Chemtura Resolves Butter Flavor Cases

Chemtura has agreed to pay $50 million to settle 347 claims brought by individuals who allege that the diacetyl butter flavoring ingredient the firm supplied is responsible for causing a lung disease. Resolution of the claims brings Chemtura a step closer to ending nearly 18 months in bankruptcy reorganization.

Chemtura reached the agreement with Humphrey, Farrington & McClain, a law firm that represents over 90% of individual claims, mostly on behalf of microwave popcorn factory workers. Still pending are another 19 individual claims and seven others brought by firms, such as Citrus & Allied Essences, who distributed butter flavoring to microwave popcorn makers.

The specialty chemical maker also reached a separate agreement with its insurers who had earlier denied coverage of diacetyl claims. The insurers will "fund a portion" of the settlement with Humphrey, Farrington & McClain, and also indemnify Chemtura for other pending and future diacetyl claims, according to documents Chemtura filed with the Security & Exchange Commission.

Initially, the diacetyl claims appeared to be one of the largest obstacles to Chemtura's reorganization (C&EN, Nov. 16, 2009, page 24). Chemtura's lawyers had told the bankrupty court that "the diacetyl-related claims are potentially among the largest unsecured claims pending against the estate." But the settlement with the law firm and insurers, says Chemtura in its latest SEC filing, means that diacetyl claims "will not have a material adverse effect on the company's financial condition, results of operations, or cash flow."

Factory workers have claimed that diacetyl butter flavor is responsible for bronchiolitis obliterans, a rare lung disease that causes shortness of breath, coughing, fatigue, and ultimately death. Microwave popcorn makers stopped using diacetyl flavorings in 2006.

Chemtura originally filed for bankruptcy reorganization in March 2009 during the low point of the global credit crisis. Back then, it was unable to repay a $374 million note. More recently, borrowing money for the firm has been easier. Chemtura just succeeded in raising $850 million in notes and loans as it anticipated court approval next month of its plan of reorganization and subsequent exit from court supervision.