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CC - (1) Adoption of a Resolution Approving Participation in the Nationwide Opioid Litigation Settlements and Authorizing the City Manager to Execute the Participation Agreements and Take All Necessary Actions to Effectuate the City’s Participation in the Settlements; and (2) Direction to City Manager as Deemed Appropriate.

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Meeting Date:  December 13, 2021

Contact Person/Dept:                     Lisa Vidra/City Attorney’s Office

Phone Number:                                            (310) 253-5660

Fiscal Impact:  Yes [X]    No [] General Fund:  Yes []     No []

Public Hearing:  []          Action Item:[]          Attachments: [x]    

Commission Action Required:     Yes []     No [X]    Date: 

Public Notification: (E-Mail) Meetings and Agendas - City Council (12/09/2021); 

Department Approval:  Heather Baker, Acting City Attorney (12/09/2021)

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RECOMMENDATION

Staff recommends the City Council (1) adopt a Resolution approving participation in the Nationwide Opioid Litigation Settlements and authorizing the City Manager to execute the Participation Agreements and take all necessary actions to effectuate the City’s participation in the settlements (Attachment 1); and (2) provide direction to City Manager as deemed appropriate.

BACKGROUND/DISCUSSION

Overview

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.

The settlement with these defendants allows non-litigating parties, such as the City of Culver City, to join the National Opioid Settlements with opioid distributors AmerisourceBergen, Cardinal Health and McKesson (the “Distributors”) and one of the manufacturers, Janssen Pharma (“Janssen”) (collectively the “Settlement Agreements”) and release any potential claims the City has against these defendants in exchange for the payment of opioid abatement funds and injunctive relief guarding against future unlawful business practices.  Johnson and Johnson (J&J) is the parent company of Janssen. Cities and counties with at least a 10,000 population as of the 2019 Census count can join in the settlement. The Distributors are funding about 80% of the settlement to be paid out over 18 years and Janssen is funding 20% of the settlement to be paid out over about 9 years.

Litigation

A national multi-district litigation regarding the opioid crisis is being adjudicated in federal court by Judge Dan Aaron Polster in the Northern District of Ohio and is referred to as: MDL 2804 Opiate Litigation. On July 21, 2021, an agreement on the proposed terms of a nationwide settlement to resolve all opioid litigation brought by various states and local political subdivisions against the “Distributors” and Janssen. The Settlement Agreements are highly complex, spanning more than 700 pages. Copies of the agreements, as well as helpful flowcharts and FAQs, can be accessed at the following website: www.nationalopioidsettlement.com <http://www.nationalopioidsettlement.com>.

The settlement requires the Distributors to pay up to $21 billion and Janssen to pay up to $5 billion. Roughly $2.2 billion of the two settlements are expected to be directed to California and its subdivisions. Although the settlement was reached in July, each participating state had to then reach an intrastate allocation agreement to determine how to apportion and distribute the settlement funds among the various entities. After several months of negotiating the allocation agreements were reached at the end of October.

In addition to the monetary payments, the agreements also require the Distributors and Janssen to implement changes to methods of opioid marketing, sales, and distribution practices, and further requires the Distributors to implement additional safeguards to prevent diversion of prescription opioids. This reform package includes the creation of a clearinghouse through which the Distributors will be required to account not only for their own shipments, but also the shipments of the other distributors, and to detect, stop, and report suspicious opioids orders.  In addition, J&J (which ceased marketing opioids in 2015 and ceased selling opioids in 2020) will not market or sell any opioid products in the next 10 years and has agreed to cease lobbying efforts concerned with prescription opioids for 10 years. J&J also has agreed to make the clinical trial data for its discontinued opioids available for medical research.

Details on Settlement Allocation

The General structure for the intrastate allocation agreement for distributing the roughly $2.2 billion coming to California is as follows:

•                     15% will be given to the State;

•                     70% will be made available to Cities and Counties (that have greater than 10,000 in population). This is referred to as the “Abatement Fund.” These funds can be paid directly to the local agencies, if the agency elects. The default is that the money will be directed to the County unless an entity elects for the direct payment. Local subdivisions have the ability to change their election regarding the direct payments;

•                     15% will be given to the litigating entities to defray costs they have expended in the litigation to this point. It was noted during a webinar that this group of litigating entities is rather large by representation. It reportedly includes agencies which represent 86% of the population of the state.

