Dechert Re:Torts - Key Developments in Product Liability and Mass Torts

Issue 17 - June 2024

Dechert Re:Torts is a monthly newsletter covering news and developments related to product liability and mass torts litigation.

Inside this issue:

• Are Litigation Funders the Truest Parties in Interest?
  
• A Defendant's Guide to the Plaintiffs' Trial Playbook: Strategies and Countermeasures
• Supreme Court Rules on Insurers in Mass Tort Bankruptcy Proceedings
  
• Recent Litigation Against EPA Highlights More Focus on PFAS in Biosolids

Hot Topics

Are Litigation Funders the Truest Parties in Interest?

In the April 2023 issue of Re:Torts we covered a dispute that arose in In re Broiler Chicken Antitrust Litigation between third-party litigation funder Burford Capital and Sysco, the named plaintiff in a price-fixing litigation that Burford was funding. No. 16-cv-08637 (N.D. Ill.). When Burford disagreed with the terms on which Sysco was attempting to settle its claims with defendants in that action, Burford forced Sysco to arbitration, seeking to enjoin the settlement. The arbitration panel entered a preliminary injunction barring Sysco from settling its claims over Burford’s objection, resulting in warring ancillary lawsuits by Sysco and Burford: Sysco filed suit to vacate the injunction, and Burford filed a separate suit to enforce it. Sysco and Burford subsequently agreed that Sysco would assign its claims to a Burford entity, and both voluntarily dismissed their injunction-related suits. Based on the assignment of claims, Sysco and Burford moved to substitute Burford’s litigation funding unit as the named plaintiff in the underlying price-fixing litigation (Broiler Chicken). In re Broiler Chicken Antitrust Litig., Mot. to Dismiss, ECF No. 6630 at 1 (June 28, 2023). Defendants opposed the substitution but the Court granted the motion, stating that it was not its place to interfere with the business decisions of sophisticated parties such as Burford and Sysco.

The U.S. District Court of Minnesota, however, was not similarly inclined to defer to Burford’s and Sysco’s judgment in substituting a Burford entity for Sysco. In re: Pork Antitrust Litigation and In re: Cattle and Beef Antitrust Litigation involve similar price-fixing claims brought by Sysco against meat suppliers. No. 18-1776 (D. Minn.). Just one day after Sysco and Burford filed a joint motion to substitute in Broiler Chicken, they filed a similar motion in Pork Antitrust and Beef Antitrust, seeking to substitute the Burford funding entity for Sysco. In re Pork Antitrust Litig., Mem. Op. & Order, ECF No. 2233 at 5 (June 3, 2024). The defendants in Pork Antitrust and Beef Antitrust opposed, arguing that the substitution of a third-party funder such as Burford contradicted strong public policy favoring a litigant’s autonomy in settling cases.

The Court agreed with defendants and denied the substitution, finding that substitution was not required because, as a successor-in-interest, the Burford entity would have the right to recover even if not named. The Court further found that allowing a party “with only investment interests to take over and litigate antitrust cases” threatened both the policy underlying federal antitrust standing, as well as the Minnesota Supreme Court’s stated policy of “ensur[ing] that litigation financers do not attempt to control the course of the underlying litigation.” Id. at 6-7, 12.

Takeaway: Federal courts remain divided over whether a third-party litigation funder may insert itself into legal proceedings, even when the funded party has assigned its claims to the litigation funder. This may lead to a broader circuit split on the ability of litigation funders to interfere in an underlying litigation and disclosure obligations if they do.

Learn about Dechert's Product Liability and Mass Torts services.

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A Defendant's Guide to the Plaintiffs' Trial Playbook: Strategies and Countermeasures

A recent article by our team explores two common plaintiffs’ trial strategies in the product liability and mass tort space including attempting to exert settlement pressure by "stacking" multiple preference trials on a compressed timeframe and layering of experts to obscure weaknesses in plaintiffs’ scientific proof. The article explores both trends and offers practical strategies and countermeasures for defendants.

Please see our Reuters article for further information.

Learn about Dechert's Product Liability and Mass Torts services.

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Jurisdictional Jabber

Supreme Court Rules on Insurers in Mass Tort Bankruptcy Proceedings

In Truck Insurance Exchange v. Kaiser Gypsum Co., the Supreme Court held that insurers with financial responsibility for bankruptcy claims can raise and may appear and be heard on any issue in a Chapter 11 case as a “party in interest” under §1109(b) of the Bankruptcy Code. No. 22-1079, slip op. at 11 (U.S. June 6, 2024). The proper inquiry to determine who is a “party in interest” under §1109(b) is whether a party is “potentially concerned with or affected by” a reorganization plan. Id. at 8. 

