3M’s attempt to fend off earplug lawsuits faces skeptical judges By Reuters

By Brendan Pierson and Dietrich Knauth

(Reuters) – Federal appeals court judges were skeptical on Tuesday of 3M’s offer to use the bankruptcy of its Aearo Technologies subsidiary to shield itself from nearly 260,000 lawsuits over allegedly defective military earplugs.

Paul Clement, Aearo’s attorney, urged a three-judge panel at the US Court of Appeals for the Seventh Circuit in Chicago to overturn a bankruptcy injunction allowing lawsuits against 3M to go forward, even though Aearo is bankrupt.

Clement argued that the so-called “automatic stay” of bankruptcy law, which protects Aearo from lawsuits while it is bankrupt, should also apply to 3M, because there is a “total overlap” between the facts and legal defenses in lawsuits for earplugs against the two carriers.

Aearo, which made combat weapons earplugs, filed for bankruptcy last July, with 3M pledging $1 billion to fund Aearo’s liabilities stemming from lawsuits accusing both Aearo and 3M of misrepresenting the effectiveness of earplugs, resulting in hearing damage.

Aearo and 3M said the bankruptcy proceedings would facilitate a full and fair settlement with the plaintiffs.

The plaintiffs, on the other hand, have characterized the move as an attempt to escape federal court in Florida, where the earplug lawsuits are consolidated in a so-called multidistrict litigation (MDL), after a series of unfavorable legal rulings. and losses in lawsuits.

Judge Frank Easterbrook pressed Clement on Tuesday to explain how there can be exceptions to bankruptcy law, which applies the shield only to the bankrupt company. He said the US Supreme Court has always ruled against exceptions in bankruptcy law.

“If this maneuver works, why won’t it happen automatically whenever an MDL defendant becomes uncomfortable with the MDL court’s rulings?” asked Judge David Hamilton.

David Frederick, representing the plaintiffs, told the panel that 3M “designed this bankruptcy to help itself, not Aearo or its creditors.”

He argued that as long as 3M can cover the liability for earplugs, there’s no reason to protect them, and that if 3M ever can’t pay, it should file for bankruptcy.

“The point of the bankruptcy process is to take the bitter with the sweet,” he said.

3M’s strategy of seeking legal protection through subsidiary bankruptcy echoes a similar effort by Johnson & Johnson (NYSE:), which another appeals court rejected in January.

3M’s bankruptcy strategy, and that of J&J, has drawn criticism and support, sparking debate about whether bankruptcy is an appropriate solution for companies facing significant litigation but otherwise in good health.

Veterans and service members have called for the dismissal of Aearo’s bankruptcy, as has the judge overseeing the consolidated MDL in Florida, who called the bankruptcy “totally contrived.”

The litigation against 3M and Aearo is the largest MDL in US history, with nearly 330,000 cases filed and nearly 260,000 cases pending, according to March 16 court statistics. The next largest MDL, the Johnson & Johnson talc litigation, has 38,000 cases.

3M has lost 10 of the 16 cases that have gone to trial so far, with about $265 million awarded in total to 13 plaintiffs.