3M bankruptcy court gambit to resolve earplug lawsuits rejected by judge

A federal judge has dismissed the bankruptcy filing of a 3M subsidiary, a big blow to 3M's strategy for resolving a tidal wave of lawsuits claiming it sold defective military earplugs.

Lawyers for military veterans and active service members in February asked U.S. Bankruptcy Court Judge Jeffrey Graham in Indianapolis to dismiss the Chapter 11 bankruptcy filing of Aearo Technologies, a wholly owned subsidiary of 3M.

Maplewood-based 3M had put Aearo under bankruptcy protection last July to address earplug litigation in a federal court in Florida. 3M was unsatisfied with the results in the Florida court, where several jury verdicts had gone against the company.

3M faces more than 250,000 claims from veterans and military members that its earplugs caused hearing damage in one of the largest mass torts in U.S. history.

Plaintiffs claimed Aearo's bankruptcy filing wasn't made in good faith, saying it was instead an end-run around the Florida court. Graham ruled Friday in favor of the plaintiffs.

In his order, Graham called Aearo's Chapter 11 bankruptcy filing "fatally premature," and said it does not serve "a valid reorganization purpose."

Chapter 11 is a means for financially distressed companies to reorganize their finances. Aearo isn't in financial distress, Graham wrote.

"Even under a generous reading of that term's meaning ... Aearo remains a small profitable enterprise," his ruling said. Aearo has not "suffered any meaningful effect" from the earplug litigation, Graham added.

"Judge Graham's ruling rightly repudiates 3M's cowardly attempt to delay justice for the hundreds of thousands of veterans harmed by the company's dangerously defective earplugs," the lead plaintiffs' attorneys said in a statement. "This gambit by 3M was a gross misuse of the bankruptcy courts."

3M, which maintains the earplugs were safe, said in a statement that Aearo is assessing filing an appeal of Graham's decision. "3M and Aearo will continue to pursue appeals raising evidentiary and legal issues" from the jury trials it lost in U.S. District Court in Florida, the statement said.

"3M and Aearo are prepared to continue to defend the product in litigation," 3M said.

Indianapolis-based Aearo, where 3M's earplug business originated, also is a defendant in the earplug suits. Aearo, which makes noise and vibration protection products, has 330 employees and generated $108 million in revenue in 2021.

Chapter 11 bankruptcy protection freezes litigation against a company, which in Aearo's case includes the earplug suits. 3M had sought to extend that litigation freeze to 3M itself, but in December Graham denied that request — another big blow.

3M bought Aearo in 2008, folding the earplug business into the parent company two years later. Aearo's Combat Arms CAEv2 earplug was standard issue for the U.S. military for many years.

The lawsuit deluge hit 3M after the company in 2018 settled a government whistleblower suit regarding the Combat Arms earplugs. The whistleblower suit claimed Aearo knew about "dangerous design defects" in its earplugs in 2000; 3M denied the claims and didn't admit culpability.

Military veterans' earplug claims against 3M were roped together in a "multidistrict litigation" — or MDL — case in U.S. District Court for Northern Florida. The earplug MDL cases make up a "staggering" 30% of all cases in U.S. district courts, Graham wrote.

MDLs commonly feature bellwether trials that are supposed to set a tone for settling all claims. Plaintiffs won 10 of 16 bellwether cases against 3M; juries awarded them nearly $300 million. 3M's ultimate liabilities could be in the tens of billions of dollars.

A settlement proved elusive and a few months after the bellwether trials ended, 3M put Aearo in bankruptcy, claiming the MDL process was "broken beyond repair."

In his order, Graham wrote that Aearo made clear from the start that its bankruptcy filing was "not prompted by concerns of impending insolvency. ... These cases were and are a litigation management tactic and not a rehabilitative effort."

While Graham wrote that he didn't fault Aearo for its "gambit," the company "isn't presently suffering financial problems of the type that warrant Chapter 11 relief."

Court-ordered mediation between 3M and the plaintiffs has so far failed to reach a settlement in the Florida MDL case. Plaintiffs say court-ordered mediation failed, too, in bankruptcy proceedings.

After Graham's ruling Friday, the pressure for a settlement will likely increase. Neither the plaintiffs' lawyers nor 3M will welcome the huge expense of continuing to litigate tens of thousands of earplug cases.