3M anti-earplug lawsuits to advance, rules, though bankruptcy case

The logo of the 3M stock market index company appears on the Dow Jones Industrial Average in Irvine, California on April 13, 2016. REUTERS/Mike Blake

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(Reuters) – 3M must face more than 230,000 lawsuits accusing it of selling faulty earplugs to the U.S. military, after a U.S. judge ruled on Friday that the bankruptcy of a subsidiary did not stop lawsuits against the non-bankrupt parent company.

Companies that file for bankruptcy typically receive an immediate deferment in lawsuits, and 3M’s subsidiary Aearo Technologies LLC has argued that extending this protection to 3M would buy Aearo time to process its debt and restructuring goals.

Aearo and 3M argued that bankruptcy provides a faster and fairer way to compensate veterans who say Aearo-made earplugs caused hearing loss.

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But bankruptcy judge Jeffrey J. Graham of Indianapolis said Aearo’s bankruptcy restructuring could proceed in parallel with the lawsuits.

While the “large scale” of the consolidated litigation may have motivated 3M and Aearo to seek “additional influence” through bankruptcy proceedings, this did not create a legal need to protect 3M, Graham ruled.

Lawyers representing hearing-impaired veterans said they look forward to continuing their lawsuits against 3M in other courts.

“Judge Graham’s decision is a complete rejection of 3M’s attempt to evade accountability and go into bankruptcy,” attorneys Brian Elstock and Christopher Seeger said in a statement.

A 3M spokesperson said it plans to appeal.

“Continuing to litigate these cases one by one over the coming years will not provide certainty or fairness to any party,” said 3M spokesman Sean Lynch.

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3M’s Aearo Technologies LLC filed for bankruptcy protection in Indiana on July 26, seeking to resolve lawsuits alleging that 3M’s Combat Arms Version 2 (CAEv2) earplugs caused hearing loss.

Aearo will continue its Chapter 11 proceedings and 3M will continue to defend its position in the lawsuit, the company said in a statement late Friday.

3M added, “3M continues to expect to complete the pending chapter of its food safety business by its target closing date of September 1st.”

The lawsuits were consolidated in a federal court in Florida and grew to become the largest class-action torture lawsuit in U.S. history. Aearo has placed $1 billion in a trust fund for its settlement and has agreed to indemnify 3M for all CAEv2-related obligations.

3M denied responsibility, saying its earplugs provide protection to soldiers while allowing them to listen on the battlefield.

The Florida judge overseeing earplug lawsuits, US District Judge M. Casey Rodgers, has warned 3M against “naked duplicity” in trying to sink its liabilities into a bankrupt subsidiary.

3M and Aearo in turn criticized Rodgers for allowing uniform litigation to inflate, noting that earplug cases now account for 30% of all cases pending in US federal courts.

3M has lost 10 of the 16 cases prosecuted so far, awarding about $265 million in total to 13 plaintiffs.

3M’s share price fell 12% on Friday to $129.

Companies in recent years have increasingly used bankruptcy proceedings to protect non-bankrupt owners and their subsidiaries from litigation, with Johnson & Johnson’s efforts to empty lawsuits alleging baby powder containing talc caused cancer as a recent example.

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J&J denied responsibility and said baby powder containing talc was safe. J&J subsidiary’s bankruptcy case is under review, after cancer victims appealed a court ruling blocking their lawsuits against J&J.

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Reporting by Dietrich Knuth; Additional reporting by Anne Maria Shipu in Bengaluru. Editing by Josie Kao, Alexia Garamfalfi and Rosalba O’Brien

Our criteria: Thomson Reuters Trust Principles.

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