Trillions in PFAS Liabilities Threaten Corporate Bankruptcy Wave

Companies targeted in litigation for contributing to the proliferation of “forever chemicals” face an uncertain future and a growing risk of being forced into bankruptcy.

Although still in infancy, litigation over per- and polyfluoroalkyl substances, or PFAS, recently led 3M Co. into a multibillion-dollar settlement. Earlier this year, fire detection and suppression company Kidde-Fenwal Inc. blamed its Chapter 11 on more than 4,400 lawsuits that named it as a defendant over its production of PFAS-laden firefighting foam.

The so-called “forever chemicals,” linked to a score of health issues, are found in thousands of everyday products like cosmetics, carpets, food packaging, and water-resistant clothing. Lawsuits are multiplying with growing public awareness and new federal and state regulations over the substances. Lawyers expect Kidde-Fenwal will be just the first of many corporate defendants seeking protection in bankruptcy.

“I absolutely believe there will be more bankruptcies,” said Ralph DeMeo, an environmental attorney at Guilday Law PA representing a group of municipalities with firefighting foam claims. “We’re talking about damages in the trillions and I don’t think they can handle it.”

Earlier: Companies Face Billions in Damages as PFAS Lawsuits Flood Courts

The risk that companies will be driven into insolvency has been voiced publicly by Judge Richard M. Gergel of the US District Court for the District of South Carolina, who’s overseeing multidistrict litigation against firefighting foam defendants. At a court hearing in July, Gergel urged plaintiffs and defendants to join together to lobby Congress about the scope of the problem, saying private industry “just doesn’t have the capacity to remediate this completely.”

“I’ve watched cases that end up in bankruptcy. It isn’t pretty, isn’t pretty for anybody,” he said at the hearing, noting the potential to put a company out of business and jeopardize legal recoveries for consumers.

“It’s terrible for the company and it’s terrible for the plaintiffs.”

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‘Drop in the Bucket’

Recent settlements worth billions of dollars suggest the legal trouble PFAS defendants face is only getting started.

In early June, a bellwether trial was set to begin in the multidistrict litigation over aqueous film-forming foam (AFFF), commonly used in firefighting, and its contamination in municipal water supplies. It was the first in litigation that Gergel described as an “existential threat” to 3M and others.

The trial was called off in the wake of a $10.3 billion settlement offer from 3M, which followed earlier deals worth about $1.2 billion with DuPont de Nemours Inc., the Chemours Co., and DuPont spinoff Corteva Inc. The blockbuster settlements were preliminarily approved in August, putting 3M and the DuPont entities on course to cap their remediation liabilities to water utilities.

Read More: 3M Set to Oppose Approval of Huge Class in PFAS Case at 6th Cir.

But the water supply claims are just one sliver in a larger universe of mass tort PFAS litigation against the big chemical manufacturers, which includes thousands of personal injury and environmental cases.

The funds being set aside for the public water systems “are the proverbial drop in the bucket,” said DeMeo. “I think this settlement was an acknowledgment by the major manufacturers that they’re in big trouble.”

Recognizing the possibility that 3M could collapse under the weight of legal claims, plaintiffs’ attorney Scott Summy of Baron & Budd PC told the court that they hired special bankruptcy counsel and “fought very hard for adequate bankruptcy protections in the agreement.”

Putting a company out of business “would be a terrible thing for all the plaintiffs,” Summy said. “When you do one of these settlements you end up having to team up with the defendant because you want them to do well, so that they can pay your clients.”

With respect to water suppliers, there’s an open question over whether consumers or government bodies will ultimately bear remediation costs if settlement amounts are insufficient, said environmental attorney Jeff Kray, managing partner of Marten Law LLP."We will be dealing with this for quite a while and it’s likely there will be more bankruptcies,” he said.

Large industrial corporations like 3M and DuPont are attracting the bulk of PFAS litigation due to their size and historic role in chemical production. But the liability net has grown over the years to ensnare companies further down the line that manufactured or sold products containing PFAS.

