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Commitments and Contingencies
6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
From time to time, we may be subject to various lawsuits and other claims, as well as gain contingencies, in the ordinary course of our business. In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which we operate.
We establish reserves for specific liabilities in connection with regulatory and legal actions that we determine to be both probable and reasonably estimable. As of June 30, 2023 no material amounts have been accrued in our consolidated financial statements with respect to any loss contingencies. If a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. In certain of the matters described below, we are not able to make a reasonable estimate of any liability because of the uncertainties related to the outcome and/or the amount or range of loss. While it is not possible to determine the ultimate disposition of each of these matters, we do not expect that the ultimate resolution of pending regulatory and legal matters in future periods, including the matters described below, will have a material effect on our financial condition, results of operations or liquidity. Despite the above, the Company may incur material defense and settlement costs, diversion of management resources and other adverse effects on our business, financial condition, or results of operations.
Ethylene Oxide Tort Litigation
Sterigenics U.S., LLC (“Sterigenics”) and other medical supply sterilization companies have been subjected to tort lawsuits alleging various injuries caused by low-level environmental exposure to EO emissions from sterilization facilities. Those lawsuits, as detailed further below, are individual claims, as opposed to class actions.
Illinois
More than 854 plaintiffs filed lawsuits, and approximately 28 individuals threatened to file lawsuits, against subsidiaries of the Company and other parties, alleging personal injuries (including cancer and other diseases) or wrongful death resulting from purported emissions and releases of EO from Sterigenics’ former Willowbrook facility. Additional derivative claims were alleged on behalf of relatives of some of these personal injury plaintiffs. The lawsuits were consolidated for pre-trial purposes by the Circuit Court of Cook County, Illinois (the “Consolidated Case”). Jury trials were conducted during 2022 in two of the individual cases included in the Consolidated Case, and 12 individual cases were scheduled for trials in 2023. The first trial began on August 12, 2022, and on September 19, 2022, the jury rendered a verdict in favor of the plaintiff and awarded damages in the amount of $358.7 million, including $36.1 million of compensatory damages, $320.0 million of punitive damages and $2.6 million of prejudgment interest against Sterigenics and Sotera Health LLC (the “Defendant Subsidiaries”). Post-judgment interest accrued on the compensatory and punitive damages awards from September 20, 2022, the date of the judgment order. The Defendant Subsidiaries filed a Motion for Post Trial Relief, which was denied on December 19, 2022. On January 9, 2023 the Defendant Subsidiaries filed a Notice of Appeal to the First District Appellate Court in Illinois, appealing the September 20, 2022 adverse judgment. The deadline for posting an appellate bond for the appeal was extended to February 8, 2023. The second individual trial began on October 6, 2022, and on November 18, 2022, the jury returned a defense verdict on all counts. On January 4, 2023, the plaintiff in the second trial filed a motion for post-trial relief seeking an order reversing and/or vacating the verdict, granting a new trial, and/or entering judgment in the plaintiff’s favor notwithstanding the verdict.
On November 1, 2022 certain plaintiffs in the Consolidated Case filed a lawsuit in the Circuit Court of Cook County against the Company and certain affiliates, subsidiaries and current and former officers, alleging that certain transfers of assets occurring after December 2016 were intended to make assets unavailable to satisfy judgments the plaintiffs might win in future trials in their individual personal injury cases included in the Consolidated Case (the “Asset Transfer Case”). On November 10, 2022, the Asset Transfer Case was removed to the United States District Court for the Northern District of Illinois and all defendants filed answers and affirmative defenses.
On January 9, 2023, the Defendant Subsidiaries (the “Settling Defendants”) entered into binding term sheets (the “Term Sheets”) with the “Plaintiffs’ Executive Committee” (the “PEC”) appointed to act on behalf of the more than 20 law firms (“Plaintiffs’ Counsel”) representing the plaintiffs in the Consolidated Case, the Asset Transfer Case, and other clients with personal injury claims that had not yet been filed (each an “Eligible Claimant” and collectively, the “Eligible Claimants”). Upon entering into the Term Sheets, and based on our assessment that it was probable that the conditions to the Term Sheets would be satisfied or waived, we recorded a charge of $408.0 million for the year ended December 31, 2022. The Term Sheets provided an agreed path to final settlement of the Eligible Claimants’ claims, subject to the satisfaction or waiver of certain conditions, including but not limited to the negotiation and execution of full settlement agreements in accordance with the Term Sheets.
