Court: District Court, E.D. Missouri; March 31, 2016; Federal District Court
Plaintiffs, comprising twelve individuals, filed a products liability action in Missouri state court against four corporations, alleging that exposure to polychlorinated biphenyls (PCBs) led to non-Hodgkin’s lymphoma. The case was removed to federal court based on diversity jurisdiction and federal officer removal. The motions to remand question the nature of liability assumed by two forum Defendants, Monsanto Co. (New Monsanto) and Solutia, Inc. (Solutia), regarding a third Defendant, Pharmacia, LLC. Specifically, it must be determined whether the forum Defendants merely indemnified Pharmacia or actually assumed its liabilities, which could indicate fraudulent joinder aimed at defeating diversity jurisdiction. The case involves complete diversity, with New Monsanto and Solutia being Missouri residents, while Pharmacia and Pfizer, Inc. are not.
Historical context indicates that Old Monsanto, the predecessor of Pharmacia, was the primary PCB manufacturer in the U.S. until 1977, when it ceased PCB production due to known toxicity. In 1997, Old Monsanto's chemical operations were spun off to Solutia, which assumed liabilities related to Old Monsanto’s PCB production as per a Distribution Agreement that explicitly disclaims third-party beneficiary rights, except for certain indemnity provisions. The Court held oral arguments on the remand motions on November 24, 2015, and subsequently granted both motions to remand.
On March 31, 2000, Old Monsanto’s agricultural and pharmaceutical divisions merged with Pharmacia Upjohn, Inc., with Old Monsanto as the surviving entity under the Pharmacia name. Subsequently, Pharmacia established New Monsanto as a subsidiary, transferring its agricultural business and associated assets and liabilities to it through a Separation Agreement dated September 1, 2000, amended on July 1, 2002. Under this agreement, Pharmacia assigned all interests in New Monsanto's assets to it, while New Monsanto assumed relevant liabilities, including those related to Solutia’s spinoff, contingent on Solutia’s failure to address these liabilities. The Separation Agreement included a no-third-party-beneficiaries clause. An amendment on July 1, 2002, reiterated these terms regarding asset transfers and liabilities associated with the chemical and agricultural businesses.
In 2003, Pharmacia merged with Pfizer, and later, Solutia filed for Chapter 11 bankruptcy on December 17, 2003. In a memorandum supporting a Settlement Agreement between Solutia and New Monsanto, Solutia noted that PCB litigation against Old Monsanto had become unmanageable, prompting the need for a settlement to reallocate legacy liabilities. New Monsanto agreed to assume responsibility for all past and future claims, including PCB-related claims, termed Legacy Tort Claims. The Settlement Agreement indicated that New Monsanto would receive up to $175 million for its financial responsibility under the Reorganization Plan, while also stating that the Distribution Agreement would be superseded by the Settlement Agreement, rendering it ineffective upon the Settlement's effective date.
The Settlement Agreement delineates the indemnification responsibilities of Solutia and New Monsanto. Solutia is obligated to indemnify New Monsanto and Pharmacia for liabilities associated with Chemical Liabilities, except where New Monsanto indemnifies Solutia for such losses. Conversely, New Monsanto must indemnify Solutia for losses linked to Legacy Tort Claims. The Settlement Agreement incorporates the Pharmacia Indemnity Agreement, establishing mutual rights and obligations among Solutia, New Monsanto, and Pharmacia. Under this agreement, Solutia agrees to indemnify Pharmacia for losses from Solutia Tort Claims and Chemical Liabilities, with specific exceptions.
The bankruptcy court confirmed Solutia’s Reorganization Plan on November 29, 2007, which included the Settlement Agreement and imposed an injunction preventing claims against Solutia, New Monsanto, and Pharmacia, while allowing holders of Tort Claims to pursue their rights against these entities. The Reorganization Plan clarifies that Tort Claims remain unaffected by the Chapter 11 proceedings and will be resolved under applicable law. The financial responsibility for managing and paying Legacy Tort Claims lies with New Monsanto, while Reorganized Solutia is liable for Solutia Tort Claims. Furthermore, the Plan specifies that holders of Tort Claims do not release Solutia, New Monsanto, or Pharmacia from liability related to those claims.
