REPORT TO COUNCIL
SUBJECT
Title
Authorize the City Attorney to Execute the Participation Agreement to opt in to the Proposed Kroger Co. National Opioid Settlement as a Non-Litigating Entity Involving an Opioid Grocery Store Pharmacy Settlement
Report
BACKGROUND
On June 14, 2024, a new proposed settlement was announced to resolve several lawsuits involving supermarket chain Kroger (in California, the supermarket operates under the names Ralph’s and Food 4 Less). The lawsuits alleged that the supermarket in-store pharmacies helped fuel the nation’s opioid epidemic by improperly monitoring prescriptions. The proposed settlement calls for up to $1.37 billion to resolve the claims made by states, local governments, and Native American tribes, including those cities and counties that were not parties to the litigation. According to the settlement, Kroger will pay $1.37 billion over 11 years.
Over the last eight years, prescription drug manufacturers, distributors and pharmacies have proposed or finalized opioid settlements totaling more than $50 billion resulting from lawsuits and claims alleging that the companies fueled the opioid crisis. The City Attorney requested Council authorization to participate in the distributors’ settlements in 2021 (RTC No. 21-1125). Since 2021, the City has received $162,552 in settlement funds, and expended $3,299 of that on the purchase of Naloxone. The balance of the settlement is held in a project fund to be allocated to programs to combat the opioid crisis in Sunnyvale. Such programs include an agreement with the Sunnyvale Elementary School District to provide intervention and prevention resources, and Naloxone administration and education training to take place at the Sunnyvale library. DPS will also use funds to purchase Naloxone annually. It is anticipated that funds received from the Kroger settlement would be used similarly.
Based on the terms of the Agreement, the actual amount each entity will receive depends on the number of non-litigating entities that opt in. A certain percentage of cities and counties must participate in the settlement, otherwise the amount attributed to California will be reduced. Additionally, any funds received pursuant to the settlement would be limited to expenditures of approved “abatement costs,” including opioid abatement, treatment, education, and recovery. The settlement also includes a non-monetary component to make changes to the pharmacy operations that will add safeguards regarding opioid distribution.
EXISTING POLICY
Charter Section 908(b): The City Attorney shall have the power and be required to represent and appear for the City, its Council, boards and commissions, in any or all legal actions or proceedings in which they or any of them are concerned or are a party.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it is a fiscal action that has no potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.
DISCUSSION
As a non-litigating entity, Sunnyvale may opt in to participate in the Kroger nationwide settlement. Signing the Participation Agreement will bind Sunnyvale into the terms of the Agreement so long as enough municipalities opt in to the settlement. It will also release the supermarket from a separate, future lawsuit if ever brought by Sunnyvale; however, it is not recommended that Sunnyvale pursue its own separate lawsuit.
The calculation and allocation will be based upon the previous intrastate allocation as determined by the Attorney General. The percentage of funds allocated to each of the non-litigating entities was based upon three nationally accepted opioid metrics: incidence of opioid use disorder, opioid overdose deaths per capita, and morphine milligram equivalents (i.e., the number and strength of opioid pills that entered the jurisdiction during the settlement period). Additionally, the funds must be spent on eligible abatement activities and expenditures. There are financial reporting requirements regarding expenditure of settlement funds.
Because the amount received by the City will depend on the number of municipalities that opt-in, it is difficult to ascertain the amount that Sunnyvale would be eligible to receive until after the deadline to participate has passed.
The City must register for the settlement and opt into the Participation Agreement by September 12, 2024. The City has already registered to receive a copy of the Participation Agreement (Attachment 1). A discussion regarding spending and allocating the settlement funds, or other options for using the settlement funds, will take place once funding amounts are known.
FISCAL IMPACT
Payment of initial settlement funds are set to begin in December 2024. Sunnyvale’s share of the $1.37 billion settlement will be adjusted depending on the number of other entities that opt-in. Based on the limitations of uses of the settlement funds (i.e., opioid abatement, treatment, education, recovery), the City subsequently may elect to send its share to Santa Clara County for use on the City’s behalf or to expend the funds itself.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Authorize the City Attorney to Sign the Participation Agreement, in substantially the same form as in Attachment 1 to the report, on Behalf of the City of Sunnyvale to opt in to the Kroger Settlement as a Non-Litigating Entity.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $250 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
A check or “Y” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract
___ Labor or personal employment contract
_x_ General policy and legislative actions
Staff
Prepared by: Anais Martinez Aquino, Senior Assistant City Attorney
Reviewed by: Rebecca L. Moon, City Attorney
Reviewed by: Jaqui Guzmán, Deputy City Manager
Approved by: Tim Kirby, Interim City Manager
ATTACHMENTS
1. Participation Form and California State-Subdivision Agreement