(Bloomberg) -- Remington Outdoor Co.’s decision to seek court protection was a long-anticipated move by one of America’s oldest gun-makers. It was in part the result of a maelstrom that’s buffeted the industry since the election of Donald Trump, one also fueled by mass shootings and protests such as this weekend’s nationwide march for gun regulation.
Hundreds of millions of dollars in leveraged-buyout debt didn’t help, either.
But in Remington’s reorganization, the question remains whether people with pre-existing legal claims against the company will be made whole. Lawsuits over firearms defects and the use of its weapons in the Sandy Hook attack were pending when the company filed for bankruptcy Sunday. The company has moved to suspend those cases.
As much as $500 million could hang in the balance. Remington, which is owned by Cerberus Capital Management, is embroiled in litigation over trigger defects on guns such as its iconic Model 700 rifle, as well as another lawsuit by survivors of the children and teachers killed in the 2012 elementary school shooting in Newtown, Connecticut. Bushmaster, owned by Remington, manufactured the firearm used in that massacre, which left 26 dead.
While attorneys for the Sandy Hook families said they don’t anticipate the bankruptcy filing will impact their lawsuit, it remains to be seen how the separate trigger litigation will be affected. In U.S. bankruptcy court in Wilmington, Delaware, on Tuesday, a lawyer for the company said the two cases won’t be affected by the bankruptcy. They will “ride through,” attorney Gregory Bray said.
The class action, which alleged that the defects caused guns to discharge accidentally, is currently before a federal appeals court in St. Louis. Plaintiffs have argued that in completing a settlement, Remington failed to sufficiently advertise the initial call for claims in the case, resulting in an artificially small pool of potential victims and thus, an inadequate settlement. State attorneys general have sided with the claimants in seeking to expand the class beyond the 0.3 percent of potential participants it originally covered.
“The entire class is likely to receive settlement benefits that will cost Remington less, likely far less, than $4 million,” the state officials wrote in a court filing. They also warned that the blanket release required by the accord will likely bar personal injury or property damage claims tied to future firearm misfires. An attorney for the lead plaintiff, Ian Pollard, didn’t reply to a request for comment on how the bankruptcy could impact the potential settlement.
The gunmaker’s legal troubles stem from a defect that caused its Model 700 rifles and similar models to unintentionally discharge. After customers sued Remington in 2013, the company tentatively settled the case in an arrangement that would cost it about $3 million. U.S. District Judge Ortrie Smith in Kansas City, Missouri, initially withheld approval of the settlement because he thought participation was too low: Fewer than 3,000 of the guns’ owners had submitted claims, whereas 7.5 million rifles had been sold.
“If the settlement is approved, Remington is absolved of close to half a billion dollars in potential liability at a cost of less than $3 million,” Smith said Feb. 12. He ultimately approved the deal, but objectors quickly appealed.
The appeals court had yet to rule on the matter by the time Remington sought court protection, which typically suspends pre-existing legal proceedings against a debtor. On Monday, attorneys for Remington alerted the court to the bankruptcy filing and to provisions that require such litigation to be stayed, which the court acknowledged. Neither John Sherk, of Shook, Hardy & Bacon LLP, the Remington lawyer who filed the notice, nor a spokesperson for the gunmaker responded to requests for comment. Cerberus declined to comment.
During bankruptcy, companies are often allowed to scuttle outstanding claims or pay them out at pennies-on-the-dollar. “Depending on the particular facts and allegations surrounding the litigation, it’s often possible for a plan of reorganization to impose the same pennies-on-the-dollar treatment on litigation claimants that other unsecured creditors are receiving in a particular case,” said Steve Wilamowsky, a bankruptcy and restructuring partner at Chapman & Cutler.
For Madison, North Carolina-based Remington, that could mean relief from up to $500 million in liabilities, the amount it could owe if all 7.5 million rifle owners ultimately participated in the settlement.
If the appeals court decided to toss out the agreement and start the process over, Remington could eventually face a trial over the defect—and liabilities closer to the $500 million Smith referenced. But with the company now in bankruptcy, the outcome of those claims falls into doubt.
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