| Adopt Resolution No. 2021-075 to authorize the City Manager to sign agreements, and take any other necessary or appropriate actions, for the City to participate in the settlement of a state and local government national class action lawsuit against opioid distributors McKesson Corporation, Cardinal Health, Inc., and AmerisourceBergen Corporation (collectively, “Distributors”), and against opioid manufacturers Johnson & Johnson, Janssen Pharmaceuticals, Inc., Ortho-McNeil-Janssen Pharmaceuticals, Inc., and Janssen Pharmaceutica, Inc. (collectively, “Janssen”). |
National Opioid Litigation
Between 2017 and 2020, the State of California, 51 of 58 California counties, and approximately 28 California municipalities filed lawsuits against opioid manufacturers and distributors seeking to abate the opioid crisis. Similar lawsuits were filed by almost all other states and many cities and local governments within those states. These lawsuits were consolidated into one lawsuit in the federal district court for the Northern District of Ohio. The court converted the consolidated lawsuits into a class action lawsuit with the Plaintiff’s Class consisting of all state and local governments. As a result, the City of Brea is a plaintiff in the lawsuit although the City is not required to pay any attorney fees or litigation costs. The court appointed a group of 30 attorneys representing state and local governments to serve as an executive committee to control the litigation on behalf of the plaintiffs and, if possible, negotiate a settlement.
Nationwide settlements are now being proposed to resolve opioid litigation brought by state and local governments against the three largest pharmaceutical distributors: McKesson, Cardinal Health, and AmerisourceBergen. Additionally, nationwide settlements are now being proposed to resolve opioid litigation brought by state and local governments against opioid manufacturers Johnson & Johnson, Janssen Pharmaceuticals, Ortho-McNeil-Janssen Pharmaceuticals, and Janssen Pharmaceutica.
Key Terms of National Settlement Agreements:
The proposed national Settlement Agreements will provide substantial funds to states and eligible local governments (any county or municipality above 10,000 in population) for abatement of the opioid epidemic across the country, and will impose transformative changes in the way the settling defendants conduct their business. The key settlement terms are as follows:
- Distributors will pay a maximum of $21 billion over 18 years.
- Janssen will pay a maximum of $5 billion over no more than nine years.
- Of this potential $26 billion approximately $22.8 billion in settlement proceeds are payable to state and local governments.
- Based on the allocation formula for the states, the maximum amount California will receive will be approximately $2,263,923,602 with $339,538,340 being retained by the state and $1,924,335,342 being allocated to counties and municipalities.
- The settlement proceeds to be paid to state and local governments will be in proportion to the number of state and local governments that approve the settlement.
- Of the funds going directly to participating state and local governments, at least 85% must be used for abatement of the opioid epidemic.
- The settlements allow for a broad range of approved uses by state and local governments to abate the opioid epidemic. A list of approved uses (Exhibit E of the Settlement Agreements) is set forth in Attachment B to this staff report.
- Distributors and Janssen will be required to change certain conduct to better protect the nation’s health and welfare.
- Distributors will create a groundbreaking clearinghouse to account not only for their own opioid shipments, but also the opioid shipments of other firms, in order to detect, stop, and report suspicious opioids orders.
- Janssen (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 will cease lobbying concerning prescription opioids for 10 years.
- Janssen will make the clinical trial data for its discontinued opioids available for medical research.
Key Terms of California Allocation Agreements:
- The Settlement Agreements allot a certain amount of money to California to be allocated between the state and eligible local governments. That amount will be divided pursuant to Allocation Agreements as follows:
- 15% to a State Fund;
- 70% to local governments in an Abatement Accounts Fund; and
- 15% to litigating local governments in a Subdivision Fund.
- The Settlement Agreements and the Allocation Agreements require that the money in the Abatement Accounts Fund must be spent on remediation with no less than 50% of each local government’s allocation in each calendar year spent on one or more of the following High Impact Abatement Activities:
- The provision of matching funds or operating costs for substance use disorder facilities within the Behavioral Health Continuum Infrastructure Program.
- Creating new or expanded Substance Use Disorder (“SUD”) treatment infrastructure.
- Addressing the needs of communities of color and vulnerable populations (including sheltered and unsheltered homeless populations) that are disproportionately impacted by SUD.
- Diversion of people with SUD from the justice system into treatment, including by providing training and resources to first and early responders (sworn and non-sworn) and implementing best practices for outreach, diversion and deflection, employability, restorative justice, and harm reduction.
- Interventions to prevent drug addiction in vulnerable youth.
- Money in the Abatement Accounts Fund will be divided according to an allocation model developed in connection with the proposed negotiating class in the national class action opioid lawsuit. The percentage from the Abatement Accounts Fund allocated to each eligible local government is set forth in Appendix 1 to each Allocation Agreement.
- An eligible local government’s share of the Abatement Accounts Fund is a product of the total in the Abatement Accounts Fund multiplied by the local government’s percentage set forth in Appendix 1 (the “Local Allocation”). The City’s abatement percentage is .086% and weighted allocation percentage is .0708897%.
- A municipality that is an eligible local government will be allocated its Local Allocation only when it becomes a participating subdivision by signing the Participation Agreements to the Settlement Agreements.
- The Local Allocation for a municipality that is a participating subdivision will be paid to the county in which it is located, rather than to the municipality, so long as: (a) the county is a participating subdivision, and (b) the municipality has not advised the settlement fund administrator that it requests direct payment at least 60 days prior to a payment date.
- Participating subdivisions may opt in or out of direct payments at any time by providing notice to the settlement fund administrator. If a municipality chooses to receive a direct payment, then It must then follow the use restrictions and satisfy the reporting requirements in the Allocation Agreements and Settlement Agreements.
- The Settlement Agreements and Allocation Agreements are available on-line at https://oag.ca.gov/opioids.
Why Should a Municipality Sign On?
- This proposal is a product of years of litigation and years of settlement negotiations.
- Negotiators have put forward this deal because they believe it is the best deal to be had.
- Money is critical to addressing the opioid epidemic at this time.
- Litigation has real risk.
- Further insolvencies and bankruptcies of defendants are a real risk.
- Even if a municipality does not want to perform the reporting requirements or be subject to the use restrictions in the settlement, by signing on the county in which it is located gets money to combat the opioid epidemic.
When is the Deadline for Participating?
January 2, 2022. |