3M Can’t Resolve Mass Lawsuits Through Earplug Unit’s Bankruptcy, Judge Rules

3M said it would consider its options to appeal the judge’s ruling, which clouds the company’s path to resolving a legal exposure that has lingered for years. The St. Paul, Minn.-based maker of consumer and industrial products placed Aearo in bankruptcy last July to drive a global settlement for roughly 255,500 personal-injury lawsuits claiming that its military earplugs damaged veterans’ hearing, an allegation that 3M denies.

The judge found that despite the mass lawsuits it faces, Aearo is financially healthy with “no impending solvency issues” and therefore can’t access the protections of chapter 11. The earplug unit can pay its obligations as they come due and has access to a financial backstop from its parent company to pay valid personal-injury claims, in or out of bankruptcy, according to Friday’s ruling.

“Aearo is not presently suffering financial problems of the type that warrant chapter 11 relief. Nor is Aearo creating or preserving value in these cases that would be lost outside of bankruptcy,” the judge said.

Graham said he therefore can’t grant chapter 11 protection for Aearo unless Congress clarifies that companies are allowed to use bankruptcy courts to address mass tort litigation.

A bankruptcy filing, if it had been allowed, would have opened the door for Aearo to resolve both its liabilities and 3M’s without having the parent company itself file for chapter 11. Graham wrote that his ruling Friday could lead to more litigation for 3M and Aearo, in which case they could choose to file for a repeat bankruptcy case “should the circumstances warrant it.

3M said Friday’s ruling will “further delay the well-established chapter 11 process for resolving this matter.”

The company also said it was prepared to continue to defend its combat earplugs, which U.S. military veterans have alleged left them exposed to harmful noise that damaged their hearing. Under Friday’s ruling, 3M remains exposed to lawsuits by individuals. A small number of such suits went to trial before Aearo’s bankruptcy, yielding $265 million in damage awards against 3M.

Graham last year declined to stop earplug lawsuits against 3M from proceeding during Aearo’s bankruptcy.

Other solvent companies have attempted to use chapter 11 to solve mass tort litigation by putting subsidiaries in chapter 11, a controversial move that critics call a misuse of bankruptcy court and that supporters say is the best way to reach compromise. 

The earplug lawsuits against 3M have weighed on the company’s outlook among investment analysts, as have separate claims related to the company’s past sales of substances known as forever chemicals. Its share price fell less than 1% on Friday.

From the beginning of the chapter 11 case, Aearo made clear that its bankruptcy wasn’t prompted by concerns over financial distress or impending insolvency, the judge wrote Friday, but was instead initiated to manage the mass federal litigation of about 255,500 pending earplug lawsuits.

“There is also nothing before the court to suggest that the Aearo entities’ filings serve creditors,” the judge wrote. 

Lawyers for veterans suing 3M over its earplugs asked Graham to dismiss Aearo’s bankruptcy filing in February, after a federal appeals court rejected a move by another solvent company, , to place its newly created LTL Management unit into chapter 11 bankruptcy to freeze roughly 40,000 lawsuits linking its talc products to cancer. 

The LTL bankruptcy case was dismissed in April, but the company filed for a second chapter 11 a few hours later. Lawyers for talc injury claimants have recently petitioned the U.S. Bankruptcy Court in Trenton, N.J., to throw out the repeat case. 

Adam Silverstein, a lawyer representing earplug claimants, said in an April court hearing that 3M misused chapter 11 by seeking to place Aearo in bankruptcy for a tactical reason rather than because it faced legitimate financial distress. 

Chad Husnick, a lawyer representing Aearo, said in April that U.S. bankruptcy law doesn’t require insolvency or financial distress for a company to access chapter 11. Solvent companies facing mass torts have filed for chapter 11 to resolve those claims using tools available in bankruptcy, Husnick said. 

The judge said Friday that he found “no compelling evidence” the earplug lawsuits “have had or will have, at least in the near term, any substantial effect on Aearo’s operations.”

Bryan Aylstock and Christopher Seeger, lawyers for earplug plaintiffs, said in a statement Friday: “The soldiers we represent deserve an opportunity to hold 3M accountable before a jury of their peers.”

The veterans’ motion to dismiss the Aearo bankruptcy was joined by thousands of coal miners who alleged 3M’s dust masks didn’t protect them from harmful dust, leaving them with lung diseases, which 3M also denies. 

Write to Akiko Matsuda at [email protected] and Alexander Gladstone at [email protected]