Legacy Tort Claims encompass all claims under tort law related to chemicals, specifically those liabilities assumed by Solutia under the Distribution Agreement, including indemnification for Monsanto and Pharmacia. These claims involve personal injury or products liability associated with PCB exposure. Tort Claims are defined as any claims arising from chemical exposure for personal injury, regardless of Solutia's status as a defendant, whether the claimant has filed a proof of claim in the Chapter 11 Case, or when the exposure occurred relative to the Solutia Spinoff. Plaintiffs allege that all four Defendants share legal responsibility for Old Monsanto's PCB production and assert two state law claims: strict liability for design defect and negligence.
The complaint indicates that the case is not removable under the forum-defendant rule due to the involvement of a Missouri Defendant. Plaintiffs also disclaim any damages related to acts by the U.S. or federal officers. Six days after filing in state court, and prior to service of any Defendants, New Monsanto and Solutia removed the case to federal court based on diversity jurisdiction. The removing Defendants argue that removal was valid despite being forum Defendants because it occurred before service and they were fraudulently joined, as they did not manufacture or sell PCBs. They assert Missouri law prevents direct action against indemnitors like them.
Pfizer and Pharmacia consented to the removal, with Pharmacia filing an answer that included 34 affirmative defenses, one citing preemption by the TSCA and FFDCA. Additionally, Pharmacia argued for removal under the federal officer removal statute, claiming that PCB production was conducted under federal direction, supported by the existence of a federal task force established in 1971 to address PCB hazards.
In a 1972 report, a Task Force determined that PCBs should not be completely banned due to their essential use in transformers and capacitors, which mitigates fire and explosion risks and maintains electrical service. Subsequently, OSHA established electrical standards mandating PCB use. The 1976 Toxic Substances Control Act (TSCA) empowered the EPA to regulate PCBs and permitted their continued manufacture until January 1979 due to their necessity in specific applications. The FDA regulates PCB levels in food under the Federal Food, Drug, and Cosmetic Act (FFDCA), allowing low levels in various food products.
Pharmacia, which operated as Old Monsanto, claims to have produced PCBs under federal contracts, including for the U.S. Atomic Energy Commission and defense contractors. Evidence includes a 1972 exhibit of a planned sale of 400 barrels of PCBs to the Atomic Energy Commission. By the mid-1970s, significant amounts of PCB-containing fluids were in use by the Tennessee Valley Authority.
In the context of the legal proceedings, Plaintiffs filed a motion to remand on June 26, 2015, contesting the Defendants' claim of diversity jurisdiction based on the forum-defendant rule. They argue that the rule should not be circumvented by removing cases prior to proper service of forum defendants. Plaintiffs assert that the forum defendants, New Monsanto and Solutia, are not fraudulently joined and that further discovery is needed to establish liability for PCB manufacturing. They cite evidence from Solutia's bankruptcy proceedings suggesting that liabilities assumed during its reorganization include PCB claims.
In response, Defendants argue that the Plaintiffs’ claims are both legally and factually frivolous, disputing the claimed duty of Old Monsanto to avoid PCB manufacturing and the scientific basis for linking PCBs to the Plaintiffs' cancer. They also challenge the notion that any doubts should favor remand regarding the Court's subject matter jurisdiction.
The Defendants challenge the applicability of the forum-defendant rule, arguing that it does not apply in this case since the removal is based on both diversity and federal officer removal. They assert that the rule does not prevent removal because the forum Defendants had not been served prior to removal and that New Monsanto and Solutia were fraudulently joined, as they are only indemnitors regarding the Plaintiffs' claims and cannot be held directly liable under Missouri law. Defendants contend that the Settlement Agreement superseded previous obligations in the Distribution and Separation Agreements, limiting their responsibilities to indemnification only. They also argue that the no-third-party-beneficiaries clauses in these agreements prevent the Plaintiffs from asserting claims against Monsanto and Solutia.
In response to the Defendants' arguments, Plaintiffs maintain that the Settlement Agreement did not absolve Solutia and Monsanto of liabilities related to the old Pharmacia. They cite a recent case, Town of Lexington v. Pharmacia Corp., where the court ruled that Solutia retained liability for PCBs based on the Distribution Agreement, despite the Reorganization Plan. The court found that Solutia could not avoid liability through third-party beneficiary clauses. Regarding New Monsanto, the court indicated ambiguity in the liability distribution among the defendants, suggesting further examination was needed. Plaintiffs also reference New Monsanto’s 2015 Form 10-K, which disclosed ongoing legal proceedings related to Pharmacia’s chemical business and indicated that New Monsanto is responsible for certain litigation liabilities, including those linked to PCBs.
