The Chapter 11 bankruptcy of gun manufacturer Remington filed late last month has thrown yet another wrench into a landmark class-action settlement involving allegedly defective rifles that were the subject of a 2010 CNBC investigation.
A federal appeals panel in Kansas City is considering the settlement, in which Remington agreed to replace the triggers on millions of guns, including the iconic Model 700 rifle and a dozen other firearms with similar designs. While Remington continues to maintain the guns are safe, class-action plaintiffs claimed the guns are prone to firing without the trigger being pulled. With the case bogged down in court, the trigger replacement program, first announced in 2014, has been on hold.
Now, Remington is seeking to halt the class-action case entirely, at least temporarily, under a provision in federal bankruptcy law that automatically stays outside litigation while a bankruptcy case is pending.
"As a result of the bankruptcy filing, this appeal is subject to the automatic stay," wrote Remington attorney John Sherk in a filing last week with the 8th U.S. Circuit Court of Appeals in Kansas City.
The court has given the parties two weeks to weigh in on the issue.
A federal judge in Kansas City approved the class-action settlement last year, but a pair of Remington rifle owners immediately appealed the ruling. Richard Denney and Lewis Frost accused the company of deliberately downplaying the risks from the guns and failing to properly notify the public of the settlement in order to keep the number of claims low. Remington has denied the allegations, and plaintiffs' attorneys — who stand to collect $12.5 million in fees — have defended the settlement as fair.
An attorney for Denney and Frost, J. Robert Ates, told CNBC in an e-mail that the Court of Appeals should reject the stay, so that it can reject what he calls a "bogus" settlement and send it back to the District Judge who approved it, Ortrie Smith.
"In the final analysis, the best outcome for the class, for the legitimacy of class action settlements, and for the legitimacy of proper notice guaranteed under due process would be for the 8th Circuit to maintain jurisdiction by denying the stay in order to reject the settlement and remand it back to District Judge Smith," Ates said.
Attorneys for Remington and the class action plaintiffs did not respond to multiple requests by CNBC for a comment.
Even if the company is successful in its efforts at the Court of Appeals, the stay might not last long. Remington's Chapter 11 bankruptcy, filed on March 25, is "pre-packaged." That means the company has already reached agreement with its major creditors on a restructuring plan.
In court filings with the U.S. Bankruptcy Court in Delaware, Remington has said that if creditors and the court approve, it could emerge from bankruptcy protection by this summer.
Under the restructuring plan, which allows the company to eliminate more than $600 million in debt, Remington's primary lenders would assume control of the company, while the equity interest of Remington's current owner, Cerberus Capital Management, would be wiped out. Most creditors, including class-action plaintiffs if the settlement is approved, would be paid in full.
Creditors have until April 26 to vote on the restructuring plan.