Bayer announced a series of agreements that will substantially resolve major outstanding Monsanto litigation, including U.S. Roundup product liability litigation, dicamba drift litigation and PCB water litigation.
The massive legal settlements total up to $10.9 billion to compensate roughly 125,000 people who have claimed to be harmed by products of its recently acquired subsidiary, the Monsanto Company. The company also is resolving dicamba drift litigation with a payment of up to $400 million. In addition Bayer is addressing most PCB water litigation exposure with a payment of approximately $820 million.
The funding for all of the measures will be sourced from free cash flow and Animal Health divestment. Cash payments related to the settlements are expected to start in 2020. Bayer currently assumes that the potential cash outflow will not exceed $5 billion in 2020 and $5 billion in 2021; the remaining balance would be paid in 2022 or thereafter. In order to finance these payments which are subject to tax treatment, Bayer can make use of existing surplus liquidity, future free cash flows, the proceeds from the Animal Health divestment, and additional bond issuances, which will provide flexibility in managing the settlement payments as well as upcoming debt maturities.
With these actions taken, Bayer says it is now well positioned to deliver science-based solutions to meet global health, nutrition needs.
The main feature is the U.S. Roundup resolution that will bring closure to approximately 75% of the current Roundup litigation involving approximately 125,000 filed and unfiled claims overall.
The resolved claims include all plaintiff law firms leading the Roundup federal multi-district litigation (MDL) or the California bellwether cases, and those representing approximately 95% of the cases currently set for trial, and establish key values and parameters to guide the resolution of the remainder of the claims as negotiations advance. The resolution also puts in place a mechanism to resolve potential future claims efficiently. The company will make a payment of $8.8 billion to $9.6 billion to resolve the current Roundup litigation, including an allowance expected to cover unresolved claims, and $1.25 billion to support a separate class agreement to address potential future litigation.
The Roundup class agreement will be subject to approval by Judge Vince Chhabria of the U.S. District Court for the Northern District of California. The resolutions were approved unanimously by Bayer’s Board of Management and Supervisory Board with input from its Special Litigation Committee. The agreements contain no admission of liability or wrongdoing.
“First and foremost, the Roundup settlement is the right action at the right time for Bayer to bring a long period of uncertainty to an end,” said Werner Baumann, Chief Executive Officer of Bayer. “It resolves most current claims and puts in place a clear mechanism to manage risks of potential future litigation. It is financially reasonable when viewed against the significant financial risks of continued, multi-year litigation and the related impacts to our reputation and to our business. The decision to resolve the Roundup litigation enables us to focus fully on the critical supply of healthcare and food. It will also return the conversation about the safety and utility of glyphosate-based herbicides to the scientific and regulatory arena and to the full body of science.”
The multi-step Roundup resolution includes several elements. The agreements will resolve the vast majority of the current litigation in U.S. federal and state courts, including both plaintiffs with filed cases and parties who have retained counsel but not yet filed their claims in court. Those participating in the settlement will be required to dismiss their cases or agree not to file. The range of $8.8 billion to $9.6 billion covers both the agreements already signed and those that are still under negotiation. It also reflects the fact that the number of claimants who are eligible to receive compensation under these agreements won’t be known until the claims process is well underway.
The claims still subject to negotiation largely consist of cases generated by TV advertising and for which plaintiffs’ law firms have provided little or no information on the medical condition of their clients, and/or cases held by law firms with small inventories. The three cases that have gone to trial — Johnson, Hardeman and Pilliod — will continue through the appeals process and are not covered by the settlement. It is important for the company to continue these cases as the appeals will provide legal guidance going forward. In an appellate court filing, the U.S. government expressed its specific support for the company’s preemption arguments, asserting that state law warning claims in the Roundup litigation conflict with U.S. federal law, requiring no cancer warning, and must be dismissed.
Just this week, a federal judge in California found that the weight of scientific evidence does not support the state’s Proposition 65 cancer warning requirement for glyphosate-based herbicides — a ruling that reinforces the very arguments the company has made at trial. Potential future cases will be governed by a class agreement which is subject to court approval. The agreement includes the establishment of a class of potential future plaintiffs and the creation of an independent Class Science Panel.
The Class Science Panel will determine whether Roundup can cause non-Hodgkin’s lymphoma (NHL), and if so, at what minimum exposure levels. The materials considered by the Class Science Panel that Bayer has permission to disclose or are in the public domain will be posted on a public website. Both the class and company will be bound by the Class Science Panel’s determination on this question of general causation, taking this decision out of the jury trial setting and putting it back in the hands of expert scientists. If the Class Science Panel determines that a causal connection between Roundup and NHL is not established, class members will be barred from claiming otherwise in any future litigation against the company. The Class Science Panel’s determination is expected to take several years.
Class members will not be permitted to proceed with Roundup claims prior to the Class Science Panel’s determination, and cannot seek punitive damages. The agreed funding is capped at $1.25 billion and will support research into treatment of NHL, NHL diagnostic programs in underserved areas, and assistance payments to class members who develop NHL before the Class Science Panel’s determination and are eligible on a need basis for assistance during that period.
The company said that before deciding to settle, it considered the alternative course of continuing to litigate Roundup cases. In the company’s risk assessment, potential negative outcomes of further litigation, including more advertising and growing numbers of plaintiffs, upwards of twenty trials per year and uncertain jury outcomes, and associated reputational and business impacts, likely would substantially exceed the settlement and related costs. “Taking account of various options, I am convinced this plan provides a comprehensive, reasonable solution to the complex, contested issues presented by this litigation,” said attorney John Beisner, a consultant to Bayer’s Supervisory Board and a mass tort expert.
Bayer also announced a mass tort agreement to settle the previously disclosed dicamba drift litigation involving alleged damage to crops. The company will pay up to a total of $400 million to resolve the multi-district litigation pending in the U.S. District Court for the Eastern District of Missouri and claims for the 2015-2020 crop years. Claimants will be required to provide proof of damage to crop yields and evidence that it was due to dicamba in order to collect. The company expects a contribution from its co-defendant, BASF, towards this settlement.
The only dicamba drift case to go to trial — Bader Farms — is not included in this resolution. The company believes the verdict in Bader Farms is inconsistent with the evidence and the law and will continue to pursue post-trial motions and an appeal, if necessary. Bayer stands strongly behind the safety and utility of its XtendiMax herbicide with VaporGrip technology and continues to enhance training and education efforts to help ensure growers use these products successfully. The company is settling the pending dicamba drift cases to be able to focus on the needs of its customers.