3M Earplug Unit Should Be Tossed Out of Bankruptcy, US Argues

The Justice Department said that 3M Co. unit Aearo Technologies LLC should be thrown out of bankruptcy court, citing the recent dismissal of a similar case involving a Johnson & Johnson subsidiary.

Aearo’s Chapter 11 case is an “abuse of the bankruptcy system” that was engineered to benefit its highly solvent corporate parent and avoid ongoing litigation stemming from allegedly faulty earplugs, the Justice Department’s bankruptcy oversight program—the US Trustee—told the US Bankruptcy Court for the Southern District of Indiana.

The US Court of Appeals for the Third Circuit ruled last month that J&J’s specially-created talc liability unit, LTL Management LLC, doesn’t belong in bankruptcy. The court reasoned that LTL isn’t in financial distress due to an uncapped funding agreement from its parent company. Although situated in another circuit, the Indiana court should toss Aearo’s case for the same reason and force the company to resume litigation in the tort system, the US Trustee said in a Feb. 25 filing.

“This court should reject the Aearo Debtors’ and 3M’s machinations and stop the abuse of the bankruptcy system by this bad faith, ‘surrogate’ bankruptcy of Aearo for 3M’s benefit,” the US Trustee said.

3M said in a news release earlier this month that the LTL ruling is inapplicable in Aearo’s case, and that dismissal “would needlessly disrupt the well-established Chapter 11 process to return to protracted litigation in the mass tort system.”

The government’s motion to dismiss the case follows a similar request filed Feb. 2 by a committee representing over 230,000 veterans and contractors with claims against 3M and Aearo. They contend that their claims that the company’s Combat Arms Version 2 Earplugs caused hearing loss should be litigated in the tort system.

Aearo and 3M are facing mounting difficulties in their bid to resolve the lawsuits in bankruptcy court. A Florida federal judge has already ruled that 3M has full potential liability for hearing loss claims, and US Bankruptcy Judge Jeffrey J. Graham ruled in August that Aearo’s bankruptcy protections against ongoing litigation don’t extend to 3M. Those rulings are being appealed.

The case is In re Aearo Technologies LLC, Bankr. S.D. Ind., No. 22-02890, motion filed 2/27/23.