TO: ADAM PIRRIE, CITY MANAGER
FROM: ALISHA PATTERSON, CITY ATTORNEY
DATE: JULY 23, 2024
Reviewed by:
City Manager: AP
SUBJECT:
Title
AUTHORIZATION TO ENTER INTO A SETTLEMENT AGREEMENT FOR PENDING SETTLEMENT IN NATIONAL PRESCRIPTION OPIATE LITIGATION
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SUMMARY
Thousands of governmental entities (states, counties, cities, and tribal sovereigns) sued pharmaceutical distributors and manufacturers alleging they contributed to the current opioid crisis by grossly misrepresenting the risks of long-term use and failing to properly monitor suspicious orders. A judicial panel consolidated the cases into one action known as a “multidistrict litigation” (or “MDL”) - In re National Prescription Opiate Litigation, No. 1:17-md-02804 (N.D. Ohio) (the “Opioid Litigation”). The Opioid Litigation has since been overseen by a single federal judge (Judge Dan Polster) in the Northern District of Ohio. The City of Claremont (“City” or “Claremont”) is not a party to the Opioid Litigation, but has had the opportunity to receive settlement funds by entering settlement agreements (sometimes referred to as participating agreements).
In July 2021, many of the governmental plaintiffs reached nationwide settlements to resolve the Opioids Litigation brought by states and local entities against certain (1) pharmaceutical distributors: McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation (“Distributors”), and (2) manufacturers: Johnson & Johnson, Janssen Pharmaceuticals, Inc., Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Janssen Pharmaceutica, Inc. (“Manufacturers”). On November 23, 2021, the City Council unanimously approved entering into settlement agreements with the Distributors and Manufacturers (the “2021 Settlements”).
In late 2022, new settlements were announced with pharmaceutical chains CVS, Walgreens, and Walmart, and manufacturers Teva and Allergan (the “2022 Settlements”). No action was required on the part of the City Council to participate in and receive funds from the 2022 Settlements.
In June 2024, an additional nationwide settlement was reached to resolve the Opioids Litigation brought against Kroger Co. (the “Kroger Settlement”). The City, again, has an opportunity to receive settlement funds by entering into a settlement agreement. The deadline for cities to decide whether to opt-in to this agreement is August 12, 2024. Settlement funds from the Opioid Litigation are restricted in use to certain opioid-abatement uses listed in the settlement agreements.
RECOMMENDATION
Recommended Action
Staff recommends the City Council:
A. Approve the City of Claremont’s participation in the Kroger Settlement;
B. Authorize the City Manager to execute a settlement agreement (which may be titled a “participating agreement”) and any other agreements or documents necessary to effectuate that approval; and
C. Authorize the City Manager to elect that the City receive settlement funds directly.
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ALTERNATIVES TO RECOMMENDATION
In addition to the recommendation, there are the following alternatives:
A. Do not approve the City of Claremont’s participation in the Kroger Settlement.
B. Request more information, continue the item, and ask staff to schedule a special meeting to bring this item back to the City Council before the August 12, 2024 deadline.
C. Request staff agendize a closed session on this item.
FINANCIAL REVIEW
With input from staff, the City Attorney’s office prepared this report and will review the participating agreements once the California Attorney General’s Office makes them available. The staff cost to prepare this report is estimated at $951 and is included in the operating budget of the Administrative Services Department.
ANALYSIS
The Opioid Crisis and Opioid Litigation
From 1999 to 2019, nearly 247,000 people died in the United States from overdoses involving prescription opioids. Overdose deaths involving prescription opioids more than quadrupled from 1999 to 2019. The opioid crisis has cost the public sector tens of billions of dollars in health care, substance abuse treatment, and criminal justice costs. In response to the opioid crisis, more than 2,500 cities, counties, tribal authorities, and individuals from across the U.S. sued thousands of defendants that ranged from individual physicians and pharmacies to huge conglomerates such as CVS, Walmart and Albertsons. The defendants represent every link in the chain of opioid drug production. Claremont is not a party to the Opioid Litigation.
