That combination creates tricky choices for 3M, especially about timing. It’s faced with pressure to settle the huge inventory of veterans’ hearing loss and tinnitus claims, but has appeals pending. More trials beyond the 16 that have taken place could help or hurt its settlement position.
The stakes in the multidistrict litigation, and on appeal, could hardly be greater.
Shares in the company that also makes Scotch-brand tape, Post-It notes and NexCare bandages fell 9% on Aug. 26, following a federal bankruptcy judge’s refusal to halt the multidistrict earplug litigation. 3M had sought to channel the claims into the bankruptcy of its subsidiary Aearo Technologies, which designed the Combat Arms version 2 earplugs. 3M’s stock has since fallen more than 14%, closing at $110.50 per share on Sept. 30, down from a 12-month high of $186.30 on Nov. 12, 2021.
Analysts have struggled to assign a dollar range to 3M’s potential earplug exposure. In February, Bloomberg Intelligence estimated the stock’s valuation relative to its manufacturing peers implied a discount of about $33 billion tied to earplugs and to a PFAS mass torts case in which it’s also enmeshed.
In August, an expert testifying for some of the veterans in the Aearo bankruptcy said 3M’s earplug losses could be more than $100 billion, a figure 3M disputed as flawed and unsupported.
Whatever the number, the potential liabilities are vast, pressing the company to maximize whatever leverage it has in trials not yet held and appeals as yet undecided, to find a path forward.
3M and Aearo prevailed in six of the cases that went to trial, and got some cases that were scheduled for trial thrown out. But they face more than $250 million in damages awarded by juries in 10 other test trials, including a $50 million compensatory award for a single plaintiff and one punitive damages award of more than $70 million.
Judge M. Casey Rodgers, who is overseeing the Florida federal court litigation, recently said a court in her district is on track to hold another test trial on allegations the devices were ineffective. Other cases will soon go to courts around the country for trial, she said. Mediation sessions are underway too.
3M spokesman Sean Lynch said in an emailed statement that the company still doesn’t “have needed information about the number of meritorious claimants.” It doesn’t know “how many claimants have an injury or even how many claimants used the product,” he said.
Seven test-trial verdicts are before the US Court of Appeals for the Eleventh Circuit, which reactivated the appeals Sept. 29 after a halt related to Aearo’s July bankruptcy filing.
3M has made some broad arguments on appeal, including that it should be immune from suit as a government contractor. It lost such an argument on different facts before the judge overseeing the PFAS cases.
3M has asked the Seventh Circuit to review the bankruptcy court’s order declining to stop the whole mass tort litigation in its tracks. And as proceedings continue on Aearo’s bankruptcy, where veterans decried a proposed $1 billion trust as too small, settlement negotiations are on the horizon.
Without the bankruptcy umbrella for settlement talks, a global resolution will be “much more messy,” Professor Adam Zimmerman of Loyola Law School in Los Angeles told Bloomberg Law.
In product liability litigation, there are often some cases left over after a global settlement, Zimmerman said.
3M’s first choice remains a bankruptcy settlement. “The well-established Chapter 11 process provides a simpler, more efficient path to resolution without the uncertainty and inequity of continuing to litigate,” Lynch said. “Plaintiffs determined to be entitled to compensation will be paid more efficiently and equitably compared to trying individual cases in courts around the country.”
The company “remains committed to provide $1 billion to a trust to help resolve these claims through the Chapter 11 process,” he said.
Zimmerman said 3M has “a long way to go” in the bankruptcy appeal unless its tactic gets “more robust endorsement from an appeals court.” He pointed to the Third Circuit, which is reviewing
Some lawyers and scholars familiar with the government contractor defense at the heart of 3M’s appeals on the hearing-loss verdicts say the company could win. Others disagree.
“3M has a good chance” of prevailing on its GCD argument at the Eleventh Circuit, said Lisa Himes, a government-contracting attorney with Rogers Joseph O’Donnell in Washington.
“There is no dispute that the military reviewed the earplugs after mandating a revised design and the other facts further support military involvement in the design,” Himes said in an email. The defense certainly “should be a factor in any upcoming settlement discussions.”
Government contracts litigator Alejandro L. Sarria of Miller & Chevalier Chartered in Washington came to the same conclusion.
3M has a strong GCD argument, at least for failure-to-warn claims, Sarria said. The government said it would train its own soldiers and declined 3M’s offer of help, he said. Rodgers “went an extra step” and took the GCD issue away from the jury, which could lead to reversal, he said.
But Professor Charles Tiefer, who teaches government contracts at the University of Baltimore School of Law, said he was unimpressed by the companies’ arguments. 3M and Aearo “made their own design decisions,” he said.
Zimmerman said the lower court’s decision may be hard to overcome because the GCD has three fact-intensive prongs, particularly one that compares the product maker’s knowledge to the government’s.
Briefing to the Eleventh Circuit is nearly complete, with oral argument—potentially indicating the judges’ viewpoints—still to be scheduled.
“Do you bank on the Eleventh Circuit,” Sarria asked, “or do you settle now?”
“Both sides will factor in whether it’s worth waiting for oral argument” before reaching a deal, said mediator Kenneth R. Feinberg.
War or Peace
The uncertainty presented by the substantive and bankruptcy appeals “might be an opportunity to resolve this dispute” through settlement, said Feinberg, who served as special master for the September 11 Victim Compensation Fund and has worked on other high-profile cases, practices in Washington.
It “incentivizes both sides,” he said. “No one knows the risks.”
3M can keep litigating and “make the district courts into Groundhog Day,” Tiefer said. “Or they can settle.” Eventually, “a jury will hit 3M over the head with a really heavy verdict,” he said.
But Zimmerman said that with additional earplug trials, “there’ll be more and more information about how to resolve the cases in the aggregate,” he said.
The scale of the MDL might lead 3M “to litigate a little more to fully understand” the strengths and weaknesses, he said. “When do the parties feel they have a full enough picture?”
Lynch said 3M “continues to hope that all parties and their attorneys will come together to negotiate a prompt resolution to this matter, so that those veterans with eligible claims can be compensated sooner.”
“Our focus is on doing right by veterans and other stakeholders,” he said.