Plaintiffs assert that Defendants have failed to provide clear and convincing evidence to negate their colorable claim against New Monsanto. In their second motion to remand, filed on July 23, 2015, Plaintiffs contend that Old Monsanto did not meet the 'acting under' requirement for federal officer removal under 28 U.S.C. 1442(a)(1) when manufacturing PCBs, as there is no causal link between its actions and federal authority. They emphasize that the PCBs manufactured for government use were intended for closed applications, while their claims concern PCBs used in non-closed settings prior to the period when Old Monsanto claims it was mandated to sell only for closed applications.
Plaintiffs also argue that Old Monsanto lacks a viable federal defense based on TSCA preemption, noting that this defense has never been successfully invoked in PCB litigation and is particularly inapplicable since the TSCA was enacted in 1977, after the conduct in question. They refer to the TSCA’s savings clause, which they interpret as preserving state tort claims for damages.
In response, Pharmacia claims that a liberal standard for federal officer removal applies and cites that Old Monsanto manufactured PCBs for federal use from 1929 to 1977, asserting that federal regulations and congressional legislation supported their manufacture. Pharmacia argues that Plaintiffs' claims challenge Old Monsanto's conduct performed under federal authority, but acknowledges the difficulty in determining the specific PCBs to which Plaintiffs were exposed. Pharmacia contends that courts typically deny remand requests based on general disclaimers similar to those in Plaintiffs' complaint.
In their reply, Plaintiffs counter that the federal removal statute should not be liberally interpreted when a private company’s liability, purportedly under federal direction, is at stake. They emphasize that the vast majority of Old Monsanto’s PCB sales were to private entities, with only a minimal amount sold to government purchasers—47,000 pounds out of an estimated 1.2 billion pounds sold overall. Plaintiffs label this as a 'de minimis' argument and acknowledge a lack of case law to support their unique theory of liability in this context.
Defendants did not contest the Plaintiffs' claim regarding the minimal percentage (one one-hundredth of one percent) in their argument against the de minimis threshold. In their surreply concerning motions to remand, Defendants assert that the liberal standard for federal officer removal applies to private companies, arguing that the quantity of PCBs sold to the government is irrelevant since the complaint addresses all PCB manufacturing. They distinguished cases that denied federal officer removal on the grounds that the government did not direct disposal methods in those instances, whereas OSHA mandated PCB usage in certain applications.
Regarding diversity jurisdiction, Defendants maintain that New Monsanto and Solutia were fraudulently joined, emphasizing that a 2007 Settlement Agreement from Solutia's bankruptcy overrides any liability claims from earlier agreements, substituting them with indemnification obligations. They also contend that specific terms in the Settlement Agreement regarding New Monsanto's liabilities take precedence over broader Bankruptcy Plan provisions. Defendants criticize the Town of Lexington decision as incorrect.
In response, Plaintiffs argue that Town of Lexington was rightly decided and cite a recent Eighth Circuit case, Hubbard v. Federated Mutual Insurance Co., which reaffirmed that doubts about federal jurisdiction based on diversity should favor remanding to state court.
On January 28, 2016, Defendants sought to supplement the factual record to support their federal officer removal claim, presenting newly discovered historical documents from 1941-1942 and 1972. The 1941-1942 documents include requests for a Necessity Certificate to the Secretary of War for government funding to expand PCB production, indicating that increased production was intended to support the Defense Program. One application noted a planned production increase from 720,000 to 1,200,000 pounds per month, asserting that the additional capacity would be fully absorbed by defense needs, while also referencing the essential role of PCBs in Navy cable insulation and the high demand for government contracts.
A second request for additional funding emphasizes that all increased production will be utilized for the Defense program. The Office of Production Management endorsed granting a Certificate of Necessity, which would boost PCB production by 7.2 million pounds annually, asserting its necessity for national defense during an emergency. Notably, Old Monsanto indicated it would not supply any PCBs to the Army or Navy. A subsequent funding request details new facilities aimed at increasing PCB output by 130,000 pounds monthly, highlighting a significant demand surge for transformers and condensers due to the defense program, leading to a PCB shortage. Old Monsanto reiterated that it had no contracts with the U.S. for this product.