On January 11, 2023 and January 13, 2023, the Circuit Court of Cook County entered orders staying all proceedings and deadlines and vacating all trial dates in the Consolidated Case, and staying all enforcement proceedings relating to the September 20, 2022 adverse judgment. On January 16, 2023 the United States District Court for the Northern District of Illinois entered an order staying all proceedings in the Asset Transfer Case. On January 23, 2023 the First District Appellate Court in Illinois entered an order staying the Settling Defendants’ appeal of the September 20, 2022 adverse judgment.
On March 28, 2023, the Settling Defendants and the PEC entered into full settlement agreements (the “Settlement Agreements”). The Settlement Agreements provided a pathway to resolve the claims that were or could have been alleged by 882 Eligible Claimants related to or arising from alleged emissions of EO from Sterigenics’ operations in or around Willowbrook and related claims that were or could have been alleged by Eligible Claimants seeking to challenge any transfer of assets to or from the Company, its subsidiaries and certain affiliates to any other entity or person (the “Covered Claims”). The Company and Settling Defendants deny any liability for the Covered Claims and, per their express terms, the Settlement Agreements are not to be construed as an admission of liability or that the Company or Settling Defendants engaged in any wrongful, tortious, or unlawful activity or that use and/or emissions of EO from Sterigenics’ operations in or around Willowbrook posed any safety hazard to the surrounding communities.
The Settlement Agreements provided that final settlement was conditioned, among other things, on successful completion of a claims administration process and satisfaction (or waiver by the Settling Defendants) of specific participation requirements, the dismissal with prejudice of the Covered Claims of all Eligible Claimants participating in the settlement, and court approval of the settlement as a good faith settlement under the Illinois Joint Contribution Among Tortfeasors Act.
On May 1, 2023, Sterigenics contributed $408.0 million to settlement escrow funds (the “Settlement Funds”) to be used, if the conditions of the Settlement Agreements were satisfied or waived, to pay all settlement fees and expenses and cash payments to the Eligible Claimants participating in the settlement.
The claims administration process concluded with 879 of 882 Eligible Claimants providing opt-in consent to participate in the settlement (the “Settling Claimants”). Pursuant to the Settlement Agreements, the three Eligible Claimants who did not opt in (each a “Non-Settling Claimant,” and collectively the “Non-Settling Claimants”) created an option for the Settling Defendants to exercise walkaway rights. On June 22, 2023, after evaluating the available information about the claims of the Non-Settling Claimants, the Settling Defendants waived their walkaway rights and chose to proceed to final settlement with the Settling Claimants (the “Willowbrook Settlement”).
On June 23, 2023 the Circuit Court of Cook County entered an order confirming that the Willowbrook Settlement was a good-faith settlement under the Illinois Contribution Among Joint Tortfeasors Act. On June 30, 2023, the Settlement Funds were released from escrow to the PEC’s Qualified Settlement Funds. The amounts allocated by the PEC to the Non-Settling Claimants represent an immaterial fraction of the Settlement Funds and will remain in escrow until December 31, 2023, at which point, absent an opt-in election by a Non-Settling Claimant, the funds allocated to that Non-Settling Claimant will revert to Sterigenics. On July 6, 2023, the claims of the Settling Claimants against the Settling Defendants were dismissed with prejudice, with the Circuit Court of Cook County retaining jurisdiction to adjudicate disputes over liens on the settlement proceeds to be paid to the Settling Claimants and to oversee the administration of the settlements of the wrongful death cases.
The three Non-Settling Claimants’ cases will proceed in the Circuit Court of Cook County, Illinois. In June 2023, six new personal injury lawsuits relating to the Willowbrook facility were filed in the Circuit Court of Cook County against Sterigenics, Sotera Health Services, LLC and other parties (the “Post-Settlement Cases”). One Post-Settlement Case has been removed to the United States District Court for the Northern District of Illinois, and a motion to remand is pending. The remaining Post-Settlement Cases will proceed in the Circuit Court of Cook County.
