Bayer reaches $10.1 to $10.9 billion Roundup settlement
Bayer has announced a series of agreements that the firm says will substantially resolve major outstanding Monsanto litigation, including:
- U.S. Roundup product liability litigation
- Dicamba drift litigation
- PCB water litigation
Bayer officials say 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.
Roundup is a widely used herbicide that was a cornerstone in Monsanto’s Roundup Ready glyphosate-tolerant technology that the firm — bought by Bayer in 2018 for $63 billion — first introduced in soybeans in 1996. However, lawsuits were filed against Bayer alleging that Roundup caused cancer. Several trials since 2018 have gone the way of plaintiffs suing Bayer, starting with an August 2018 case in which a San Francisco jury awarded $289 million to school groundskeeper Dewayne Johnson, although that award was reduced to $78 million and is on appeal.
Bayer officials last fall said the German firm was open to a settlement at Bayer’s Future of Farming Dialogue in Monheim, Germany, regarding glyphosate lawsuits.
“There are two paths going forward that we are looking at in parallel,” said Liam Condon, president of Bayer Crop Science last fall. “One part is Plan A, going through the court system. Depending on how things play out, there may be multiple appeal levels, and it is possible it may end up with the (U.S.) Supreme Court. We are prepared to go through the entire court system. That could take many, many years.”
Plan B is a settlement. “In these types of cases, it usually makes sense to look at a settlement,” Condon said. “A settlement only makes sense if the cost of settling is lower than the cost of going through the court system, and if it is final. There is no point in settling, and then having lots of new litigation in the future. Regardless of which option works, the base assumption is that it (glyphosate) remains with growers.”
The resolved claims include all plaintiff law firms leading the Roundup federal multidistrict litigation (MDL) or the California bellwether cases, and those representing approximately 95% of the cases currently set for trial.
Bayer officials say the agreement will also establish key values and parameters to guide the resolution of the remainder of the claims as negotiations advance.
Bayer officials say 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, Bayer chief executive officer in a Bayer news release.
“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, multiyear 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 Roundup agreements are designed as a constructive and reasonable resolution to a unique litigation,” added Kenneth R. Feinberg, court-appointed mediator for the settlement talks, in a Bayer news release. “The separate, independent settlements of the current claims are unique and a tribute to Bayer. The significant progress made to date – which exceeds the initial participation rates of other claims resolution proceedings – provides a robust framework that will enable the parties to bring closure to the current Roundup litigation in due course.”
Resolution of Roundup litigation
Bayer officials say the multistep 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 under way.
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, or cases held by law firms with small inventories.
Settlement does not cover cases currently under appeal
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, say company officials. Bayer officials said in a news release 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, according to Bayer officials.
Bayer officials say 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, according to Bayer officials.
“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 who leads Skadden, Arps, Slate, Meagher & Flom LLP’s Mass Torts, Insurance and Consumer Litigation Practice Group, in a Bayer news release.
“Supported by our external adviser John Beisner and the Litigation Committee, the Supervisory Board has closely followed the Roundup litigation, as well as the dicamba and PCB litigation, and has provided counsel to the Board of Management on these matters. The Supervisory Board unanimously agrees with our Board of Management that all three settlements are in the best interest of the company and our stakeholders,” said Norbert Winkeljohann, chairman of Bayer’s Supervisory Board, in a Bayer news release.
Baumann added: “Our company is grounded in the well-being of our customers. As a science-based company committed to improving people’s health, we have great sympathy for anyone who suffers from disease, and we understand their search for answers. At the same time, the extensive body of science indicates that Roundup does not cause cancer, and therefore, is not responsible for the illnesses alleged in this litigation. We stand strongly behind our glyphosate-based herbicides, which are among the most rigorously studied products of their kind, and four decades of science support their safety and that they are not carcinogenic.” Indeed, in its Interim Registration Review Decision, issued in January, the U.S. Environmental Protection Agency (EPA) accurately concluded that it “did not identify any human health risks from exposure to glyphosate.”
Customers, including farmers and other professional users who depend on glyphosate-based herbicides for their livelihoods, will see no change in the availability of Roundup products under the Roundup agreements announced in the settlement.
New weed management options
In June 2019, though, Bayer announced it was devoting around $5.6 billion to explore other forms of weed control.
“It was misinterpreted that we were looking to replace glyphosate with something else,” said Condon last fall.
That’s not the case, for Bayer wants Roundup/glyphosate to remain an option for farmers, said Condon. However, Condon said Bayer believes there are not enough weed-control options for farmers.
“In the last 25 years, there have been no new active ingredients on the (corn and soybeans) herbicide side,” he says. “So, we are investing massive amounts —5.6 billion over the next few years — to find new options.”
However, Bayer officials said the firm will explore other weed-management options that include:
- Cultural practices like crop rotation
- Cover crops
- Digital application of pesticides that feature more precise application and use less active ingredient
“I think the importance of diversity (among weed-control methods) is the core lesson that comes out of this,” said Condon.
Resolution of dicamba litigation
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 multidistrict 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. A Missouri jury awarded Bader Farms, a Missouri peach farm, $265 million in damages in February.
Bayer officials say 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 officials say the firm 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.
Resolution of PCB litigation
Bayer also announced a series of agreements that resolve cases representing most of the company’s exposure to PCB water litigation. Monsanto legally manufactured PCBs until ceasing their production in 1977. One agreement establishes a class that includes all local governments with EPA permits involving water discharges impaired by PCBs. Bayer will pay a total of approximately $650 million to the class, which will be subject to court approval.
At the same time, the company has entered into separate agreements with the Attorneys-General of New Mexico, Washington, and the District of Columbia to resolve similar PCB claims. For these agreements, which are separate from the class, Bayer will make payments that together total approximately $170 million.
Funding 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.
Based on publications by the rating agencies and the company’s communication with them, Bayer officials say the firm expects to keep investment grade credit ratings. With its strong underlying business, the company intends to keep its dividend policy. At the same time, deleveraging the balance sheet remains a high priority, said Bayer officials.