3M bankruptcy: MMM wins review of court ruling exposing it to veterans’ mass lawsuits over faulty earplugs
By Jenny McCall
09:31, 14 October 2022
With the pressure mounting for 3M (MMM), the healthcare and consumer goods group has finally received some good news.
It was announced on Thursday that 3M has another chance to protect itself against more than 230,000 lawsuits from veterans who complained about its Combat Arms Earplugs Version 2, which left many service members with tinnitus and hearing loss.
The federal appeals court in the US has agreed to hear 3M's appeal following a legal defeat in August. As a result of the news, 3M's stock price was up 4% on Thursday.
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3M (MMM) appeals the decision
The litigation, which started back in 2018, after a whistle-blower filed a lawsuit against 3M (MMM) revealing allegations that the company and its subsidiary Aearo Technologies had knowingly sold defective dual-ended Combat Arms earplugs to the US Military. This case resulted in a $9.1m (£8m) settlement with the Department of Justice.
On 20 May 2022, a jury in Pensacola, Florida ordered MMM to pay $77.5m to a US Army veteran named James Beal, who claimed he had suffered hearing damage due to the earplugs.
3M then looked to put Aearo Technologies, the company that made the earplugs, into voluntary chapter 11 bankruptcy. This would allow Aearo a chance to settle the claims, while shielding 3M from a long and costly legal battle.
Aearo Technologies announced on 26 July that it will be filing for bankruptcy protection, as it seeks to settle the lawsuits.
But those plans were scuppered in August, when Judge Jeffrey Graham of the US Bankruptcy Court in Indianapolis ruled that the company would not get any protection against the lawsuits from the Aearo bankruptcy.
“We are disappointed in the court’s ruling today and will be filing an appeal. Further litigation in the multi-district litigation court benefits no one," 3M said in a statement.
MMM said it would appeal the decision – and it did.
3M (MMM) heading to Bankruptcy
Now the federal appeals court has granted 3M’s request to review the bankruptcy judge’s refusal to stop the mass lawsuits from proceeding, following the chapter 11 filing of its earplug manufacturing unit.
On Wednesday the Seventh US Circuit Court of Appeals in Chicago granted Aearo’s petition requesting a direct review of the bankruptcy-court ruling, this will now bypass the federal-district court and the appeal is on a fast track to resolution.
Testifying before the court in August, corporate solvency expert J.B. Heaton said he believes the lawsuits could eventually force 3M (MMM) into bankruptcy.
“It is more and more likely within the next several years we’ll see a 3M bankruptcy,” Heaton said before the court, according to reporting from Bloomberg.
Analysts believe that 3M’s only hope is to settle these cases.
“3M (MMM) has every incentive to seek a settlement in that scenario. Litigating these cases is not a realistic scenario,” Nigel Coe, an analyst at Wolfe Research said.
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