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3M lawyers cleared of conflict to represent Aearo subsidiary over bankruptcy amid veterans’ MMM faulty earplug lawsuit despite legal ‘minefield’

By Jenny McCall

11:28, 14 November 2022

A image of 3M facemasks
Kirkland & Ellis said that 3M is in safe hands under its legal counsel - Photo: Getty Images.

With the pressure mounting, the 3M (MMM) legal team had a small breakthrough last week. On Thursday it was announced that a US bankruptcy judge has allowed 3M’s lawyers, Kirkland & Ellis to continue to represent its subsidiary Aearo Technologies, after the law firm was accused of conflicting interests.

The 3M share price rose 4% on Thursday - the day the judgment was made, and rose again on Friday by almost 3%.

But the fortunes of the company remain in the balance: the stock price has fallen 25% this year as it faces more than 230,000 lawsuits from military veterans who complained about its Combat Arms Earplugs Version 2, which left many service members with tinnitus and hearing loss.

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3M not off the hook just yet

The litigation, which started back in 2018, after a whistle-blower filed a lawsuit against 3M revealing allegations that the company and its subsidiary, Aearo Technologies had knowingly sold defective dual-ended Combat Arms earplugs to the United States Military. This case resulted in a $9.1m (£7.7M) settlement with the Department of Justice.

According to Reuters, the veterans claim that 3M’s earplugs failed to protect their hearing during combat and training.

But MMM  had some good news on Thursday, as US Bankrupty Judge Jeffery Graham in Indianapolis ruled that Aearo and 3M do not have conflicting interests, as both companies are working to resolve the bankruptcy settlement concerning the earplugs.

"Kirkland & Ellis is navigating a minefield. This isn't a blanket endorsement saying that K&E is in the driver's seat no matter what happens in the future,” Judge Graham said.

However, this doesn't mean the company is off the hook – just yet.

Judge Graham said that a conflict could arise in the future, if Aearo and 3M disagreed with the terms of the settlement. If this happens Kirkland could face disqualification, loss of fees and even the dismissal of Aearo’s bankruptcy case.

One of Kirkland’s laywers, Mark McKane told Judge Graham that his firm was the best people to represent MMM and Aearo in this litigation, due to its deep understanding and knowledge of the earplug litigation. McKane said that the firm had put guardrails in place to help prevent future conflicts from derailing the case.

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3M (MMM) lawsuits can no longer be masked

But despite having a law firm with a good understanding of the litigation, MMM has already had to pay out.

On 20 May 2022, a jury in Pensacola, Florida ordered 3M to pay $77.5m to a US Army veteran named James Beal, who claimed he had suffered hearing damage due to the earplugs.

Testifying before the court in August, corporate solvency expert J.B. Heaton said the lawsuits could force 3M 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.

3M has been making headlines this year and for all the wrong reasons. The healthcare and consumer goods group, famous for its face masks, can no longer hide its troubled legal woes and it was announced last month that the group had been denied a new trial, after a jury awarded a veteran Green Beret $50m (£43bn) in his lawsuit against 3M.

On 25 October, a Florida federal judge Roy B. Dalton Jr. rejected 3M's motion for a new trial, alongside its alternative request for a remittitur, Judge Dalton disagreed with 3M’s argument that veteran Luke Vilsmeyer's injuries are mild and treatable.

Pressure is mounting for 3M (MMM)

But the pressure was eased slightly for 3M on 14 October, when it was announced that it would have another chance to protect itself against the mounting lawsuits from veterans. The federal appeals court in the US has agreed to hear 3M's appeal following a legal defeat in August.

With that said, 3M is still facing the heavy predicament of bankruptcy and with the litigation saga continuing and adding to the woes of the company, how it deals with this moving forward is critical.

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