3M is awaiting a bankruptcy ruling that could scuttle the litigation tactic

(Bloomberg) — 3M Co.’s effort to block jury trials of more than 230,000 lawsuits accusing her of harming US soldiers faces a key test this week before a federal judge in Indianapolis.

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U.S. Bankruptcy Judge Jeffrey J. Graham is set to consider temporarily halting the lawsuits so that 3M and its bankrupt subsidiary, Aearo Technologies, can try to settle the claims, most of which have been filed by veterans who say that the earplugs are left for the hearing impaired.

Graham’s decision will resonate with the offices of other companies facing huge backlogs of product liability lawsuits, Harvard Law School professor Jared Elias said in an interview.

“To the extent that 3M backslides here, it’s likely to ring alarm bells in other corporate boardrooms of companies looking to take advantage of the bankruptcy system,” Ellias said.

The Aearo case uses an increasingly popular strategy in which profitable companies use insolvency proceedings to force settlement talks with victims of allegedly harmful products. Johnson & Johnson and lumber giant Georgia-Pacific have also filed for bankruptcy with the same goal of ending their woes in one place rather than fighting thousands of lawsuits across the country.

Final court documents from the company and its critics were due to be issued Monday night. A temporary stay ordered by a federal judge in Florida on some parts of the trial is set to expire on Wednesday.

Fighting each case before different juries across the country is impossible, the bankrupt units of J&J and 3M argue in court. Critics of the mass tort or lawsuit system agree.

“Mass torts are legal terrorism because even if a company has no liability for 80 percent of the claims against it, the defense costs will kill it,” bankruptcy attorney Martin Bienenstock said in an interview. Bienenstock heads the business solutions practice at the law firm Proskauer Rose.

On July 26, the company filed Aearo Technologies for bankruptcy in Indianapolis. Under Chapter 11 rules, Aearo is automatically entitled to freeze the lawsuits it faces, but because 3M itself did not file for bankruptcy, the judge must agree to give the industry group the same protection.

“Bankruptcy can eliminate decades of litigation and its expenses and make the company healthy,” Bienenstock said. In bankruptcy, victims can still collect money from the company, but under different rules that tend to make huge multimillion-dollar judgments less likely.

Taking responsibility

Advocates for the soldiers suing 3M argue that Chapter 11 bankruptcy rules were never designed for profitable companies.

“The bankruptcy process was never intended to allow our Fortune 500 companies to avoid liability,” Melanie L. Cyganowski, an attorney for some of the veterans, told Graham during a hearing in Aearo court last week. Cyganowski is a former bankruptcy judge who is helping 3M and J&J resolve their legal problems in bankruptcy.

Read more: Hearing Impaired Veterans Pounce on 3M’s Tactics on Earplug Suits

3M has defended its approach to the lawsuit, arguing that bankruptcy will be better for the plaintiffs and the company.

“There will be more certainty about who can qualify for a claim, more certainty about how to evaluate similarly situated claimants, and we’ll get to a resolution sooner,” said Eric Rucker, vice president and general counsel of 3M. in an interview.

Litigation Outlook

If 3M fails to take the dispute to bankruptcy court, the loss will discourage other companies from using the process, said Ellias, who opposed J&J’s strategy.

“No CEO wants to file for bankruptcy,” Ellias said. “The only thing worse than filing for bankruptcy is filing for bankruptcy and being told you didn’t do it right.”

Until last month, 3M was litigating the claims in federal court in Pensacola, Florida, where a judge oversaw the initial, procedural steps needed to prepare the lawsuits for separate jury trials in other courts. The judge overseeing that proceeding, known as a multidistrict litigation, or MDL, challenged 3M’s decision to use bankruptcy.

“3M and Aearo devised a scheme to escape the MDL and this court for good,” U.S. District Court Judge M Casey Rodgers said in a recent court ruling. The company was “dissatisfied with the decisions of this court and the verdicts of the jury,” he added.

The bankruptcy is Aearo Technologies LLC, 22-02890, United States Bankruptcy Court for the Southern District of Indiana (Indianapolis).

(Adds details about deadlines related to litigation in the sixth paragraph.)

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