“It’s not just about 3M, DuPont and their successors. There are thousands of entities in scores of industries that also have this issue,” said Jeffrey Porter, environmental law practice chair at Mintz Levin Cohn Ferris Glovsky and Popeo PC.

The Consumer Product Safety Commission last month published a request for information on PFAS potentially used in consumer products, and the potential health effects associated with consumer exposure.

Balance Sheet Limits

When it filed for bankruptcy in May, Kidde-Fenwal said in court papers that it incurred over $6 million in litigation costs in 2023 alone addressing alleged liability that “exceeds the capacity of KFI to pay.” The company, which cited approximate assets of $318 million, said it expected legal fees and expenses to “increase substantially” without protection in Chapter 11.

The bankruptcy of a defendant like Kidde-Fenwal coupled with the 3M and DuPont settlements has placed a greater financial burden on companies that remain in litigation.

“How long these companies can pay for the defense of these cases is very company-specific,” said environmental defense attorney John Gardella of CMBG3 Law LLC. “Next year is pretty critical in figuring out what the costs to the non-3M and non-DuPont companies are going to be.”

In addition to the outsize number of suits against the manufacturers of PFAS compounds, more litigation is starting to take shape against smaller defendants like Michigan auto parts supplier Tribar Manufacturing and underwear manufacturer Thinx. These companies didn’t make the chemicals, but allegedly used them or disposed of them in the production process. Haynes and Boone LLP bankruptcy attorney Ian Peck noted these “more downstream” lawsuits have targeted the realms of fast food, textiles, cosmetics, and paper products.

With more suits, the ability of smaller litigation targets to fund defense costs and settlements “is going to be limited,” said Peck. “As continued cases start to pop up, you’re going to see more bankruptcies like the Kidde-Fenwal case.”

Solvency concerns may also be tripped by insurance coverage limits. There are a number of open questions and broadening litigation over the extent to which insurers are obligated to pay under policies written before the world became aware of forever chemicals and their omnipresence.

Bankruptcy could become a “very real possibility” for some companies that aren’t able to avail themselves of adequate insurance coverage, CMBG3 Law’s Gardella said.

Tipping Points

It’s hard to determine which companies may fall into Chapter 11, and when. Attorneys say the finalization of recently proposed environmental regulations and a 2024 AFFF test case could push more to the brink.

“With a bellwether trial you certainly see the writing on the wall,” said Jane Luxton, a managing partner at Lewis Brisbois Bisgaard & Smith LLP. “The numbers are just so staggering, and of course that just attracts more litigation.”

The next set of cases in the MDL, scheduled for trial next August, will focus on telomer manufacturers whose mostly shorter forms of PFAS have gone into firefighting foams. Some of the major defendants include AGC Chemicals Americas Inc., Chemguard Inc., Daikin America Inc., and Tyco Fire Products LP. The plaintiffs, once again, will be public water suppliers.

Earlier this month, attorneys involved in the MDL were instructed to identify a set of personal injury suits by Dec. 1 to serve as bellwethers in the next stage of litigation.

Moves by the Environmental Protection Agency in coming months will also be closely watched, as the agency is expected to finalize a rule designating the two most well-known PFAS—perfluorooctanoic acid (PFOA) and perfluorooctane sulfonic acid (PFOS)—as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act.

See also: EPA’s Final PFAS Data Rule Seen as Ripe for Industry Challenges

When the EPA passes final regulations regarding CERCLA, which makes property owners liable for cleaning up environmentally hazardous sites, “the claims will take off,” said Gardella.

The agency is also finalizing a rule that would require companies to provide more than a decade’s worth of information on PFAS they’ve made or imported, and limit the amounts of certain PFAS that can be present in drinking water.

Guilday Law’s DeMeo said that the federal government’s proposed limits on PFAS in drinking water are so low that anywhere you look for it, the amount will be above those limits.

If that rule becomes final, “that’s going to drive as much as anything else for all of these claims,” he said. “Kidde-Fenwal was just the beginning.”