After years of negotiations, two proposed nationwide settlement agreements were reached in July 2021 that would resolve the opioid litigation brought by states and local political subdivisions against the three largest pharmaceutical distributors and one manufacturer. The settlement agreements will require these combined defendants to pay up to a total of $26 billion over 18 years to participating states and subdivisions to remediate and abate the impacts of the opioid crisis. The City of Garden Grove will receive an allocation of the settlement funds only if it “opts-in” to participate in the settlement no later than January 2, 2022.

The settlement agreements resolve the litigation brought by the states and local political subdivisions against the distributors McKesson, Cardinal Health and Amerisource Bergen (“Distributors”), and the manufacturer Janssen Pharmaceuticals, Inc. and its parent company Johnson & Johnson (“J&J”).

The proposed settlements require the Distributors to pay up to $21 billion over 18 years and J&J up to $5 billion over 9 years, for a total of $26 billion. Of this amount, approximately $22.7 billion is earmarked for use by participating states and subdivisions. California's Attorney General estimates that about $2.2 billion dollars will be distributed to California.

In addition to the monetary payments, the agreements also require the Distributors and J&J to implement changes to methods of opioid marketing, sale and distribution practices and further require 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 ten years and has agreed to cease lobbying efforts concerned with prescription opioids for ten years. J&J also has agreed to make the clinical trial data for its discontinued opioids available for medical research.

Initial allocation of the $26 billion to participating states is based on a methodology determined among the state Attorneys General which looks at population and the severity of harm caused by the opioid epidemic in each participating state. According to this allocation formula, California stands to receive approximately 10% of the settlement proceeds, of which (i) approximately 15% of the proceeds will go to the litigating cities and counties for litigation expenses; (ii) approximately 15% of the proceeds will go to the state; and (iii) approximately 70% will be distributed to counties and cities with a population over 10,000 for opioid abatement, provided that the counties and cities opt-in to the settlement. The funds will be paid over an 18-year period. The funds are expected to be released into trust accounts for disbursements beginning or about July 2022.

Funds from the settlement will be available for a range of approved abatement uses designed to (1) address the misuse and abuse of opioid products, (2) treat or mitigate opioid use or related disorders, or (3) mitigate other alleged effects of, including on those injured as a result of, the opioid epidemic. The list of pre-approved uses includes a range of intervention, treatment, education, and recovery services.  The City will have annual reporting obligations on the use of the funds.

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.

Local jurisdictions “opt in” by executing a Participation Agreement. The deadline for Garden Grove and other jurisdictions to “opt in” is January 2, 2022.  The California Attorney General provides more information and copies of the agreements at the following website: https://oag.ca.gov/opioids 

A copy of the AG's FAQ's is attached for additional information.

Preliminary estimates indicate that the City could receive more than $2.7 million over an 18-year period, with a large portion of the funds payable during the initial nine years. However, the disbursement schedule is not yet available. The City will incur staff time to fulfill its annual reporting obligations to demonstrate the proper use of the funds for approved opioid abatement activities. The extent of these reporting obligations is unknown but is not expected to be unduly burdensome.

It is recommended that the City Council:

• Adopt the attached Resolution approving participation in the national opioid settlement agreement and authorizing the City Manager to take all necessary and reasonable actions to effectuate the City's participation, including executing all necessary agreements and documents subject to the review and approval of the City Attorney.