(Bloomberg Opinion) — In late June, Bayer AG agreed to pay $9.5 billion to settle about 100,000 lawsuits that accused Roundup, the popular herbicide it acquired when it bought Monsanto in 2018, of causing non-Hodgkin lymphoma.
The settlement came about even though Bayer adamantly insists that glyphosate, the core chemical in Roundup, is not a cancer agent, a position also taken by the Environmental Protection Agency and other regulators around the world. It also came about after the plaintiffs won the first three cases that went to trial, including one last year in which a jury awarded $2 billion to a California couple. The plaintiffs’ lawyers had hoped to leverage those victories to extract $20 billion or even $30 billion from Bayer to settle the litigation.
And the settlement came about even though we’re in the middle of a pandemic. Or perhaps it’s more accurate to say that it came about because we’re in the middle of a pandemic. “There were no juries and no trials,” said Ken Feinberg, who, as the court-appointed special master, was assigned the task of trying to resolve the litigation. You see, without trials, there wasn’t much else either side could do besides settle.
When plaintiffs’ lawyers join forces to gin up a mass tort, they have two forms of leverage. One is their ability to accumulate not just hundreds of lawsuits, but tens of thousands of them. That’s why whenever an allegedly faulty product comes under scrutiny by the plaintiffs’ bar, the lawyers advertise heavily, searching for clients who can claim to be hurt by the product. Once upon a time, this was called “ambulance chasing,” but now it’s simply seen as part of a sophisticated legal business model.
The second form of leverage are the trials themselves, especially in plaintiff-friendly jurisdictions like St. Louis, Missouri, or Madison County, Illinois. Juries do not need much in the way of evidence to award billions of dollars to sympathetic plaintiffs who are dying of cancer. Sometimes they don’t need any evidence at all — the mere implication of corporate misconduct is all it takes. And even though these awards are invariably lowered by the trial judge — and sometimes overturned on appeal —thousands of more cases are stacked up right behind them.
It’s fair to say that Bayer, a German corporation, miscalculated when it bought Monsanto. Indeed, there are those who believe that had Bayer’s executives better understood how the American legal system works (or doesn’t work, depending on your perspective), it would have never completed the deal.
By May 2019, less than a year after the Monsanto deal was completed — and after those first three juries had sided with the plaintiffs — Bayer’s stock had dropped 44%. During the ensuing months, it took steps to mitigate the damage. It cut 12,000 jobs. It dumped its animal health business. It sold two of its best-known brands, Coppertone and Dr. Scholl’s. Nothing seemed to help. By late March this year, Bayer’s market cap was less than the $63 billion it had paid for Monsanto.
Which is right around the time the pandemic shut down much of the U.S., including its court system.
The legal system didn’t completely grind to a halt, of course. Status hearings and depositions can be done using a platform like Zoom; several lawyers have told me they actually prefer to conduct depositions virtually because the process is so much more efficient. But a full-fledged trial can’t take place on Zoom. Too many aspects simply require everyone to be in a courtroom.
At the urging of U.S. District Judge Vince Chhabria in San Francisco, who was overseeing the Roundup litigation, the two sides began settlement talks in the spring of 2019, with Feinberg brought in as mediator. They had not gone well. The lead lawyers for the plaintiffs were asking for an amount — upwards of $30 billion — that Bayer thought was not only unjustified but far in excess of what the company, which was carrying $38 billion in debt, could afford. Still, with a handful trials scheduled for 2020, including one in St. Louis, the plaintiffs’ lawyers felt they had the upper hand.
In early 2020, Bayer sought a delay in the St. Louis trial so the negotiations could continue. Feinberg agreed. But progress remained slow, with the two sides adamant about their positions. Elizabeth Cabraser, a prominent plaintiffs’ attorney, would later tell the court that “each side threatened to walk away at multiple points, and the mediator’s direct resolution of disputes was required, at times, to prevent the discussions from collapsing altogether.”
“What broke the logjam was the pandemic,” Feinberg told me.
The virus created a new kind of uncertainty. Who could say how long the pandemic would last? Years, perhaps, if a vaccine wasn’t developed quickly. And thus, who could say how long it would be before trials might be able to resume? The plaintiffs’ lawyers had clients who were sick and eager to get some money. And, of course, the lawyers themselves didn’t want to wait forever to be paid. Suddenly, despite not having won any trials, Bayer had some leverage.
Scott Partridge, a Monsanto veteran who became Bayer’s general counsel after the deal was completed, decided to sidestep the lead plaintiffs’ lawyers (they’re called the plaintiffs steering committee), and open negotiations with dozens of other lawyers with large numbers of Roundup cases. Sure enough, with the pandemic having put everything on hold, they wanted to do a deal.
Suddenly this intractable litigation gave way to progress, as one law firm after another signed on to a settlement outline that Feinberg and others helped craft. By April, Feinberg felt certain that a deal was close. And while it took two more months to get to the finish line, he was right. The final terms called for Bayer to pay about $9.5 billion to settle about 100,000 cases, with $1.5 billion more or so to handle various other issues, including future claimants.
That still means 25,000 lawsuits haven’t accepted the terms, but Feinberg told the New York Times he “would be surprised if there are any future trials.” Besides, as part of the settlement, a five-member scientific panel will be established to examine causation — that is, does glyphosate truly cause cancer? Its conclusion will be binding, which means that the holdouts could get nothing if the panel rules that Roundup is benign, as Bayer believes it will.
The settlement was announced June 24. The German company — like many foreign companies caught up in a mass tort — will never stop believing that the process was irrational and its product is safe. And they may well be right. But investors didn’t care. Despite the enormous sum the company has agreed to shell out to the plaintiffs, Bayer’s market cap, at $69.5 billion, is once again larger than the amount it paid for Monsanto.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast “The Shrink Next Door.”
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