US Argues To Toss Out 3M Earplugs Unit From Bankruptcy

US Argues To Toss Out 3M Earplugs Unit From Bankruptcy

Introduction

The Justice Department said that 3M Co. subsidiary Aearo Technologies LLC should be dismissed from the bankruptcy court in faulty earplugs lawsuits, noting the recent rejection of a similar case involving a Johnson & Johnson company.

The US Trustee, the Justice Department's bankruptcy oversight program, told the US Bankruptcy Court for the Southern District of Indiana that Aearo's Chapter 11 case was an "abuse of the bankruptcy system" designed to benefit its highly solvent corporate parent and avoid ongoing litigation stemming from allegedly faulty earplugs.

This month, the United States Court of Appeals for the Third Circuit concluded that J&J's specifically constructed talc liability arm, LTL Management LLC, did not belong in bankruptcy. The court reasoned that LTL is not in a financial crisis because of its parent company's unlimited funding arrangement. The US Trustee argued in a Feb. 25 filing that, although being in a different circuit, the Indiana court should dismiss Aearo's complaint for the same reason and require the business to continue litigation in the tort system.

The trustee further stated that the court should reject the Aearo Debtors' and 3M's schemes and put an end to the misuse of the bankruptcy system by this bad faith, 'surrogate' bankruptcy of Aearo for the benefit of 3M.

According to a news release issued earlier this month by 3M, the LTL finding is inapplicable in Aearo's case, and dismissal would unnecessarily disrupt the well-established Chapter 11 procedure, forcing the company to return to prolonged litigation in the mass tort system.

The government's attempt to dismiss the lawsuit comes on the heels of a similar request made on February 2 by a group representing over 230,000 veterans and contractors who have claims against 3M and Aearo. They argue that their allegations that the company's Combat Arms Version Earplugs caused hearing loss should be heard in a tort court.

Aearo and 3M are having increasing difficulty resolving the claims in bankruptcy court. A federal judge in Florida has previously determined that 3M is fully liable for hearing loss claims, and the US Bankruptcy Judge declared in August that Aearo's bankruptcy safeguards against ongoing litigation do not extend to 3M. The decisions are being challenged.