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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

A image of the 3M logo displayed on a tablet
As a result of the news, 3M (MMM) stock price was up 4% on Thursday. - Photo: Getty Images

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.

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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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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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