Additionally, evidence from 1972 and 1974 shows federal directives for Old Monsanto to sell PCBs to military contractors, despite the company’s environmental concerns regarding PCB usage. Defendants argue this evidence is crucial for asserting their right to litigate PCB manufacturing in a federal context, while Plaintiffs contend the motion to supplement is untimely and the new evidence does not justify federal officer removal due to the minimal scale of sales to the government.
In their rebuttal, Defendants do not counter the "de minimis" claim but argue that new documentation of federal funding for PCB production and sales to contractors demonstrates that Pharmacia acted under federal authority. Despite the lateness of the request, the Court permits the Defendants to submit the supplemental evidence.
The discussion on diversity jurisdiction highlights the continuation of the "anti-removal presumption" by the Eighth Circuit, resolving any ambiguities regarding removal in favor of remand, as established in prior case law.
The party seeking to establish jurisdiction must demonstrate that all jurisdictional requirements are met. Under the removal statute, a case cannot be removed based on diversity if any properly joined and served defendant is a citizen of the state where the lawsuit was filed, as outlined in 28 U.S.C. § 1441(b)(2). In the Eighth Circuit, breaching this "forum defendant rule" is considered a jurisdictional defect, not merely a procedural issue that can be waived, as confirmed in Horton v. Conklin. There is a divergence among district courts regarding whether a defendant can evade this rule by removing a case prior to any local defendant being served. Some courts, like Hensley v. Forest Pharmaceutical, argue for strict adherence to the statute's language, while others, such as Rogers v. Boeing Aerospace Operations, uphold the statute but allow for exceptions in extreme cases. In this instance, the removal occurred shortly after filing and before any defendants were served, qualifying it as an 'egregious' case under Rogers.
An exception to the forum-defendant rule exists if a local defendant was fraudulently joined. The court assesses the viability of the claim against the forum defendant, determining if there is at least a reasonable basis for potential liability under state law. The defendant alleging fraudulent joinder must show that the plaintiff's claims against the local defendant lack any reasonable basis. The court can consider evidence beyond the pleadings and must resolve ambiguities in favor of the plaintiff. In this case, the court finds sufficient grounds under Missouri tort law to predict potential liability for Pharmacia (Old Monsanto) based on the alleged facts, referencing Clair v. Monsanto Co. which supports that claims for strict liability and negligence in similar contexts can proceed.
Plaintiffs' ability to claim against New Monsanto or Solutia for Old Monsanto’s PCB liabilities hinges on whether these entities assumed responsibility for those liabilities rather than merely agreeing to indemnify Old Monsanto. The determination requires interpreting several contracts and bankruptcy documents, including the 1997 Distribution Agreement, the 2000 Separation Agreement, the 2007 Settlement Agreement, and the 2007 Pharmacia Indemnity Agreement, all governed by Delaware law. Under Delaware contract law, a court assesses contract language based on an objective standard, disregarding extrinsic evidence unless ambiguity exists. The court found ambiguity in the agreements regarding (1) Solutia’s assumption of PCB liability under the Distribution Agreement and (2) whether New Monsanto assumed any PCB liability. The court concluded that Solutia retains the liabilities it assumed, despite the Distribution Agreement being superseded, due to specific language in the Reorganization Plan that leaves "Tort Claims" unaffected, which may include "Legacy Tort Claims." Conversely, the Separation Agreement suggests New Monsanto's liability assumption is more than mere indemnification.
Indemnity is defined as a right that benefits a party who fulfills a duty that should have been performed by another, leading to unjust enrichment if the other party fails to reimburse. The Missouri Court of Appeals noted that a July 1, 2002 amendment to the Distribution Agreement indicated that New Monsanto assumed certain liabilities related to the chemical business assets transferred from Pharmacia, specifically in a manner that suggests a direct assumption of PCB liabilities. Additional support for New Monsanto's direct liability comes from Solutia’s Reorganization Plan, which states that “Holders of Tort Claims” were not releasing New Monsanto from any related liability, creating ambiguity regarding whether “Tort Claims” encompasses “Legacy Tort Claims.” Furthermore, New Monsanto's 2015 Form 10-K implies that it viewed itself as more than merely an indemnitor concerning PCB claims. Due to these ambiguities, the Court could not dismiss the possibility of colorable claims against Solutia and/or New Monsanto, affirming the Plaintiffs’ first motion for remand. The Court rejected the Defendants' argument regarding the no third-party beneficiaries clause in the Distribution and Separation Agreements, clarifying that the Plaintiffs' claims arise from PCB manufacture and sale, independent of those agreements. It emphasized that interpreting the agreements and assessing the viability of recovery theories do not fall under federal law jurisdiction. Consequently, the Court endorsed the principle that when the sufficiency of a complaint against a non-diverse defendant is uncertain, it is prudent for federal courts to remand the case for state court resolution.