If an entity does not join in the settlement, then the money apportioned to that subdivision will be directed to the state.

The amount that will be received by counties and cities in California will depend upon the number of counties and cities which agree to the proposed settlement. The maximum amount the City of Culver City may possibly receive is $692,598.99 over the course of 18 years, which assumes 100% participation in the proposed settlement by eligible cities. In regard to the annual amount that may be received by the City over time, the City may receive up to $38,477.72 per year for 18 years from the Distributors, and $19,238.86 for nine years from Janssen.

Before the funds are released, the settlement agreements are subject to certain milestones, which, if not met, could allow the settling defendants to void the agreements.  The principal milestone is that a “critical mass” of both state and local governments “opt in” and, thereby, participate in the settlement. The extent of this participation will determine whether the settlement agreements take effect.

Use of the Settlement Funds

Under the Settlement Agreements, all of the proceeds received by non-litigating entities such as the City of Culver City must be spent on activities to abate the impacts of the opioid crisis, such as providing matching funds for operating costs for substance use disorder (SUD) facilities, creating new or expanded SUD treatment infrastructure, addressing the needs of  communities of color and vulnerable populations that are disproportionately impacted by SUD, preventing addiction in vulnerable youth, dispensing Narcan, etc.

A list of Approved Opioid Remediation Uses which identifies the permitted uses for the expenditure of settlement funds was part of the Distributor Settlement Agreement as Exhibit E and is attached to this report for reference (Attachment 2).

The City’s allocated amount will be delivered to the City on a yearly basis. Note that receiving the funds is accompanied by reporting requirements where the City will need to file reports with the State documenting how the money is spent.

If the City elects to receive the funds directly, the City will be required to prepare written reports at least annually regarding the use of those funds, until those funds are fully expended and for one year thereafter. The City will have to certify that all funds received through the settlement have been used in compliance with the Settlement Agreements. The report will be in a form determined by the California Department of Health Care Services (“DHCS”). The forms have not been specified at this time. However, at a minimum, the City will be required to track all deposits and expenditures, which are otherwise subject to the normal budgetary and expenditure process.

Instead of accepting direct payment, participating entities can choose to have their funds directed to the County for abatement purposes, but the funds would not necessarily be used in Culver City. Based on the language in the Settlement Agreements, the City could change its mind even after it has made an election provided that the change is communicated at least 60 days prior to the next payment due date. For example, the City could elect to have its funds directed to the County for the first five years, but then elect to receive direct payment thereafter so long as the City is able to meet the funding requirements.

Next Steps/Participation

To participate in the settlement each non-plaintiff local subdivision such as the City of Culver City must first register with the National Opioid Settlement website; this ensures that the City will receive all information and documents in order to formally join in the settlement. The City Attorney’s office has already completed registration on behalf of the City.

The next step will be to decide whether to join in the settlement. If the City Council determines that the City will participate, after adopting the attached resolution, the City Manager will execute the participation agreements for each settlement and timely submit it prior to the January 2, 2022 deadline.

FISCAL ANALYSIS

There is no cost associated with adopting the Resolution and signing the Participation agreements. The fiscal impact, assuming there is 100% participation by the counties and cities in California, will be $38,477.72 per year paid to the City from the distributors for 18 years, and $19,238,86 per year from Janssen for 9 years. There will be costs incurred by the City in administering the funds to ensure spending for authorized purposes and also costs for complying with the reporting requirements. If the City directs the funds to the County, then the County will spend the funds and be responsible for the reporting requirements.

ATTACHMENTS

1.                     2021-12-13_ATT 1_Proposed Resolution Authorizing Participation

2.                     2021-12-13_ATT 2_Approved Opioid Remediation Uses

MOTION:

That the City Council:

1.                     Adopt a Resolution Approving Participation in the Nationwide Opioid Litigation Settlements and Authorizing the City Manager to Execute the Participation Agreements and Take All Necessary Actions to Effectuate the City’s Participation in the Settlements; and

2.                     Provide other direction to City Manager as deemed appropriate.