CITY OF LAGUNA NIGUEL
CITY COUNCIL AGENDA ITEM
To: Honorable Mayor and Council Members
FROM: Nicholas R. Ghirelli, Interim City Attorney
DATE: April 4, 2023
SUBJECT: Adoption of Resolution No. 2023-1423, Approving the City's Participation in the Nationwide Opioid Litigation Settlement Agreements with CVS, Walgreens, Walmart, Allergan, and TEVA; Approving the California State- Dear Are cal Subdivision Agreements Regarding Distribution and Use of Settlement Funds, and Authorizing the City Manager to Take All Actions Necessary to Implement the Settlement Agreements
RECOMMENDATION
Staff recommends that the City Council adopt Resolution No. 2023-1423, approving the City's participation in the national settlement of lawsuits against CVS, Walgreens, Walmart, Allergan, and TEVA for the impacts of the opioid addiction crisis, direct settlement proceeds to the County of Orange to use for authorized opioid substance abuse and prevention programs, and authorize the City Manager to take all actions necessary to implement the settlements.
BACKGROUND
Between 2017 and 2020, the State of California, 51 of 58 California counties and approximately 28 California cities filed lawsuits against opioid manufacturers and distributors seeking to abate the opioid crisis. Similar lawsuits were filed by almost all states and many cities and local governments within those states. These lawsuits were consolidated into one lawsuit in the Federal Court for the Northern District of Ohio. That Court then converted the consolidated lawsuits into a class action lawsuit with the Plaintiffs' Class consisting of all states and local governments in the United States. As a result, the City of Laguna Niguel is a Plaintiff in these lawsuits although the City is not required to pay any attorney fees or litigation costs.
In 2021, nationwide settlements were reached to resolve opioid litigation brought by states and local agencies against three pharmaceutical distributors-McKesson, Cardinal Health, and AmerisourceBergen —and against manufacturer Janssen Pharmaceuticals, Inc. and its parent company Johnson & Johnson. The City of Laguna Niguel chose to participate in the 2021 settlements and directed its settlement proceeds to the County.
In late 2022, additional settlement agreements were announced with three pharmacy chains-CVS, Walgreens, and Walmart-and two manufacturers-Allergan and Teva. As with the 2021 settlements, states and local agencies that want to participate in the 2022 settlements now will have the opportunity to opt in. The deadline to opt in is April 18, 2023. The proposed settlements will only proceed if there is sufficient local agency participation.
If the settlements proceed, California may receive up to 1.8 billion dollars from the five proposed settlements. The settlement funds will be distributed to the state annually. The timeline for payments to the state differs for each settlement, with the earliest time period ending on approximately July 15, 2028 (Walmart) and the latest period ending on December 31, 2036 (Walgreens). The exact amount of settlement proceeds that California will receive will depend on various factors including the level of participation by local agencies. A complex formula weighing various factors will then be applied to determine the amount payable to local agencies. Accordingly, the exact amount of those funds that the City may receive will not be known until after the April 18, 2023 opt-in deadline.
If the City Council decides to participate in the proposed settlements, the proceeds will be paid to the County, unless the City requests direct payment. The proposed settlements require the funds to be used for specified purposes related to addressing the opioid crisis.
Each of the settlement agreements require different minimum percentages of the settlement proceeds to be used for opioid remediation efforts, ranging from 85% to 95.5%.
All of the settlement agreements provide that 70% of the funds must be used in connection with future opioid-remediation efforts. The settlement agreements include broad and non-exhaustive lists of qualifying opioid-remediation expenditures. The funds require the preparation of annual written reports concerning use of the funds. These reporting requirements would not apply to the City if chooses to direct its share of the settlement funds to the County, as recommended by staff.
The National Settlements allot a certain amount of money to California to be allocated between the State and local governments. That amount is divided between State and California local governments by agreement (the "Allocation Agreements"). The Allocation Agreements split the dollars coming into California as follows:
1. 15% to a State Fund;
2. 70% to local governments in an Abatement Accounts Fund; and 15% to litigating local governments in a Subdivision Fund.
A city 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 Settlements. The State agreements are available online at https://oag.ca.gov/opioids.
