Plaintiffs' attorney says 3M's $1B fund to resolve earplug litigation inadequate

3M plans to resolve an epic legal battle over its military earplugs through bankruptcy court, but the company will face fierce opposition from plaintiffs.

In one of the largest U.S. mass tort cases ever, about 230,000 U.S. military members and veterans allege that Combat Arms earplugs — made by 3M subsidiary Aearo Technologies — were faulty, damaging their hearing.

Plaintiffs have already scored several victories in cases that have gone to trial, netting almost $300 million from jury verdicts. 3M announced Tuesday that it put its Aearo subsidiary into Chapter 11 bankruptcy protection and will set up a $1 billion trust fund to pay all claims.

"It's really about us — 3M — stepping up to do right by veterans," 3M CEO Mike Roman told stock analysts in a conference call Tuesday. "We believe litigating cases individually can take years if not decades."

3M's move was blasted by plaintiffs' attorneys, who said 3M's $1 billion settlement plan is "woefully" underfunded.

"3M's bankruptcy maneuver is further proof that they value their profits and stock price more than the well-being of veterans who fought and served our country," lead counsel Bryan Aylstock said in a statement. "We will challenge this bankruptcy filing and are confident 3M will fail in the courts."

Indianapolis-based Aearo filed for Chapter 11 bankruptcy protection in the Southern District of Indiana to "efficiently and equitably resolve all claims determined to be entitled to compensation," 3M said.

Chapter 11 allows a company to continue operating while its creditors' claims — and litigation — are effectively frozen. 3M, which has long maintained the earplugs are safe, said the bankruptcy will not affect its operations.

3M plans to set up the $1 billion trust through the bankruptcy court. Plaintiffs would then submit claims, instead of settling their cases through courts.

Consulting firm Bates White did an assessment that led 3M to the $1 billion figure, which Roman in an interview called "appropriate based on that analysis."

Still, 3M is prepared to add to the fund if necessary, company executives said. And in a bankruptcy court filing Tuesday, 3M referred to the fund as "uncapped."

J.P. Morgan stock analyst Stephen Tusa wrote in a January report that 3M's earplug liabilities could realistically be $15 billion to $25 billion — with $1 billion as the "low-end of possibilities."

Nigel Coe, an analyst at Wolfe Research, said in a note Tuesday that 3M's $1 billion claim fund "should be viewed as a first installment." He maintains that a $10 billion settlement amount is more realistic.

In addition to the $1 billion claims fund, 3M said Tuesday that it has committed $240 million for earplug case-related expenses.

Claims against 3M are currently roped together in a multidistrict litigation, or MDL, case in the U.S. Northern District of Florida. MDLs commonly feature bellwether trials, which set a tone for settling all claims.

Plaintiffs won 10 of 16 bellwether trials, the last of which was in May.

With no settlement on the horizon, a federal district court judge ordered mediation talks between 3M and plaintiffs' attorneys earlier this month. There was no word on those before Tuesday's news.

The next step in the earplug litigation was to send cases — in waves of 500 — back to the federal courts where they were originally filed. Trials would then be held across the country. Both plaintiffs and 3M have likely spent tens of millions of dollars on trials so far.

In a bankruptcy filing Tuesday, 3M said the earplug MDL "is broken beyond repair."

"The Combat Arms MDL has become a refuge for more than 230,000 unvetted hearing injury claims to languish without scrutiny, as a handful of bellwether trials delivered headline-grabbing verdicts based on a false narrative that frustrated, instead of furthered, settlement and compromise," 3M said in a 62-page brief.

Michael Sacchet, a Minneapolis attorney with Ciresi Conlin who has tried five bellwether cases for plaintiffs, said the brief indicates that 3M "is trying to relitigate the cases in bankruptcy court."

The company has raised questions about the cases' merit — "the very questions that should be adjudicated in federal and state courts across the country, not in bankruptcy court," Sacchet said.

Coe, the Wolfe analyst, referred to 3M's bankruptcy strategy as a "Texas two-step," a phrase sometimes used when companies use bankruptcy to resolve an avalanche of claims. Consumer products giant Johnson & Johnson has become a recent example of the strategy.

About 38,000 people have alleged that J&J's baby powder was tainted with cancer-causing asbestos. In October, the New Jersey-based company spun off its baby powder liabilities in a new subsidiary that promptly filed bankruptcy.

J&J claimed the bankruptcy process would be a fairer and more efficient way to adjudicate claims. Plaintiffs' attorneys claimed it was an abuse of the bankruptcy process, and asked that the Chapter 11 case be thrown out.

In February, a U.S. Bankruptcy Court judge in Trenton, N.J. denied that request. But plaintiffs appealed, and in May, the Third U.S. Circuit Court of Appeals granted a review of the case.

Earlier this month, the Office of the U.S. Trustee, an arm of the Department of Justice, asked the appellate court to dismiss the baby powder bankruptcy case, saying the filing "was not made in good faith."

However, unlike J&J's Chapter 11 spinoff and bankruptcy, 3M's Aearo is a longstanding subsidiary, not a company created to house legal claims.

"This is that subsidiary stepping up to take on this liability," Roman said in an interview.

3M became a giant in the military earplug market when it bought Aearo in 2008. The wave of claims against 3M came after the company in 2018 settled a government whistleblower suit regarding the earplugs.

That suit was brought by rival earplug maker Moldex-Metric on the U.S. government's behalf, after an inquiry by the Army Criminal Investigation Command. The suit claimed Aearo knew about "dangerous design defects" in its earplugs in 2000.

In a 2018 report, the Army concluded that had the government known about tests Aearo ran in 2000, it might not have purchased Combat Arms earplugs. In the whistleblower settlement, 3M paid a $9.1 million penalty but denied all claims and did not admit liability.