Georgia
Subsidiaries of the Company and other parties are defendants in lawsuits in the State Court of Cobb County, Georgia and the State Court of Gwinnett County, Georgia in which plaintiffs allege personal injury and property devaluation resulting from emissions or releases of EO from or at Sterigenics’ Atlanta facility, and seek damages and other forms of relief.
One personal injury lawsuit pending in Gwinnett County is scheduled for trial in October 2023. Approximately 300 personal injury lawsuits pending in Cobb County have been consolidated for pretrial purposes (the “Consolidated Personal Injury Cases”). The Consolidated Personal Injury Cases are proceeding under a case management order pursuant to which a “pool” of ten personal injury cases will proceed to determination of general causation issues in Phase 1 and, specific causation issues in Phase 2; the remaining Consolidated Personal Injury Cases are stayed. One personal injury lawsuit pending in Cobb County has not been consolidated and is proceeding independently. Nine lawsuits pending in Cobb County include both personal injury and property claims (the “Dual Injury Cases”). By agreement of the parties, the Dual Injury Cases will be included in the Consolidated Personal Injury Cases and stayed.
Our subsidiaries are also defendants in approximately 366 property devaluation lawsuits. One property lawsuit is pending in Gwinnett County and the parties are conducting discovery. The remaining property lawsuits are pending in Cobb County and have been consolidated for pretrial purposes (the “Consolidated Property Cases”). The Consolidated Property Cases are proceeding under a case management order pursuant to which ten cases will proceed with dispositive motions and discovery, and the remaining cases are stayed.
New Mexico
On December 22, 2020, the New Mexico Attorney General filed a lawsuit in the Third Judicial District Court, Doña Ana County, New Mexico against the Company and certain subsidiaries alleging that emissions and releases of EO from Sterigenics’ facility in Santa Teresa, New Mexico have deteriorated the air quality in Santa Teresa and surrounding communities and materially contributed to increased health risks suffered by residents of those communities. The Complaint asserts claims for public nuisance, negligence, strict liability, violations of New Mexico’s Public Nuisance Statute and Unfair Practices Act and seeks various forms of relief including a temporary restraining order, preliminary injunctive relief and damages. On June 29, 2021, the Court entered an Order Granting Preliminary Injunction (the “Order”) prohibiting Sterigenics from allowing any uncontrolled emission or release of EO from the facility. On December 20, 2021 the Court entered an order establishing a protocol to monitor Sterigenics’ compliance with the Order. Operations at the facility continue to be in compliance with the June 2021 and December 2021 orders. A motion challenging the Court’s jurisdiction over Sotera Health Company and another defendant, and a motion for summary judgment by Sterigenics and Sotera Health LLC are pending. A Scheduling Order was entered on September 13, 2022, including a June 3, 2024 trial date. The Company expects the Court to issue rulings on the pending motions and address the schedule for the remainder of the case in August 2023.
On April 24, 2023, a lawsuit was filed in the Third Judicial District Court, Doña Ana County, New Mexico against the Company, Sterigenics and certain other subsidiaries alleging wrongful death caused by exposure to emissions and releases of EO from Sterigenics’ facility in Santa Teresa, New Mexico while the decedent was working at a different company’s facility approximately one mile away. Sterigenics removed the case to the United States District Court for the District of New Mexico on April 27, 2023, and filed a partial motion to dismiss on June 2, 2023.