Laguna Niguel must approve the Settlements to be eligible to receive funds, and to avoid having the City's share go to the State. The City previously allowed the County to receive the funds under the 2021 settlements, given that the amount was relatively small and the cost of preparing the annual reports would exceed any benefit to the City. For example, Laguna Niguel only received approximately $450 in year 2 of the 2021 settlements.
ANALYSIS
There are a number of good reasons for the City to agree to the settlements prior to the April 18, 2023, deadline:
• The City is already participating in two settlements relating to the opioid litigation, and this is a logical extension of the City's previous participation. • This proposal is a product of years of litigation and years of settlement negotiations by a number of litigating states, counties, and municipalities throughout the nation. • Negotiators have put forward this deal because they believe it is the possible best deal.
• 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 the City does not want to handle the reporting requirements or the use requirements in the settlement, by the City signing on the County would receive the money to combat the opioid epidemic, thereby benefitting that City's region.
ALTERNATIVES CONSIDERED
The City Council may decide not to approve the settlement agreements, in which case the City's funds will be directed to the State and the State's overall proportion of settlement funds may be reduced.
FISCAL REVIEW
The City stands to receive some funding under the settlements over time. Those funds must be used for approved purposes and are subject to reporting requirements. The City has previously chosen to designate Orange County to receive its share of the funds for use in the County. By directing the funds to the County, the City will not incur any cost to implement or report on the use of the funds.
LEGAL REVIEW
The City Attorney prepared this report, and recommends that the City Council consider and approve the City's participation in the settlement agreements.
CONCLUSION
Staff recommends that the City Council adopt Resolution No. 2023-1423 (Attachment A), Walgreens, Walmart, Alteria, an i EvA foon sellas of of apsid a diation cris direct settlement proceeds to the County of Orange to use for authorized opioid substance abuse and prevention programs, and authorize the City Manager to take all actions necessary to implement the settlements.
Tamara S. Letourneau Justin J. Martin
City Manager Deputy City Manager
Hide Stato
Nicholas R. Ghirelli
City Attorney
Attachments:
A. Resolution Authorizing Participation in Settlement Agreements
ATTACHMENT A
Resolution Authorizing Participation in 2022 Opioid
Settlement Agreements
RESOLUTION NO. 2023-1423
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAGUNA
NIGUEL AUTHORIZING THE CITY TO ENTER INTO THE SETTLEMENT
AGREEMENTS WITH CVS, ALLERGAN, TEVA, WALMART, AND
WALGREENS, AGREEING TO THE TERMS OF THE RELATED STATE-
SUBDIVISION AGREEMENTS, AND AUTHORIZING THE CITY
MANAGER TO TAKE ALL ACTIONS NECESSARY TO IMPLEMENT THE
SETTLEMENTS
WHEREAS, the United States is facing an ongoing public health crisis of opioid abuse, addiction, overdose, and death. The State of California and California local governments spend billions of dollars each year to address the direct consequences of this crisis; and
WHEREAS, since 2017, state and local governments in California and around the United States have been pursuing litigation against certain manufacturers, distributors, and retailers of opioid pharmaceuticals in an effort to hold the Opioid Defendants financially responsible for the impact on of the Opioid Epidemic on the City of Laguna Niguel ("the City") and resources necessary to combat the opioid epidemic; and WHEREAS, on or about November 14, 2022, a proposed nationwide tentative settlement was reached between the plaintiffs in the MDL and Walmart Inc. ("Walmart"); and
WHEREAS, on or about November 22, 2022, a proposed nationwide tentative settlement was reached between the plaintiffs in the MDL and Teva Pharmaceutical Industries Ltd. and all of its respective past and present direct or indirect parents, subsidiaries, divisions, affiliates, joint ventures, predecessors, successors, assigns, including but not limited to Teva Pharmaceuticals USA, Inc., Actavis LLC (f/k/a Actavis Inc.), Actavis Elizabeth LLC, Actavis Kadian LLC, Actavis Pharma, Inc. (f/k/a Watson Pharma, Inc.), Actavis Kadian LLC, Actavis Laboratories UT, , Inc. (f/k/a Watson Laboratories, Inc. - Utah), Actavis Mid Atlantic LLC, Actavis Totowa LLC, Actavis Laboratories FL, Inc. (t/k/a Watson Laboratories, Inc. - Florida), Actavis South Atlantic LLC, Warner Chilcott Company LLC, and Watson Laboratories, Inc., and Anda Inc. (collectively, "Teva"); and