Independent jurisdictional grounds for federal officer removal are established under 28 U.S.C. § 1442(a)(1), allowing cases involving federal officers to be removed to federal court even when a district court would otherwise lack jurisdiction. This statute permits removal of civil actions against any federal officer or individuals acting under them, whether in an official or personal capacity, for acts related to their office. The historical context of § 1442(a) traces back to 1814 and was expanded during the Civil War, primarily to safeguard federal officials from local prejudice in state courts and to ensure they have a federal forum for asserting immunity defenses.
The 2011 amendment added "or relating to," broadening the scope of acts that allow for federal removal. For a defendant to qualify for removal under this statute, they must demonstrate (1) they are "persons" under the statute, (2) they acted under the direction of a federal officer, (3) a causal connection exists between their actions and the plaintiffs’ claims, and (4) they have a colorable federal defense to those claims. The burden of proof lies with the removing party, similar to diversity jurisdiction cases.
The Supreme Court has interpreted "acting under" as requiring a broad but limited construction, indicating that it must involve assisting federal duties. The Court has rejected claims of acting under federal authority based merely on regulation. Removal cases typically involve defendants collaborating directly with federal officials to achieve federal objectives. In the current case, there is a question regarding the extent to which defendants have satisfied the "acting under" requirement for removal, based on supplemental evidence provided by them.
The Court determined that the requirement for federal officer removal was only satisfied regarding the PCBs sold directly by Old Monsanto to the government or under its direction. While the government mandated the use of PCBs during the relevant period and financially supported Old Monsanto's production in the early 1940s, the majority of PCBs were sold to government contractors rather than directly to the government. The Court noted that Defendants did not claim that their manufacturing process was controlled by the government, contrasting the case with prior decisions involving Agent Orange, where manufacturers had direct contracts with the government.
Additionally, the Court found that Defendants failed to establish a causal connection necessary for federal officer removal. The Plaintiffs’ argument that their claims were based on PCB exposure accumulated over decades was persuasive, as the total amount of PCBs manufactured under direct government contracts or sold to contractors was too minimal to establish the required causal link to the Plaintiffs’ claims. Consequently, the Court ruled that removal of the case was improper.
The Court ordered the approval of motions to supplement the record, granted the Plaintiffs’ motion to remand the case to state court due to lack of diversity and federal officer jurisdiction, and instructed the Clerk of Court to initiate the remand process. The Defendant is referred to as Pharmacia Corp. in the complaint.
As of November 30, 2012, the entity transitioned to an LLC. The start date for Old Monsanto's PCB manufacturing is not significant. Under the Distribution Agreement, Solutia must indemnify Old Monsanto against all Chemicals Liabilities. The court received an unexecuted Settlement Agreement from October 15, 2007, and an executed Amended and Restated Settlement Agreement from February 28, 2008, with identical relevant provisions. Section 1441(b)(2) restricts removal based on diversity if any properly joined defendant is a citizen of the state where the action is brought. New Monsanto and Solutia confirmed they accessed the complaint from the state court's electronic records. Section 1442(a)(1) permits removal for actions against U.S. officers or their agents related to their official duties. The issue regarding the citizenship of Pharmacia's members is resolved, confirming complete diversity in the case. The court dismisses Defendants’ objection to the forum-defendant rule. It notes that Holders of Tort Claims do not release Solutia or New Monsanto from liabilities related to those claims. The court grants Plaintiffs' motion to supplement the record with Robert G. Kaley’s deposition, where he indicated that New Monsanto and Solutia "assumed" liabilities from Old Monsanto. However, the court finds Kaley's testimony irrelevant for determining the nature of assumed liabilities, as he is not qualified to provide legal opinions.
