3M Wins Quicker-Than-Normal Process to Appeal Bankruptcy Loss

3M Co. won permission to use a quicker-than normal process to try to reverse a bankruptcy judge’s decision to allow more than 230,000 lawsuits to go forward that accuse the company of harming US soldiers.

Three judges from the US Court of Appeals in Chicago sided with 3M’s bankrupt subsidiary, Aearo Technologies, which argued that the decision affects so many people and has the potential to set such an important precedent that it “cries out” for an immediate review. The ruling means Aearo and 3M may have the appeal considered in months instead of the regular process that can take years.

In August, US Bankruptcy Judge Jeffrey J. Graham refused to halt lawsuits accusing 3M and Aearo of selling faulty combat earplugs that damaged the hearing of veterans. 3M had tried to halt the lawsuits in July and open a new round of negotiations with soldiers by placing Aearo into a Chapter 11 bankruptcy.

3M Cannot Use Bankruptcy to Halt 230,000 Suits, Judge Says (2)

Graham’s decision upended 3M’s strategy, which relied on controversial rules that 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 didn’t allow him to grant 3M’s request for an injunction, Graham added.

The appeal by Aearo seeks to revive a 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 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.

Lawsuits Halted

The legal maneuver is also under attack in the US Court of Appeals in Philadelphia, where a bankrupt unit of J&J is defending its right to use Chapter 11 rules to resolve about 40,000 cases in which the company’s iconic baby powder is alleged to cause cancer. In that case, a bankruptcy judge in New Jersey halted the lawsuits against J&J while the company’s unit, LTL Management, tried to resolve the claims.

In a hearing last month, the three judge-panel in the J&J appeal questioned whether the strategy should be allowed. The judges didn’t say when they might rule.

Until July, 3M had been fighting the hearing-loss 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, had questioned 3M’s decision to use bankruptcy instead.

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

To contact the reporter on this story:
Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net

Dawn McCarty

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