Kaiser Gypsum and Hanson Permanente Cement (“Debtors”) are manufacturers of asbestos containing products. Id. at 1. Truck Insurance Exchange (“Truck Insurance”) is their insurer for personal injury claims. After thousands of asbestos-related lawsuits were filed, the Debtors filed for Chapter 11 bankruptcy with a proposed plan for resolving the personal injury lawsuits, including lawsuits that Truck Insurance had a contractual obligation to defend. Id. Because the proposed bankruptcy plan treats insured and uninsured claims differently, Truck Insurance objected to the plan. Id. at 6–7, 11–12. The district court and the Fourth Circuit Court of Appeals held that Truck Insurance was not a “party in interest” to the bankruptcy and confirmed the plan without giving Truck Insurance the opportunity to be heard. Id. at 6.

The question presented to the Supreme Court was whether Truck Insurance could properly oppose the plan under §1109(b) of the Bankruptcy Code, which allows “parties in interest” to “raise and . . . be heard on any issue” in Chapter 11 proceedings. Id. at 3; 11 U.S.C §1109(b).

In reaching its decision, the Supreme Court rejected the “insurance neutrality” doctrine applied by the Fourth Circuit. Id. at 6. The “insurance neutrality” doctrine looks exclusively at whether the proposed plan alters an insurer's contractual rights to determine whether an insurer has standing to object in Chapter 11 bankruptcy proceedings. Id. The Supreme Court applied a broader interpretation of “parties in interest,” which considered not only how a plan alters the pre-petition obligations and policy rights of the insurer, but also the ways in which a plan may impose obligations on an insurer or debtor. Id. at 7–11, 13. Ultimately, the Supreme Court determined that Truck Insurance had the right to be heard where the reorganization plan “directly and adversely [may] affect” Truck Insurance's financial exposure. Id. at 14.  

This ruling may expand the grounds on which an insurer has the right to be heard and to object to a reorganization plan and as a result, insurance companies may have a larger role in negotiating reorganization plans and resolving lawsuits in Chapter 11 bankruptcy proceedings.

Takeaway: The Supreme Court rules that an insurer in a mass tort bankruptcy case is an interested party entitled to appear in court and oppose the plan. Defendants in mass torts should consider the downstream effects of this ruling on their settlement negotiations.

Learn about Dechert's Product Liability and Mass Torts services.

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Regulatory Review

Recent Litigation Against EPA Highlights More Focus on PFAS in Biosolids

Biosolids, which are recycled byproducts of human and industrial waste from wastewater treatment plants, contain beneficial nutrients for soil. For decades, biosolids have been used as fertilizer across the country. In some instances, per- and polyfluoroalkyl substances (“PFAS”) have been identified in biosolids, with several states issuing guidance or regulations regarding this subject. For example, Colorado, Massachusetts, Michigan, Vermont, and other states require sampling for PFAS in biosolids. Recent litigation against EPA further highlights the increasing focus on PFAS in biosolids.

In a complaint filed in early June, a group of Texas farmers alleged that PFAS from biosolids used as fertilizer on a neighboring property reached the soil on their property and their surface water. Farmer v. EPA, Complaint, No. 1:24-cv-1654 (D.D.C. June 6, 2024). EPA does not regulate PFAS levels in biosolids, but the farmers allege that EPA should have done so and should propose regulations promptly. Id. ¶ 5. Given the widespread use of biosolids as fertilizers, the farmers allege that the Clean Water Act required EPA to identify the presence of PFAS in biosolids and propose regulations specifying restrictions. Id. ¶ 4. The farmers also allege that EPA violated the Administrative Procedure Act, as its failure to propose regulations despite evidence about the presence of PFAS in biosolids is “an agency action unlawfully withheld or unreasonably delayed.” Id. ¶ 2.

Additionally, a group of farmers in Maine informed EPA of their plan to file a similar lawsuit later this summer, and they also intend to join the Texas lawsuit. In 2022, Maine became the first state to ban the use of biosolids for soil fertilizer, following the discovery of PFAS in biosolids at various locations in the state. In their letter, the farmers request that until EPA implements regulations to “ensure that biosolids are PFAS-free,” EPA should issue a similar ban, as well as provide funding for disposal options for biosolids. Letter from Maine Farmers to EPA at 4. According to the farmers, these issues have directly impacted nearly sixty farms in Maine. Id. at 2-3.

While EPA has not proposed regulations on PFAS in biosolids, it is currently conducting an agricultural risk assessment expected to be published by the end of 2024. That assessment, which will be open for public comment, “will serve as the basis for determining whether regulation” of perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”) is “appropriate” under the Clean Water Act. As part of that process, EPA will also consider factors like technological feasibility and cost of any proposed regulations. While EPA’s actions are ongoing, it recommends that states monitor biosolids for PFAS.

Takeaway: Recent litigation against EPA underscores the emerging issue of PFAS in biosolids. Whether EPA will propose regulations will depend on its agricultural risk assessment expected later this year, but nevertheless states continue to be active in issuing guidance and regulations.

Learn more about PFAS developments on Dechert’s PFAS website.

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Issue Contributors

Senior Content Editors: Noah Becker, Craig Castiglia, Michael Fazio, Michelle Yeary

Authors: Emma Davies, Samantha Goldstein, Gianna Hill, Brittany Olley

Coordinator: Noah Becker