Remington attorney declines to say if bankruptcy would put rifle settlement at risk
But an attorney representing class action plaintiffs that sued Remington over its iconic Model 700 bolt-action rifle said he fears the bankruptcy will stop the gun repair program in its tracks.
"If they file for bankruptcy, it will stay all proceedings," said Mark Lanier, a lead attorney for plaintiffs who claim that for decades, Remington covered up a deadly design defect that allows the rifle — and a dozen similar models — to fire without the trigger being pulled.
Remington staunchly denies the allegations and maintains the guns are safe. But in 2014, the company agreed to replace the trigger mechanisms, free of charge, on millions of guns in order to settle the case. But two Model 700 owners, Richard Denney of Oklahoma and Lewis Frost of Louisiana, appealed the settlement. They argue the agreement deliberately downplays the risks from the guns, and does not do enough to notify the public.
Sarah Westcot, an attorney representing Denney and Frost, urged a three-judge panel of the Eighth U.S. Circuit Court of Appeals in Kansas City to reject the settlement, saying the "appallingly low" rate of claims filed since the settlement was announced in late 2014 is proof that the parties were not trying hard enough.
"The notice did not reach the class," she said.
Sherk, arguing for Remington, acknowledged that to date, only about 31,000 owners had filed claims — out of as many as 7.5 million guns covered in the settlement. But he argued that the effort to notify them was "unprecedented," and the settlement should be allowed to stand.
One of the judges on the panel, Ralph Erickson of Fargo, North Dakota, wondered whether firearm owners — wary of being identified, not to mention giving up their guns for repair — might have simply reasoned "it's not worth my trouble" to participate, particularly if they have never had problems with their guns in the past.
A final ruling on the settlement could take months. If it is upheld, owners would have 18 months to submit their guns for repairs. That is unless Remington's bankruptcy disrupts the process. Because Wednesday's hearing only concerned the settlement, and the bankruptcy petition has not yet been filed, none of the parties addressed it.
Lanier, who stands to share in $12.5 million in legal fees should the deal go through, said that while much depends on how the bankruptcy is structured, he is concerned that none of the guns will be retrofitted.
"There is a real chance that these objectors have messed this up for everyone," Lanier said in an email ahead of the hearing.
But an attorney for Denney and Frost, J. Robert Ates in New Orleans, called Lanier's comments "specious and scurrilous."
Ates blames what he calls the "bogus settlement" for the delay, noting that fewer than 30,000 gun owners out of 7.5 million have submitted claims to have their guns retrofitted, which he attributes to a "totally flawed notice campaign."
"The fact is that at the end of the day, no guns were going to be repaired anyway (under the settlement)," Ates said.
Ates says the bankruptcy filing should be "of no moment" in terms of the class action case, particularly because the suit also named as a defendant E.I. du Pont de Nemours and Company, which owned Remington when the original Model 700 trigger mechanism was developed in the 1940s until it sold the company in 1993. The company, which merged with Dow Chemical last year to form DowDuPont, recorded $24 billion in revenues 2016.
Under the proposed settlement — which Remington and plaintiffs have claimed could be worth upwards of $500 million — DuPont would fund only a tiny amount, covering product vouchers being offered to owners of some of the oldest Remington models. DuPont has also continuously maintained that the guns are safe.
Neither Remington nor its attorneys responded to multiple emails about whether the company intends to abide by the agreement in the event of a bankruptcy filing. While the settlement includes a guarantee that the company will meet its financial obligations under the agreement, it does not address the possibility of a bankruptcy.
The expected bankruptcy filing, announced by parent company Remington Outdoors on Monday, caps a remarkable fall for America's oldest gun manufacturer, which was founded in 1816.
In part, Remington is the victim of broader pressures in the gun industry, says Rommel Dionisio, a managing director of equity research at Aegis Capital in New York. Retailers and distributors stocked up on inventory in 2016 amid predictions that Hillary Clinton would be elected President. Donald Trump's election left gun owners "feeling more secure about the second amendment," and retailers with bloated inventories.
But while Dionisio says other manufacturers are starting to show signs of a rebound, some of Remington's problems are unique.
"Because of all the debt they have and their high exposure to modern sporting rifles, they weren't able to handle the cyclical downturn," he said.
The company has approximately $950 million in debt, aggravated in part by millions in product liability claims it has paid over the years. In its report to investors this week, Remington said sales last year plunged more than 30 percent. The company said it has reached an agreement with its lenders to restructure the debt in bankruptcy, but the report does not mention the pending class action settlement.
The events are the latest in what has turned out to be a disastrous bet by private equity firm Cerberus, which began buying up gun companies — including Remington — a decade ago. In 2009, the company announced plans for an initial public offering of what was then known as Freedom Group, which also included iconic brands such as Marlin and Bushmaster.
But soon after CNBC's initial investigation of Remington in 2010, Freedom Group dropped its plans for the IPO, citing market conditions.
Then, in 2012, came the massacre at Sandy Hook Elementary School in Newtown, Connecticut, in which 20 children and six adults were killed with a Bushmaster AR-15 assault-style rifle. With institutional investors seeking to distance themselves from gun-related investments, Cerberus announced it would exit the gun business. But it was unable to find a buyer.
Ultimately, Cerberus would come up with an arrangement to allow investors to cash out of Freedom Group, which was eventually renamed Remington Outdoors. All the while, the debt piled up, and liability claims continued.
Since the class action settlement was announced in 2014, more court cases have linked alleged design defects in the Model 700 to injuries and deaths, involving both the original trigger mechanism first marketed in the 1940s, and a successor, known as the X-Mark Pro, launched in 2007.
Remington contends the design of the X-Mark Pro is safe as well, but the class action settlement includes a recall of some models because of what the company acknowledges was a problem in manufacturing that could cause the guns to fire without a trigger pull. The settlement was aimed at ending the litigation once and for all, but it has been in limbo almost since it was first announced.