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HomeMy WebLinkAboutItem 11b - Opting into Kroger Co. Opioid Settlement DATE: July 16, 2024 TO: Honorable Mayor and City Council FROM: Michael Maurer, City Attorney SUBJECT: RESOLUTION NO. 7579 AUTHORIZING THE CITY MANAGER TO ENTER INTO THE SETTLEMENT AGREEMENT WITH KROGER CO., AGREE TO THE TERMS OF THE STATE-SUBDIVISION AGREEMENT, AND AUTHORIZE ENTRY INTO THE STATE-SUBDIVISION AGREEMENT WITH THE ATTORNEY GENERAL CEQA: Not a Project Recommendation: Adopt SUMMARY In the last few years, states and cities across the United States brought litigation against the largest manufacturers and distributors of opioid painkillers. Since 2022, Arcadia has opted into every round of available opioid settlements and has started receiving payments under the settlements. On June 7, 2024, Kroger Co. reached a tentative settlement regarding its outstanding opioid distribution claims. The City can opt into this new settlement, thereby releasing its claims against Kroger Co., in order to receive a maximum of $40,260, paid out over a period of 11 years. The funds are restricted to certain opioid abatement/remediation uses. The City can either allow the funds to be used by Los Angeles County or elect to use the funds itself subject to reporting requirements of the State. Alternatively, the City can take no action, thereby opting out of the settlement, while maintaining its right to pursue litigation against the Kroger Co. It is recommended that the City Council opt into the Settlement Agreements and authorize the City Manager to accept the funds directly to be used in Arcadia for allowable purposes. BACKGROUND On two prior occasions, Arcadia has opted into national settlements with distributors and manufacturers of opioids, thereby releasing its right to pursue future claims and choosing to receive funding directly. The first settlement was with 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”), which resulted in two proposed settlements totaling approximately $26 billion dollars nationwide. Resolution No. 7579 Opting into Kroger Co. Opioid Settlement July 16, 2024 Page 2 of 5 Between November and December 2022, five additional parties entered into National Opioid Settlements with terms identical to the Distributors/J&J Settlements. In April 2023, the City Council approved opting into these five national Opioid Settlement Agreements. The settlement agreements were for three distributors of opioids that included Walgreens Co., Walmart Inc., and CVS Health Corporation/CVS Pharmacy, Inc., as well as two opioid manufacturers, Teva Pharmaceutical Industries LTD. and Allergan Finance, LLC/Allergan Limited. The City has opted into every previous round of opioid settlements and has started receiving payments for eligible expenses. DISCUSSION A. Allocation of Funds Litigation against the Kroger Co. has resulted in a proposed settlement totaling approximately $1.2 billion, which will be paid out over 11 years. Of this amount, California is to receive approximately $122 million and is to distribute these funds pursuant to Intrastate Allocation Agreements for the new settlement. 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 (such as Arcadia), but opted into the settlement instead, comes from the share of the settlement proceeds that are placed in the California Abatement Accounts Fund. Essentially, this means that the City of Arcadia, if it chooses to opt into the settlement, is entitled to receive a percentage share from the California Abatement Accounts Fund. The City of Arcadia has been allocated 0.033% of the 70%, of the approximately $122 million (i.e., best case scenario), which is equal to $40,260. This total amount will be disbursed over a period of 11 years, with payments decreasing as each settlement finishes paying out. The first payments are scheduled to occur in the latter half of 2024. After the receipt of these initial payments, further payments will be received annually thereafter. As stated above, the ultimate settlement amount is not yet known because of the bonus structure built into the agreements. 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 by providing notice in the settlement agreements. Additionally, a city 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 60 days prior to a payment date. Resolution No. 7579 Opting into Kroger Co. Opioid Settlement July 16, 2024 Page 3 of 5 In deciding whether to allow a city’s funds to go directly to the county, a city should consider the following: (1) whether the amount of money is substantial enough for the city to handle 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 12 years (11 years of distribution and an additional year following final distribution). B. 