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GM rice: settlement construction and farmer options

GM rice: settlement construction and farmer options
$750 million settlement offered to U.S. long-grain rice farmers. Stems from market fall following 2006 announcement that trace GM traits found in exported U.S. rice. Options and settlement set-up explained.

Late in the day on July 1, a $750 million settlement was announced between Bayer and attorneys representing U.S. long-grain rice farmers. The settlement is aimed at putting to bed thousands of pending lawsuits against Bayer brought following trace amounts of GM traits found in U.S. rice shipped to Europe in 2005/2006.

A late-summer 2006 USDA announcement regarding the presence of those Bayer-owned traits in the rice supply sent the market into decline and farmers’ expected profits vanished.

For full coverage from Farm Press on the incident and subsequent fallout, see GM rice.

On July 2, Don Downing, co-lead plaintiff attorney with St. Louis-based law firm Gray, Ritter & Graham, spoke with Delta Farm Press about the settlement’s construction, documentation requirements, deadlines and how soon farmers could be paid. Among his comments:

Did the number of cases heard before this settlement was done surprise you?

“I think this process was contemplated by Judge (Catherine) Perry, the federal judge who oversaw the (federal cases). She set five bellwether cases. The thought was that, after trying five or six cases, the parties could use the results the juries determined to fashion a global settlement.

“That’s about what it took – six trials to verdict. And at the end of the day, both parties decided we had a pretty good read on what the juries were determining the cases were worth. Based on those determinations, we fashioned a settlement.”

When you speak of the bellwether trials, those exclude the cases heard in Arkansas?

“There were three bellwether trials that went to verdict in federal court here. We started a fourth that settled after the first week. A fifth bellwether trial here settled a week before trial.

“Then, you’re right, there were three cases tried to verdict in Arkansas state courts involving farmers. All of those resulted in verdicts for the farmers. And one of them, I believe, resulted in a $42 million punitive verdict.

“The final trial involved Riceland. It didn’t involve farmers but was a seventh jury (verdict against Bayer). It’s interesting that out of 50 to 60 jurors in all these cases, every single one of them found Bayer was negligent in letting (the GM traits) get out and contaminate the rice supply. Every one of them found that by doing that it harmed farmers and companies like Riceland. The jurors were unanimous on Bayer’s negligence.”

Were there ever any punitive damages awarded in the federal court cases?

“No. We had three trials and one was under Louisiana law. Under Louisiana law, punitive damages aren’t recoverable.

“In the other two trials we asked for punitive (damages) and the jury did not give them; although, we understand after talking to jurors afterwards, certainly in one of the (trials), it was very close as to awarding punitive damages. Some of the jurors told us (the rejection) was based on one of the instructions that used the word ‘malice’ under Arkansas law.

“But it was very close (in federal court).

“In the state court trials, two of the three verdicts did grant punitive damages.

“One of the differences in federal and state court – and it’s something lawyers are very aware of – is in federal court, to get a verdict, you must have a unanimous (decision). So, to get punitive damages, you had to get a unanimous (agreement).

“In state court, you don’t have to have a unanimous verdict. In Arkansas, I think it’s two-thirds or 75 percent have to be in accordance. So, it’s easier to get a punitive verdict on any case in Arkansas and Missouri state court rather than federal court.”

Pending cases

The timing of Bayer’s approach about a settlement? How long have you been working on this?

“We started negotiating with Bayer – or trying to – back in 2006, right after (the announcement of GM traits in U.S. rice). We told them they needed to step up to the plate and take care of the farmers who’d suffered losses.

“From then until now we’ve had a lot of informal discussions with Bayer. For the first several years, they got nowhere. Bayer was unwilling to pay anything to settle.

“Then, the (federal) court appointed a special master for settlement – former federal judge Stephen Limbaugh – who organized several formal mediation sessions. Some of those occurred before the first bellwether trials, some after. … After the bellwether trials, Bayer became more serious about (settlement) payments.

“I’d say within the last four or five months is when the settlement discussions have become very serious, talking about specific dollar amounts and the three different ‘pots’ of money that ultimately resulted in the settlement.