WHEREAS, on or about November 22, 2022, a proposed nationwide tentative settlement was reached between the plaintiffs in the MDL and Allergan Finance, LLC (f/k/a Actavis, Inc., which in turn was f/k/a Watson Pharmaceutics, Inc.) and Allergan Limited (f/k/a Allergan plc, which, in turn, was f/k/a Actavis plc) (collectively, "Allergan"); and
WHEREAS, on or about December 9, 2022, a proposed nationwide tentative settlement was reached between the plaintiffs in the MDL and CVS Health Corporation and CVS Pharmacy, Inc. and all of their past and present direct and indirect parent and subsidiaries (collectively, "CVS"); and
WHEREAS, on or about December 9, 2022, a proposed nationwide tentative settlement was • reached between the plaintiffs in the MDL and Walgreen Co. ("Walgreens"); and
WHEREAS, CVS, Teva, Walgreens, Walmart, and Allergan are referred in this Resolution as "Settling Defendants"; and
WHEREAS, negotiations with the Settling Defendants have resulted in proposed nationwide settlements of state and local government claims to settle the Litigation; and WHEREAS, As part of the settlements with the Settling Defendants, local subdivisions, including certain cities, that are not plaintiffs in the MD may participate in the settlements in exchange for a release of the Settling Defendants; and WHEREAS, the Master Settlement Agreements are available for review on-line at https://nationalopioidsettlement.com/ and at https://oag.ca.gov/opioids; and WHEREAS, the Settlement Agreements provide, 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 Agreements ("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 Agreements") from the settlements with the Settling Defendants; and WHEREAS, copies of the State Allocation Agreements are available online at https://oag.ca.gov/opioids; and
WHEREAS, all funds allocated to California from the Settlements shall be combined pursuant to the Allocation Agreements, 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, the funds in the CA Abatement Accounts Fund (the California Abatement Accounts Fund Allocation) will be allocated based on an allocation model developed in connection with the proposed negotiating class in the National Prescription Opiate Litigation (MDL No. 2804). The percentage from the CA Abatement Accounts Fund allocated to each eligible local government (any county or city above 10,000 in population) "Eligible Local Government") is set forth in Appendix 1 to each Allocation 2 Agreement and provided to the Council with this Resolution. The City's share of the CA Abatement Accounts Fund is a product of the total in the CA Abatement Accounts Fund multiplied by the City's percentage set forth in Appendix 1 to the Allocation Agreements (the "Local Allocation"); and
WHEREAS, any city that is an Eligible Local Government will be allocated its Local Allocation share only when it becomes a Participating Subdivision by signing the Participation Agreements to the Settlements. The Local Allocation share for a city that is a Participating Subdivision will be paid to the county in which the city is located, rather than to the city, so long as: (a) the county is a 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 as defined in the Settlement Agreements.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LAGUNA NIGUEL HEREBY RESOLVES AS FOLLOWS:
SECTION 1. The City Council hereby approves and authorizes the City Manager to settle and release the City's claims against the Settling Defendants in exchange for the consideration set forth in the Settlement Agreements and Allocation Agreements.
SECTION 2. The City Manager shall have authority to, and is directed to, take all actions necessary on behalf of the City to implement and effectuate the agreements approved by this Resolution in consultation with the City Attorney.
SECTION 3. All actions heretofore taken by the Council and other appropriate public officers and agents of the City with respect to the matters contemplated under this Resolution are hereby ratified, confirmed and approved.
SECTION 4. The City Clerk shall certify to the adoption of this Resolution.
PASSED, APPROVED, AND ADOPTED this 4th day of April, 2023.
Kelly Jennings, Mayor
ATTEST:
Marissa J. Asistin, City Clerk
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