(Bloomberg) — 3M Co. of blocking jury trials in more than 230,000 lawsuits accusing her of harming US soldiers faces a major test this week before a federal judge in Indianapolis.
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US bankruptcy judge Jeffrey J. Graham is expected to consider a temporary stay of proceedings so 3M and its bankrupt subsidiary Aearo Technologies can try to resolve the claims, most of which have been filed by veterans who say the tampons to the ears of combat weapons left them with hearing damage.
Graham’s decision will echo in the offices of other companies facing a large number of product liability suits, Jared Ellias, a professor at Harvard Law School, said in an interview.
“As 3M suffers a setback here, it is likely to set off alarm bells in other corporate boardrooms of companies that want to take advantage of the bankruptcy system,” Ellias said.
The Aearo case uses an increasingly popular strategy in which profitable companies use insolvency proceedings to force settlement deals with victims of allegedly harmful products. Johnson & Johnson and logging giant Georgia-Pacific have also bankrupted units with the same goal of ending their litigation problems in one place, rather than facing thousands of judgments across the country.
Final court papers from the company and its critics are due on Monday night. The temporary suspension ordered by a Florida federal judge for some parts of the litigation is due to expire on Wednesday.
Fighting each case before different juries across the country is impossible, the failed J&J and 3M units argued in court. Critics of the mass tort, or judicial process, system agree.
“Mass wrongdoing is legal terrorism because even if a company is not responsible for 80% of the claims made against it, the defense costs will kill it,” bankruptcy attorney Martin Bienenstock said in an interview. Bienenstock is head of the business solutions practice at the law firm Proskauer Rose.
On July 26, the company placed Aearo Technologies in bankruptcy in Indianapolis. Under Chapter 11 rules, Aearo automatically has the right to freeze the lawsuits he faces, but since 3M itself has not declared bankruptcy, a judge must agree to give the industrial conglomerate the same protection.
“Bankruptcy can eliminate decades of litigation and your expenses and make the company solid,” said Bienenstock. In bankruptcy, victims can still receive money from the company, but under different rules that tend to make massive, multimillion-dollar judgments less likely.
Defenders of soldiers suing 3M argue that Chapter 11 bankruptcy rules were never designed for profitable corporations.
“Our bankruptcy process was never intended to allow our Fortune 500 companies to evade liability,” Melanie L. Cyganowski, an attorney for some of the veterans, told Graham during a hearing in Aearo court last week. Cyganowski is a former bankruptcy judge who is fighting efforts by 3M and J&J to resolve their bankruptcy legal issues.
Read More: Smoke from Hearing Impaired Veterans in 3M Tactics in Earplug Suits
3M defended its approach to litigation, arguing that bankruptcy will be better for the plaintiffs and the company.
“There will be more certainty about who might qualify for a claim, more certainty about how to assess similarly-situated claimants, and we will get to a resolution sooner,” said Eric Rucker, vice president and associate general counsel at 3M. in an interview.
If 3M fails to transfer the litigation to bankruptcy court, the loss would make other companies hesitate to use the process, said Ellias, who has opposed J&J’s strategy.
“No CEO wants to declare bankruptcy,” said Ellias. “The only thing worse than declaring bankruptcy is declaring bankruptcy and being told you didn’t do it right.”
Until last month, 3M was fighting the claims in federal court in Pensacola, Florida, where a judge was overseeing the initial and procedural steps necessary to prepare the proceedings for separate jury trials that would take place in other courts. The judge overseeing this process, known as multi-district litigation, or CDM, has challenged 3M’s decision to file for bankruptcy.
“3M and Aearo devised a scheme to escape the CDM and this court forever,” US District Court Judge M Casey Rodgers said in a recent court ruling. The company was “displeased with the decisions of this court and the jury’s verdicts,” he added.
The bankruptcy is Aearo Technologies LLC, 22-02890, United States Bankruptcy Court for the Southern District of Indiana (Indianapolis).
(Adds details on litigation-related deadlines in the sixth paragraph.)
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