3M Can’t Use Bankruptcy to Halt Lawsuits Over Combat Earplugs, Judge Rules

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

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

“We are disappointed in the court’s ruling today and will be filing an appeal. Further litigation in the MDL court benefits no one,” the company said, referring to the federal multi-district litigation program, where the soldiers claims are being prepared for jury trials.

3M’s shares plunged nearly 10% after the ruling was released Friday afternoon.

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

Graham’s decision upends 3M’s decision to resolve the lawsuits by putting Aearo in bankruptcy, where controversial rules sometimes allow parent companies to benefit by halting jury trials and settling their lawsuits in one place.

A temporary halt would help 3M pressure soldiers into settling, 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 provides insufficient reason for the court to conclude that an injunction is necessary,” Graham wrote.

3M is employing 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 put units into bankruptcy with the same goal of ending their litigation woes in one place instead of fighting thousands of trials around the country.

Lawyers for the soldiers have demanded the right to continue taking their cases to trial. The ruling means 3M now faces the prospect of jury verdicts from around the country, with one expert hired by the soldiers’ law firms estimating the company could face more than $100 billion in damages from the claims.

That figure has been disputed by the company and criticized by some soldier’s advocates. During a trial about whether Graham should halt the lawsuits, a lawyer for the soldiers called the expert a crank, before apologizing for the insult.

Advocates for the veterans said the ruling vindicates their view that profitable companies should not be allowed to use bankruptcy court to avoid lawsuits.

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

On July 26, the company put Aearo into bankruptcy in Indianapolis. Under Chapter 11 rules, Aearo is automatically entitled to freeze the lawsuits it faces, but because 3M itself didn’t file bankruptcy a judge had to agree to give the industrial conglomerate the same protection.

The ruling sets up a conflict between two branches of the federal judiciary. A judge in another court district came to the opposite conclusion in the bankruptcy of a unit of Johnson & Johnson.

US 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 suing J&J on behalf of women who claim they got cancer from the company’s baby powder.

Until last month, 3M was fighting the claims in federal court in Pensacola, Florida, where a judge was overseeing the initial, procedural steps needed to prepare the lawsuits for separate jury trials that would take place in other courts. The judge overseeing that process, which is known as multi-district litigation, or MDL, has questioned 3M’s decision to use bankruptcy instead.

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

(Updates with analyst comment in the fifth paragraph.)