A federal judge has rejected 3M’s attempt to use the US bankruptcy system to administer personal injury claims related to earplugs sold.
Soldiers filed approximately 255,500 personal injury claims claiming their hearing was damaged by earplugs from 3M subsidiary Aearo Technologies. 3M declared bankruptcy for Aearo last year and set aside $1 billion to cover settlements as part of the case.
But US bankruptcy judge Jeffrey Graham in Indiana ruled on Friday that Aearo should not use the bankruptcy system because it remains financially secure for the time being.
“As we sit here today and considering the evidence presented by the parties, the court simply cannot conclude that the Aearo entities’ petitions were anything but fatally premature,” Graham said in dismissing 3M’s petitions.
Graham said this situation could change as Aearo and 3M would face waves of lawsuits following bankruptcy discharge, which could quickly undermine their financial position. The ruling would not prevent a repeat bankruptcy filing from Aearo — or an initial filing by 3M — if circumstances warrant it, he said.
The decision is a blow to 3M, which had sought to use the US bankruptcy system to limit its exposure to the earplugs lawsuit and seek global settlement for all current and future claims.
Shares of 3M fell nearly 1 percent after the ruling. They’re down nearly a third in the past 12 months amid concerns about earplug exposure and lawsuits over so-called forever chemicals.
The verdict paves the way for the continuation of jury trials against 3M in what has become one of the largest mass tort lawsuits in U.S. history. 3M, an industrial conglomerate best known for selling Post-it notes and tape, said Aearo is considering whether to appeal.
3M is the latest in a line of companies, including Johnson & Johnson and the Koch Industries, to use the bankruptcy system to manage personal injury claims. But courts have begun scrutinizing the strategy, which typically allows a parent to protect themselves from legal claims by having a subsidiary filing for Chapter 11 bankruptcy protection.
In March, a judge rejected J&J’s first attempt to use bankruptcy court to hear claims that talcum powder could cause cancer. However, the world’s largest healthcare products company responded by allowing a subsidiary, LTL Management, to re-register within hours of the layoff.
In 2008, 3M spent $1.2 billion to buy Aearo, which made the military-grade earbuds that are the subject of the lawsuit. 3M denies that the earplugs were faulty.
Lawyers representing the soldiers said they would move quickly to lift a stay on civil trials so the cases could be brought before juries.
The earplugs lawsuit isn’t the only legal liability facing 3M. The company faces thousands of lawsuits alleging that its products have exposed people to so-called “forever chemicals,” which do not break down in nature or the human body over time.
Deane Dray, an analyst at RBC Capital Markets, said 3M could now try to settle the earbud lawsuit, which could cost it $5 billion to $10 billion. He said that “forever chemicals” liabilities are expected to be many times greater, as 3M’s total financial exposure to litigation is estimated at $30 billion.