“Once we reached agreement on the numbers, a lot of time was spent crafting the settlement document. It’s very complex and, as you might expect, has a lot of ‘legalese’ in it. It took a lot more time than anyone thought it would, even after we’d agreed on the numbers.”

What about the pending cases – they say there are 5,000 or 6,000. Are you trying to rope those into this settlement? Can they independently go their own way?

“This is not a class-action so any farmer who wants their day in court doesn’t have to participate in the settlement. It’s a voluntary, opt-in process.

“The way the settlement is structured, if farmers who farmed 85 percent of the total (rice) acres planted from 2006 through 2009 agree to participate, then the settlement becomes effective and Bayer is obligated to make the payments called for under the agreement.

“If less than 85 percent of those acres are represented, Bayer has the option to walk away from the settlement if it chooses. It also has the option to reduce the $750 million down proportionally, depending on how many farmers sign up. Bayer has some other options, as well.

“We’re very optimistic we can meet the 85 percent threshold. But that’s up to the farmers, who have the right to decide what they want to do.”

Is it fair to say one of the hurdles you’ll have to overcome (with the settlement sign-up) are the huge punitive damages won in Arkansas court?

“I don’t view that as a hurdle, at all. Some cases have had punitive damages (awarded). But even some of the state court cases didn’t result in punitive damages.

“If farmers want to do that, they certainly can. But what I’m picking up – not only from my clients in Arkansas, Missouri and Mississippi but also from lawyers representing others in those states – is we think the vast majority of (eligible) farmers will participate (in the settlement).”

Settlement construction 

On the settlement’s Pot One…

“The first pot is called ‘market losses.’ It’s designed to compensate all farmers who planted rice from 2006 through 2010. As we’ve established in each of the trials (through) agricultural economists, because the (GM) contamination caused us to lose the European Union market, there was less demand for U.S. long-grain rice. It’s a basic law of supply-and-demand that when there is less demand for your product, the price is lower.

“So, for every single bushel of rice sold by long-grain rice farmers from 2006 through 2010, money was lost.

“They lost less money each year as you get further away from the contamination. Our economists explained that to the juries. The reason is when you lose a big market like the EU’s 27 countries, the first couple of years it’s very difficult to make up those lost markets. But as time goes on, our rice industry is resilient and can gradually make up for losing that market.

“That’s why … the damages, the amount of money you get per acre planted, go down each year from 2006 to 2010.”

  • $120 per acre for every documented acre planted in 2006.
  • $80 per acre for every documented acre planted in 2007.
  • $60 per acre for every documented acre planted in 2008.
  • $40 per acre for every documented acre planted in 2009.
  • $10 per acre for every documented acre planted in 2010.

“We stressed to Bayer it was very important that farmers be able to claim this money in an easy, efficient way. Basically, the agreement allows farmers to produce their FSA Form 578s – a government form that specifically lists how many acres of rice each farmer planted on each plot of ground for each year. Most farmers have already done this but those who haven’t need to go to their FSA office and get their 578s for each year. (Besides) a few other documents they’ll have to sign, that’s it. That’s basically how they’ll recover the money from Pot One.

“Add it all up and it’s about $310 per acre.”

On Pot Two…

“Every farmer can get Pot One money. Pot Two and Pot Three are for farmers who have losses in addition to just the market-price losses suffered when they sold their rice. Pots Two and Three are mutually exclusive – you can go into one or the other, not both.

“Pot Two was designed to compensate farmers … in a fairly easy way. The primary ‘other’ losses suffered by farmers were those who planted the two seed varieties found to be contaminated and banned from planting: Cheniere and Clearfield 131 (CL131).

“The farmers who planted those varieties in 2006 … were advised ‘we need to clean up our rice supply. We don’t want to contaminate the 2007 crop. Whatever you do, don’t plant rice on the same land where you planted Cheniere or CL131 in 2006.’

“Many took that advice and planted soybeans, let the land lay fallow or planted some other less lucrative crop. Of course, soybeans pay a lot less money on a net income basis than rice…

“For every acre you can document was planted in Cheniere or CL131 in 2006, you get $100. There are five or six ways allowed under the settlement to document that. The most prevalent will probably be through seed purchase receipts. … We have a conversion rate on how many bushels per acre are planted.”   