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Additional EO tort lawsuits may be filed in the future against the Company and/or its subsidiaries relating to Sterigenics’ Willowbrook, Atlanta, Santa Teresa or other EO facilities. The Company denies allegations that its EO operations could or have caused the harms alleged in such lawsuits, and does not believe that the facts and law justify the September 20, 2022 adverse judgment in the first trial in Illinois or that the verdict and damage awards in that case or the Willowbrook Settlement are predictive of potential future verdicts in other EO tort cases in Illinois or other jurisdictions. The Company intends to defend itself vigorously in all such litigation, which will be presided over by different judges, tried by different counsel presenting different evidence and fact and expert witness testimony at trial, and decided by different juries. Each plaintiff’s claim involves unique facts and evidence, including but not limited to, the circumstances of the plaintiff’s alleged exposure, the type and severity of the plaintiff’s disease and the plaintiff’s medical history and course of treatment. As a result, we believe that losses in such subsequent cases are not probable and that it is not possible to estimate the range of loss. Due to the uncertainties associated with the amount of any such liability and/or the nature of any other remedy which may be imposed in such litigation, any potential liability determined to be attributable to the Company or any of its subsidiaries arising out of such litigation may have a material adverse effect on the Company’s results of operations, liquidity or financial condition. An estimate of the potential impact on the Company’s results of operations, liquidity or financial condition cannot be made to a reasonable or meaningful degree of certainty due to the aforementioned uncertainties.
Insurance Coverage for Environmental Liabilities
Our insurance for litigation related to alleged environmental liabilities, like the litigation pending in Illinois, Georgia and New Mexico described above, has limits of $10.0 million per occurrence and $20.0 million in the aggregate. The per occurrence limit related to the Willowbrook, Illinois litigation was fully utilized by June 30, 2020. The remaining $10.0 million was fully utilized by March 31, 2023 for occurrences related to the EO litigation in Georgia and New Mexico described above. Our insurance for future alleged environmental liabilities excludes coverage for EO claims.
In addition, we are pursuing other insurance coverage for our legal expenses related to litigation like the Illinois, Georgia and New Mexico matters described above. In 2021, Sterigenics filed an insurance coverage lawsuit in the U.S. District Court for the Northern District of Illinois relating to two commercial general liability policies issued in the 1980s (the “No. Dist. of IL Coverage Lawsuit”). The court has issued orders declaring that the defendant insurer owes Sterigenics and another insured party a duty to defend the EO tort litigation relating to the Willowbrook facility and owes Sterigenics approximately $75.5 million in defense costs through September 30, 2022. Sterigenics is also a party in insurance coverage lawsuits, pending
in the Delaware Superior Court and the Circuit Court of Cook County, seeking insurance coverage from various historical commercial general liability policies for certain EO litigation settlement amounts and defense costs the insurer in the No. Dist. of IL Coverage Lawsuit may fail to fund. It is unknown how much, if any, of the insurance proceeds sought will be recovered.
Sotera Health Company Securities Litigation & Related Matters
On January 24, 2023, a putative stockholder class action was filed in the U.S. District Court for the Northern District of Ohio against the Company, its directors, certain senior executives, the Company’s private equity stockholders and the underwriters of the Company’s initial public offering (“IPO”) in November 2020 and the Company’s secondary public offering (“SPO”) in March 2021 (the “Michigan Funds Litigation”). On April 17, 2023 the court appointed the Oakland County Employees’ Retirement System, Oakland County Voluntary Employees’ Beneficiary Association, and Wayne County Employees’ Retirement System (the “Michigan Funds”) to serve as lead plaintiff to prosecute claims on behalf of a proposed class of stockholders who acquired shares of the Company in connection with our IPO or SPO or between November 20, 2020 and September 19, 2022 (the “Proposed Class”). The Michigan Funds allege that statements made regarding the safety of the Company’s use of EO and/or the litigation and other risks of its EO operations violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (when made in the registration statements for the IPO and SPO) and violated Sections 10(b), Section 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 (when made in subsequent securities filings and other contexts). On June 1, 2023 the Michigan Funds filed an Amended Complaint seeking damages and other relief on behalf of the Proposed Class. Defendants’ motion to dismiss the Amended Complaint was filed on August 2, 2023. In addition, on May 15, 2023 and July 25, 2023 the Company received demands pursuant to 8 Del. C. §220 for inspection of its books and records from individual shareholders purporting to be investigating the Company’s internal operations, disclosure practices and other matters alleged and at issue in the Michigan Funds Litigation (the “220 Demands”). The Company believes that the allegations and claims by the Michigan Funds and in the 220 Demands are without merit, and plans to vigorously defend the Michigan Funds Litigation.