City Manager to enter into the National Opioid Settlement Agreement with Opioid Manufacturers, Alvogen, Inc., Amneal Pharmaceuticals Inc., Apotex Corp., Hikma Pharmaceuticals USA, Inc., Indivior Inc., Mylan, Sun Pharmaceutical Industries, Inc., and Zydus Pharmaceuticals (USA), Inc.; 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 indire ct, physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (c)(2)-(3), 15378.) IMPACT ON FINANCIAL AND PERSONNEL RESOURCES: California is to receive approximately $70 million from the settlements and is required to distribute these funds pursuant to intrastate allocation agreements for the new settlements. The City of Arroyo Grande has been allocated 0.024% of the 70% of the $70 million. The City can opt into this settlement and potentially receive up to $11,760 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 40 of 148 Item 9.d. City Council Opting into Settlement Agreements with Manufacturers of Opioids, National Opioid Settlement September 9, 2025 Page 2 Litigation brought by states and cities across the United State s 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 pro posed 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; 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 the these parties on April 11, 20232. In 2024, Kroger Co. reached a tentative settlement regarding its outstanding opioid distribution claim s and the City opted into this settlement on July 23, 20243. On August 26, 20254, the City opted into Settlement Agreements with Distributors of Opioids; Purdue Pharma, L.P. National Opioid Settlement, as well. In March 2024, the State of California entered into a Subdivision Agreement Regarding Distribution and Use of Settlement Funds with the Other Manufacturers National Opioid Settlement with terms identical to the previous opioid settlements. The deadline to opt into the settlements with the New Parties is October 8, 2025. ANALYSIS OF ISSUES: Allocation of Funds Additional litigation brought by states and cities across the United States against the Other Opioid Manufacturers National Opioid Settlement has resulted in a proposed settlement totaling approximately $720 million dollars. 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 is 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 choose to opt into the settlements comes 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 $70 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 4 https://pub-arroyogrande.escribemeetings.com/filestream.ashx?DocumentId=15701 Page 41 of 148 Item 9.d. City Council Opting into Settlement Agreements with Manufacturers of Opioids, National Opioid Settlement September 9, 2025 Page 3 The City of Arroyo Grande has been allocated 0.024% of the 70% of the approximate $70,000,000 total settlement amount, which is equal to $11,760. 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 amount 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 that 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 offers 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 42 of 148 Item 9.d. City Council Opting into Settlement Agreements with Manufacturers of Opioids, National Opioid Settlement September 9, 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 o rder 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 October 8, 2025, which requires the City to release its claims against the Other Opioid Manufacturers. 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 Other Opioid Manufacturers. ALTERNATIVES: The following alternatives are provided for the Council’s consideration: Include a brief summary of each feasible alternative availabl e for consideration. It is important to provide a complete list. Do not exclude potential alternatives simply because staff believes they will be detrimental. 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); 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. 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 Page 43 of 148 Item 9.d. City Council Opting into Settlement Agreements with Manufacturers of Opioids, National Opioid Settlement September 9, 2025 Page 5 requirements prove to become 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 either a direct, or reasonably foreseeable indirect, physical change in the environment. (State CEQA Guidelines, §§ 15060, subd. (c)(2)-(3), 15378.) PUBLIC NOTIFICATION AND COMMENTS: The Agenda was posted at City Hall and on the City’s website in accordance with Government Code Section 54954.2. ATTACHMENTS: 1. Resolution Page 44 of 148 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 MANUFACTURERS, ALVOGEN, INC., AMNEAL PHARMACEUTICALS INC., APOTEX CORP., HIKMA PHARMACEUTICALS USA, INC., INDIVIOR INC., MYLAN, SUN PHARMACEUTICAL INDUSTRIES, INC., AND ZYDUS PHARMACEUTICALS (USA), INC. 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 against 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 Other Manufacturers National Opioid Settlement with terms identical to the previous opioid settlements; and WHEREAS, the Other Manufactuers shall be referred in this Resolution as the “Settling Defendants”; and WHEREAS, as part of the settlements with the Settling Defendants, 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 Defendants; and WHEREAS, copies of the proposed terms have been set forth in the Master Settlement Agreements with the Settling Defendants; 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 Defendants; and WHEREAS, copies of the Allocation Agreement for the settlement with the Settling Defendants have been provided with this Resolution; and Page 45 of 148 RESOLUTION NO. PAGE 2 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 from 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”), 70% to the California Abatement Accounts Fund (“CA Abatement 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 Defendants 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 Allocat ion 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 Defendants by executing the Participation and the Allocation Agreements by executing the signature pages to 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. Page 46 of 148 RESOLUTION NO. PAGE 3 SECTION 2. The City Manager is authorized to settle and release the City’s claims against the Settling Defendants in exchange for the consideration set forth in the Settlement Agreement and Allocation Agreements, including taking the following measures: 1. The execution of the Participation Agreement with the Settling Defendants 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 Defendants 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 9th day of September, 2025. Page 47 of 148 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 48 of 148