Veterans Suing Over 3M Earplugs Want Bankruptcy Case Tossed

Feb 3, 2023

Plaintiffs say ruling on Johnson & Johnson talc case supports their opposition to 3M’s plan for settling claims

Lawyers for veterans suing 3M Co. over its earplugs have asked a federal judge to dismiss the bankruptcy filing of a 3M subsidiary that would shield the industrial conglomerate from court trials.

The motion for dismissal filed late Thursday in U.S. Bankruptcy Court for the Southern District of Indiana followed a federal appeals court ruling this week that tossed out a chapter 11 filing by LTL Management LLC, a company created by Johnson & Johnson JNJ -0.72%decrease; red down pointing triangle in 2021. J&J had transferred its talcum-powder-related liabilities to LTL, which then filed for bankruptcy, blocking plaintiffs from bringing additional lawsuits.

3M, the St. Paul, Minn.-based manufacturer of thousands of consumer and industrial products, followed a similar strategy in 2022. Its Aearo Technologies LLC subsidiary filed for bankruptcy after accepting the responsibility for about 230,000 claims from veterans alleging that 3M’s foam earplugs failed to protect them from service-related hearing loss.

3M has said that its military earplugs are safe if service members receive proper training on using them. Aearo was the original manufacturer of the earplugs, but 3M acquired the company in 2008 and absorbed its operations into 3M. 3M pledged last summer to pay for the settlement of the claims negotiated by Aearo in bankruptcy court.

Bryan Aylstock, lead counsel for the plaintiffs, said: “3M modeled J&J’s plot to use the bankruptcy system to avoid accountability for causing hearing damage.”

3M said that if the motion to dismiss Aearo’s bankruptcy is granted, it would “needlessly disrupt” the process under way to reach a settlement in bankruptcy court, and force the cases into protracted trials in courts.

“Aearo and 3M will continue to vigorously defend their position regarding this motion,” 3M said in a statement. “The well-established Chapter 11 process is intended to reduce the cost and time that could otherwise be required for all parties to litigate on a case-by-case basis.”

Johnson & Johnson and a few other companies facing large liability cases have attempted to avoid exposure to prolonged jury trials by transferring litigation to subsidiary companies and putting them in bankruptcy.

Bankruptcy law allows companies to stop civil suits against them from advancing in the court system. Plaintiffs would have to negotiate a settlement with those companies in bankruptcy once their ability to continue suing in other federal courts is put on hold.

Johnson & Johnson committed to pay for a settlement between LTL and plaintiffs who had sued J&J, alleging that the talc in J&J’s baby powder caused cancer. J&J has said its talc products are safe. A bankruptcy judge in New Jersey initially allowed the bankruptcy to proceed, but plaintiffs challenged the decision in a federal appeals court.

The appeals court in its ruling this week said LTL is ineligible for chapter 11, since it didn’t have actual financial distress that required bankruptcy-court protection and has the ability to resolve the claims, because J&J is paying.

Lawyers for the earplug plaintiffs said that Aearo should be ineligible for bankruptcy as well since it doesn’t have actual financial distress either, because of 3M’s commitment to cover Aearo’s costs for settling the earplug claims while Aearo is in bankruptcy.

“In virtually every instance the names LTL and J&J could simply be replaced with Aearo and 3M and the analysis would line up perfectly,” said the filing from the Aearo creditors’ committee, which includes about 200,000 claimants from the earplug litigation.

3M said the LTL and Aearo bankruptcies aren’t the same, noting that Aearo existed as a company prior to the bankruptcy filing and had been a defendant in the earplug litigation already as the developer and manufacturer of the product.

“The bankruptcy court has repeatedly reinforced Aearo’s legitimacy,” 3M said. “Aearo is a valid, existing business with more than 40 years of operating history.”

Aearo is appealing a separate bankruptcy-court ruling from last year that denied 3M protection from the earplug litigation while Aearo is in bankruptcy.

Aearo had argued that the litigation in federal district court against 3M should be frozen because 3M agreed to pay for a settlement. The court ruled that a stay on litigation only applies to companies under bankruptcy protection.

Read the full article at the Wall Street Journal