Cities and counties in California have some to-dos arising from the settlement announced on July 22, 2021 in litigation against manufacturers and distributors of opioid painkillers. Counties and cities with populations over 10,000 should soon receive notice by letter of the opportunity to participate in the settlement and receive funding to mitigate the impact of opioid addiction in their communities.

This memorandum details cities’ and counties’ options and the process for opting into the settlement. If a city or county decides to opt in, it must do so by January 2, 2022 and City Council or Board of Supervisors action will be needed. An agency may wish to wait to agendize the settlement until after release of the intrastate allocation agreement governing how settlement funds will be distributed in California.

BACKGROUND

The settlement arose out of Ohio litigation brought by states and cities against the three largest pharmaceutical distributors —McKesson, Cardinal Health and Amerisource Bergen — and the opioid manufacturer Janssen (owned by Johnson & Johnson). Together, these businesses account for 85 percent of opioid sales in America. The 3,800 litigants contended the distributors and Janssen contributed to the national opioid crisis by ignoring signs of opioid addiction and overselling opioids. The proposed settlement is $26 billion and will cover all states, counties, and cities — even those not part of the litigation. The opioid distributors will pay $21 billion over 18 years and Janssen will pay $5 billion over 7 years. The text of the Distributor Master Settlement Agreement can be found here. The text of the Janssen Settlement Agreement can be found here.

California is to receive between $2.269 and $2.34 billion, which would be 9.9 percent of the total. It is the State’s responsibility to establish an intrastate allocation to distribute these funds to cities and counties, otherwise the funds will be distributed according to a default model included in the settlement. California has not finalized its interstate allocation, although a statewide group of counties and cities has been working with the Attorney General’s Office on this.

The default distribution model would allocate funds to counties based on opioid deaths per capita, incidence of opioid use disorder, and morphine milligram equivalents (i.e., the number and strength of opioid pills that entered a county during the settlement period). The default distribution model would then allocate funds from counties to cities based on similar factors.

There are two phases to the settlement. First, a critical mass of states must join the settlement. Second, cities and counties have until January 2, 2022 to opt into the settlement. Opting into the settlement increases the funds received by the local agencies and the State. From 50 to 55 percent of the funds scheduled to go to California will go directly to the State. How the balance is distributed — to the State, to cities and counties, or to other states — depends on how many California cities and counties participate in the settlement. Cities and counties (and the State) will receive an incentive payment if a critical mass of 60% of cities with populations of over 30,000 participate in the Janssen settlement. Non-litigating municipalities with a population under 10,000 and special districts will receive no direct allocation from the settlement unless an intrastate agreement provides otherwise.

OPTIONS

Cities and counties can opt into the settlement, supporting it and receive its benefits or decline to do so, preserving its right to sue and possibly undermining the settlement.

Opting In

If a community opts into the settlement, it can use settlement funds to:

  • authorize direct payments to the local agency;
  • a city may transfer funds (and the burden to spend them appropriately and account for them) to its county; or
  • a city may contract with its county for use of the funds.

Entities with a default share of less than $100,000 which did not participate in the litigation may not elect direct payment. Opting in requires a city or county to release its claims against the settling opioid distributors and manufacturers. As many local governments may be unlikely to pursue separate lawsuits, this may not be a significant concession.

Local governments must opt into the settlement by January 2, 2022 and City Council or Board of Supervisors action is needed. This is not an ordinary class action in which a party is subject to the settlement unless it affirmatively opts out. Instead, local governments must affirmatively approve the settlement.

Opting Out

If it does not act, an agency will be understood to have opted out of the settlement. An agency will retain the right to sue the opioid distributors and manufacturers directly, but settlement funds that might flow to it would flow to the State.

How the Settlement Money May Be Spent

Initial settlement funds are to be paid in September 2021, although settling agencies are unlikely to see funds before April 2022. When funds arrive will depend on when the State and each county meets specified levels of participation by local governments.

Additionally, most settlement funds may be used only for opioid abatement, including intervention, treatment, education, and recovery services. For instance, a city or county could use the funds to support clinics or services treating opioid use disorder, hire or train behavioral health workers, finance pre-trial services that connect individuals with recovery and treatment programs, and educate and train first responders on practices and precautions when dealing with fentanyl and other drugs.  Because these are services more often provided by California counties than cities, some counties suggest the cities within them direct their shares of the settlement proceeds to the county for use on the city’s behalf.

Cities and counties should register on the national settlement website, so information and documents related to the settlement will be sent to the City. The letter giving notice of how to do so will be mailed to each city and county, but addressed only to the agency, with no person or office named. This may make it likely to go astray. Local agency managers should be on the lookout for this.