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. The Intrastate Allocation Agreements also provide spending limitations in addition to those provided in the settlement agreements. Under the Intrastate Allocation Agreements, no less than 50% of the funds received in each calendar year will be used for one or more of the following High Impact Abatement Activities: (1) the provision of matching funds or operating costs for substance use disorder facilities within the Behavioral Health Continuum Infrastructure Program; (2) creating new or expanded Substance Use Disorder (“SUD”) treatment infrastructure; (3) addressing the needs of communities of color and vulnerable populations (including sheltered and unsheltered homeless populations) that are disproportionately impacted by SUD; (4) 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; and/or (5) interventions to prevent drug addiction in vulnerable youth. 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, in accordance with the settlement agreements and the Intrastate Allocation Agreements, the funds are required to be transferred back to the State. Resolution No. 7579 Opting into Kroger Co. Opioid Settlement July 16, 2024 Page 4 of 5 C. Management of Funds Each county and city that receives payment of funds from the settlement must prepare a written report 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. This report 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 the report 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. D. Opting In The City must opt into the settlement by August 12, 2024, which requires the City to release its claims against Kroger Co. The attached Resolution No. 7579 authorizes the City Manager to execute an Allocation Agreement and a Participation Agreement as well as performing any other tasks necessary to opt in. Samples of each Agreement are attached to this report (final documents will be separately provided to the City for execution). If the City Council takes no action, it will effectively opt out of the settlement and Arcadia’s designated funds will flow to the State. By opting out of the settlement, the City would still have the opportunity to bring its own action against Kroger Co. ENVIRONMENTAL ANALYSIS The proposed action does not constitute a project under the California Environmental Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the environment. FISCAL IMPACT Approval of the settlement will result in gross payments of up to $40,260 for opioid abatement, over an 11-year period. If Arcadia elects to receive direct payments, the City would have nominal staff costs to administer and report on its use of the funds. Resolution No. 7579 Opting into Kroger Co. Opioid Settlement July 16, 2024 Page 5 of 5 RECOMMENDATION It is recommended that the City Council determine that the proposed action is not a project under the California Environmental Quality Act (“CEQA”); and adopt Resolution No. 7579 authorizing the City Manager to enter into the Settlement Agreement with Kroger Co., agree to the terms of the State-Subdivision Agreement, and authorize entry into the State- Subdivision Agreement with the Attorney General; and elect to receive payments directly. Attachments: Resolution No. 7579 Sample Participation Agreement 1 RESOLUTION NO. 7579 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA CALIFORNIA AUTHORIZING THE CITY MANAGER TO ENTER INTO THE SETTLEMENT AGREEMENT WITH KROGER CO., AGREE TO THE TERMS OF THE STATE-SUBDIVISION AGREEMENT, AND AUTHORIZE ENTRY INTO THE STATE-SUBDIVISION AGREEMENT WITH THE ATTORNEY GENERAL 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 on or about June 7, 2024, a proposed nationwide tentative settlement was reached between the plaintiffs in the MDL and Kroger Co. (“Kroger”); and, WHEREAS, Kroeger shall be referred in this Resolution as the “Settling Defendant”; and WHEREAS, as part of the settlement with the Settling Defendant, local subdivisions, including certain cities, that are not plaintiffs in the MDL may participate in the Settlement in exchange for a release of the Settling Defendants; and, WHEREAS, copies of the proposed terms of this proposed nationwide settlement have been set forth in the Master Settlement Agreements with the Settling Defendant; and, WHEREAS, copies of the Master Settlement Agreement are on file with the City 2 Clerk; and, WHEREAS, the Settlement Agreement provides, among other things, for the payment of a certain sum to settling government entities in California including to the State of California and Participating Subdivisions upon occurrence of certain events as defined in the Settlement Agreement (“California Opioid Funds”); 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 Settlement with the Settling Defendant; and, WHEREAS, the Allocation Agreements 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 Settlement shall be combined pursuant to the Allocation Agreements, and 15% of the total from the 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 Defendant may qualify to participate in the Settlement 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) 3 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. 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 to enter into the Master Settlement Agreement with the Settling Defendant by executing the Participation Agreement and to enter into the Allocation Agreement by executing the signature pages to those agreements. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. The above recitals are true and correct and are incorporated herein by this reference. 4 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 Agreement, including but not limited to taking the following measures: 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 the Allocation Agreement. 3. Notify the Settlement Fund Administrator that the City requests a direct payment under the Allocation Agreement 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. 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. SECTION 6. The City Clerk shall certify to the adoption of this Resolution. 5 Passed, approved and adopted this 16th day of July, 2024. ________________________ Mayor of the City of Arcadia ATTEST: __________________________ City Clerk APPROVED AS TO FORM: ___________________________ Michael J. Maurer City Attorney 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 the Settlement Agreement dated March 22, 2024 (“Kroger Settlement”), and acting through the undersigned authorized official, hereby elects to participate in the Kroger Settlement, release all Released Claims against all Released Entities, and agrees as follows. 1. The Governmental Entity is aware of and has reviewed the Kroger Settlement, understands that all terms in this Participation and Release Form have the meanings defined therein, and agrees that by executing this Participation and Release Form, the Governmental Entity elects to participate in the Kroger Settlement and become a Participating Subdivision as provided therein. 2. The Governmental Entity shall promptly, and in any event no later than 14 days after the Reference Date and prior to the filing of the Consent Judgment, dismiss with prejudice any Released Claims that it has filed. With respect to any 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 Prejudice substantially in the form found at https://nationalopioidsettlement.com/. 3. The Governmental Entity agrees to the terms of the Kroger Settlement pertaining to Participating Subdivisions as defined therein. 4. By agreeing to the terms of the Kroger Settlement and becoming a Releasor, the Governmental Entity is entitled to the benefits provided therein, including, if applicable, monetary payments beginning after the Effective Date. 5. The Governmental Entity agrees to use any monies it receives through the Kroger Settlement 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 provided in, and for resolving disputes to the extent provided in, the Kroger Settlement. The Governmental Entity likewise agrees to arbitrate before the National Arbitration Panel K-2 as provided in, and for resolving disputes to the extent otherwise provided in, the Kroger Settlement. 7. The Governmental Entity has the right to enforce the Kroger Settlement as provided therein. 8. The Governmental Entity, as a Participating Subdivision, hereby becomes a Releasor for all purposes in the Kroger Settlement, including without limitation all provisions of Section XI (Release), and along with all departments, agencies, divisions, boards, commissions, districts, instrumentalities of any kind and attorneys, and any person in their official capacity 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 Releasor, provides for a release to the fullest extent of its authority. 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 Released Claims against any Released Entity in any forum whatsoever. The releases provided for in the Kroger Settlement are intended by the Parties to be broad and shall be interpreted so as to give the Released Entities the broadest possible bar against any liability relating in any way to Released Claims and extend to the full extent of the power of the Governmental Entity to release claims. The Kroger Settlement shall be a complete bar to any Released Claim. 9. The Governmental Entity hereby takes on all rights and obligations of a Participating Subdivision as set forth in the Kroger Settlement. 10. In connection with the releases provided for in the Kroger Settlement, 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 Released Claims, but each Governmental Entity hereby expressly waives and fully, finally, and forever settles, releases and discharges, upon the Effective Date, any and all Released Claims 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 Kroger Settlement. K-3 11. Nothing herein is intended to modify in any way the terms of the Kroger Settlement, to which Governmental Entity hereby agrees. To the extent this Participation and Release Form is interpreted differently from the Kroger Settlement in any respect, the Kroger Settlement controls. I have all necessary power and authorization to execute this Participation and Release Form on behalf of the Governmental Entity. Signature: ______________________________ Name: ______________________________ Title: ______________________________ Date: ______________________________