3M Can’t Use Bankruptcy To Stop Battle Earmuff Lawsuits, Judge Rules

(Bloomberg) — 3M Co. lost her fight to block jury trials in more than 230,000 lawsuits accusing her of harming US soldiers. The company’s shares fell because of the decision.

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U.S. Bankruptcy Judge Jeffrey J. Graham refused to temporarily halt lawsuits accusing 3M and its bankrupt subsidiary, Aearo Technologies, of selling defective combat earmuffs that damaged the hearing of veterans who used them.

“We are disappointed by today’s court decision and will file an appeal. Further litigation in MDL court benefits no one,” the company said, referring to the federal multidistrict litigation program where troopers’ claims are prepared for jury trials.

Shares of 3M fell nearly 10% after the decision was announced Friday afternoon.

“3M has every incentive to pursue a settlement in this scenario,” said Nigel Coe, an analyst at Wolfe Research. “Recourse to these cases is not a realistic scenario.”

Graham’s ruling overturns 3M’s decision to settle the lawsuits by placing Aearo in bankruptcy, where controversial rules sometimes allow parent companies to benefit by stopping jury trials and settling their lawsuits in one place.

A temporary stoppage would help 3M pressure the soldiers to settle, Graham said in his ruling. But federal bankruptcy law in Indiana does not allow him to grant 3M’s request for an injunction, Graham ruled.

“Admittedly, it is tempting to be swayed by the sheer size of the MDL at issue in this case, but that alone does not provide a sufficient reason for the court to conclude that injunctive relief is necessary,” Graham wrote.

3M is using 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.

Lawyers for the soldiers have asked for the right to continue hearing their cases. The ruling means 3M now faces the prospect of lawsuits from across the country, with an expert hired by the military’s law firms estimating the company could face more than $100 billion in damages from the claims.

That figure was disputed by the company and criticized by some soldier advocates. During a trial over whether Graham should drop the lawsuits, a lawyer for the soldiers called the expert a crank, before apologizing for the insult.

Veterans’ advocates said the ruling vindicates their view that for-profit companies should not be allowed to use bankruptcy court to avoid lawsuits.

“This is a huge victory for the 230,000 members of the US military who have been affected by 3M’s deception and greed,” said Bryan Aylstock, one of the lead lawyers suing the company. “We look forward to prosecuting our claims against 3M.”

On July 26, the company filed for bankruptcy against Aearo 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 had to agree to give the industry group the same protection.

The decision creates a conflict between two branches of the federal judiciary. A judge in another judicial district reached the opposite conclusion in the bankruptcy of a Johnson & Johnson unit.

U.S. Bankruptcy Judge Michael Kaplan, who is based in Trenton, New Jersey, not far from J&J’s headquarters, found that halting about 40,000 lawsuits against the health care giant was necessary to resolve the claims.

Kaplan’s ruling is being appealed by lawyers who sued J&J on behalf of women who claim they got cancer from the company’s baby powder.

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.

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

(Updates with analyst comments in the fifth paragraph.)

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