Does this include the cost of farmers having to clean up their storage and equipment? There was a lot of recommendations that be done.

“Yes. A farmer may think ‘you know, in addition to my market losses, I lost a lot more than $100 per acre of Cheniere or CL131.’ Those farmers have the option of going into Pot Three."

For an explanation of how Pot Three money will be split between Arkansas rice farmers and those in other rice-growing states, see GM rice settlement: Arkansas benefits from extra $50 million.

“Even if they didn’t plant Cheniere or CL131 they can go into Pot Three if they have other losses. For example, some farmers who didn’t plant Clearfield in 2006 had been planning on doing so in 2007 on some of their red rice-infested land. That’s what the Clearfield varieties are for. Because CL131 was banned in 2007 – sort of at the last minute – there was a huge shortage of Clearfield seed in the spring. A lot of farmers, instead of being able to plant a Clearfield variety on their red rice land, had to plant a variety not very good on red rice land or go with a less lucrative crop…

“In Pot Three you can also recover any other type of losses you’ve suffered. Those would include the cleaning expenses or any other kind of loss you can document.

“Pot Three (claims) require quite a bit more work by farmers. They’ll have to dig through records and prove through documentation all the losses suffered.

“That documentation and claim of loss will be submitted to Bayer. If they agree, they’ll pay. If Bayer disagrees then the farmer agrees to go to binding arbitration…

“There is a Pot Three cap of $100 million. If more than $100 million in Pot Three claims are filed and determined to be valid … then, everyone’s claim will be reduced proportionally.”

Caps and deadlines

On the $750 million and how it works…

“At the end of the day, if you add up Pot One, Pot Two and Pot Three – after subtracting the Pot Three cap – and it equals more than $750 million, to get back down to that amount … the market loss payout would be reduced from $310 (per acre) to $300, but no more. So, if the settlement threshold of 85 percent is met, all farmers are guaranteed at least $300 in market loss.

“If more reduction is needed … it would come out of Pot Three.

“That’s why I tell a lot of farmers … you need to have a good discussion with your lawyer about your Pot Three claims. There are several uncertainties about going into Pot Three that don’t exist to such an extent for Pot One and Pot Two.”

On the deadline to sign up 85 percent...

“Under the settlement agreement there will be a 90-day period. We believe that will begin (the week of July 4). It’s triggered by the date the claims administrator – and there’s been a firm hired to process all the farmer claims – certify they’re ready, all the computer programs are up and ready to process claims. That starts the 90 days running.

“So, there will be 90 days for the farmers and lawyers to get their documentation together and get it to the claims administrator. The claims submitted during that 90 days will be analyzed and the claims administrator will determine whether the 85 percent threshold has been met.

“Assuming the threshold is met, the settlement calls for about 30 days thereafter that Bayer will pay the first amount of money. That will be the $300 market loss payout.

“It isn’t certain … but we’re doing everything we can to get the payout under the settlement done by the end of this year…

“The Pot Two claims aren’t due for additional 30 days following the initial 90-day period. The Pot Three claims aren’t due for an additional 60 days after the initial 90-day period. So, the Pot Two and Pot Three claims won’t be paid until, probably, 2012.”

On the eligibility of farmers not currently involved in a lawsuit...

“The settlement is open not only for those who filed lawsuits but to every long-grain rice farmer in the country who planted rice from 2006 through 2010.

“Some people may be worried that statute of limitation may have run in some states. Well, as part of the settlement Bayer has agreed to ignore any statute of limitations.”

There have been some questions about an Arkansas Supreme Court hearing regarding a punitive damage cap in the state. That would seem to have a bearing, at least in the cases heard already, on whether those farmers will come into the settlement.

For more, see In GM rice case, Riceland wins big and GM rice litigation: plaintiffs.

“Some of those cases that went to trial are excluded from the settlement. The people who went to trial will get the money the juries determined they’re entitled to subject to any appeals.

“The case you’re referring to mostly is the case from Lonoke County where there was a $42 million punitive verdict. … The appeal on that case will continue just as it would if there was no settlement. At the end of the day, the Arkansas Supreme Court will likely decide that.”

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