As noted above, a judicial panel consolidated the cases into one multidistrict litigation - In re National Prescription Opiate Litigation, No. 1:17-md-02804 (N.D. Ohio) - which is overseen by Judge Dan Polster in a Federal District Court for the Northern District of Ohio. The first trial in the multidistrict litigation was scheduled to start October 21, 2021. Shortly before that trial was scheduled to start, the Distributors and Manufacturers agreed to two settlements - the 2021 Settlements with pharmaceutical distributors: McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation and manufacturers: Johnson & Johnson, Janssen Pharmaceuticals, Inc., Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Janssen Pharmaceutica, Inc. The 2022 Settlements followed with pharmaceutical chains CVS, Walgreens, and Walmart, and manufacturers Teva and Allergan. At this meeting, the City Council will have an opportunity to consider participating in and receiving funds from the newest settlement with and the Kroger Co. (the “Kroger Settlement”)
The Opioid Litigation has not settled as to the other plaintiffs and defendants.
The Kroger Settlement
Under the settlement, Kroger Co. would admit no wrongdoing and pay a maximum of $1.2 billion over a term of 11 years. The actual amount of the settlement payout will be based on the total number of eligible entities that agree to join the settlement. The total amount will be higher with more joining entities, and lower if fewer eligible entities agree to join.
California is eligible for up to approximately 10.19 percent of the total settlement amount, which will be lower if fewer than 100 percent of eligible California subdivisions join the settlement. Of the percentage allocated to California, 70 percent will be allocated among the joining subdivisions. If the City joins the settlement, it will be eligible for approximately 0.001 percent of the funds allocated among joining subdivisions.
In California, cities and counties are eligible to participate in the settlement if they have a population of at least 10,000 or more. Claremont’s population is more than 10,000, so the City is eligible to participate.
If there is insufficient participation on the part of states, cities, and counties, then the settlement cannot go forward. If there is sufficient participation for the settlement to go forward, then the amount of participation of states, cities, and counties also impacts the amount that will be distributed to each geographic area (i.e., higher participation results in a higher distribution).
Assuming maximum participation in the potential settlement, approximately $122,000,000 will be allocated to California, while remaining percentages will be split between 33 eligible states and District of Columbia where Kroger Co. operates, approximately $85,596,000 will be distributed among participating California subdivisions, and approximately $8,559.60 will be available to the City of Claremont. This amount may be less if fewer eligible entities participate.
To participate in the settlement, the City must enter into a settlement agreement. If the City enters into the settlement agreement, it would receive a distribution of the settlement funds in exchange for waiving claims against Kroger Co. The City would not know the specific amount of its share of settlement funds until sometime after the August 12, 2024 deadline for cities and counties to enter settlement agreements has passed.
Staff recommends that the City Council “opt in” to the settlement and authorize the City Manager to execute the settlement agreement. Doing so would result in additional revenue for the City, support the ability of the settlement to go forward, and increase California’s share of the distribution.
Use of Settlement Funds
Settlement funds may only be used for specific opioid-abatement-related uses, which are enumerated in Section 4.B.ii of the settlement agreement. In receiving settlement funds, the City would be required to comply with various recordkeeping and reporting requirements.
While the City’s share of settlement funds would be nominal, staff believes that it may be possible to use the funds to offset a portion of Police Department costs for training or services related to opioids and opioid abuse.
Direct Distribution of Settlement Funds
The City may choose to either receive its share of settlement funds directly, or have its share of the settlement funds administered by the County of Los Angeles. The City is already administering funds under previous opioid settlements, which requirements are substantially similar to the requirements for the proposed Kroger Settlement funds. Staff recommends that the City Council elect to receive the funds directly in order to ensure that their use directly benefits the City of Claremont.
County Administration of Settlement Funds
If the City does not expressly elect to receive settlement funds directly, then the funds will be administered by the County. Under this scenario, funds would be received by the County, who would then be responsible for expending the funds according to the settlement. Unlike the direct receipt of funds by the City, the City would have little control over how the funds are used to address opioid-related issues in Claremont.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, General Plan, and the 2024-26 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
LEGAL REVIEW
The City Attorney has reviewed the proposed Settlement Agreement and is available for review in the City Clerk’s Office
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Alisha Patterson
City Attorney