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Military personnel in 3M earplug suit ask judge to dismiss company subsidiary’s bankruptcy claim

  • March 3, 2023

Current and former U.S. military members suing 3M over allegedly defective military earplugs have asked a U.S. judge to dismiss 3M subsidiary Aearo Technologies’ bankruptcy, accusing the company of using bankruptcy to shield itself from litigation, which has grown into the largest mass tort in U.S. history.

The servicemembers’ group said late on Thursday that Aearo’s Chapter 11 bankruptcy should face the same fate as the bankruptcy of a Johnson & Johnson-created subsidiary, which was used to settle lawsuits alleging J&J baby powder and other talc products caused cancer. A federal appeals court dismissed the bankruptcy strategy this week.

3M Co faces more than 230,000 lawsuits accusing it of selling defective earplugs that caused hearing loss for U.S. military members. The company has sought to settle those lawsuits through Aearo’s bankruptcy.

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3M’s plan faltered when U.S. Bankruptcy Judge Jeffrey Graham in Indianapolis ruled that Aearo’s bankruptcy did not stop earplug lawsuits from proceeding against parent company 3M, which is not bankrupt. 3M is appealing that ruling.

Now the servicemembers suing want Graham to go a step further and end Aearo’s bankruptcy entirely. In a Thursday court filing, they cited a Monday ruling by the U.S. 3rd Circuit Court of Appeals in Philadelphia dismissing a bankruptcy case filed by J&J subsidiary LTL Management because neither J&J nor LTL were in “financial distress.”

J&J denies the cancer claims and is challenging the 3rd Circuit ruling.

U.S. military personnel suing 3M for allegedly <a href=defective earplugs have requested a judge dismiss a company subsidiary’s bankruptcy claim.”/

U.S. military personnel suing 3M for allegedly defective earplugs have requested a judge dismiss a company subsidiary’s bankruptcy claim. (REUTERS/Nicholas Pfosi/File Photo)

LTL, like Aearo, entered bankruptcy with an agreement that its non-bankrupt parent would fund a settlement of the lawsuits in bankruptcy.

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Column: 3M foes act fast to capitalize on J&J’s talc bankruptcy defeat

  • March 1, 2023

Feb 2 (Reuters) – When a U.S. appeals court ruled on Monday that Johnson & Johnson can’t use the U.S. bankruptcy system to offload vast litigation exposure from product liability claims, the people who reacted most quickly were undoubtedly J&J investors.

Within hours of the 3rd U.S. Circuit Court of Appeals decision, investors drove J&J’s share price down by nearly 4% — its biggest one-day decline in years.

But another, albeit much smaller, group of people was also roiled by Monday’s ruling from the 3rd Circuit: appellate lawyers who were finishing up friend-of-the-court briefs due on Wednesday in a 7th Circuit appeal by 3M Co that presents issues similar to those in the J&J case.

The lawyers’ quick response to the 3rd Circuit’s ruling – redrafting sections of their briefs to add quotations and references to the J&J decision – shows the deep significance of these cases for both plaintiffs and corporate defendants ensnared in mass tort litigation. If your appellate brief addresses an issue that could affect hundreds of thousands of people, it’s worth rushing to beat a deadline.

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The 3M and J&J appeals aren’t exactly the same, but both involve the big-picture question of whether corporations facing an onslaught of lawsuits can use the U.S. Bankruptcy Code to halt litigation and push for a global resolution via the Chapter 11 process.

At the 7th Circuit, 3M is appealing a bankruptcy judge’s ruling that tens of thousands of military veterans who allege hearing loss from 3M earplugs can continue litigating against the parent company, despite the Chapter 11 bankruptcy of the 3M subsidiary that originally made the earplugs. Like J&J, 3M shifted litigation liability to the subsidiary, Aearo Technologies, but also provided the bankrupt entity with an uncapped financial

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INSIGHT-Corporate lawsuit dodge imperiled after court rejects J&J bankruptcy tactic

  • February 14, 2023

Attorney Greg Gordon, a partner at the Jones Day law firm, offered an innovative solution to Johnson & Johnson and other major companies that faced mountains of lawsuits alleging their products sickened or killed people: They could use the bankruptcy system to force all plaintiffs into one settlement.

It required fancy legal footwork — creating a subsidiary to shoulder all the liability, then putting that new company into Chapter 11. Plaintiffs’ lawyers attacked the gambit, known as the “Texas two-step,” charging it amounted to a bad-faith bankruptcy filing and a fraudulent ploy to shield the parent companies’ assets. Not so, Gordon told judges overseeing bankruptcies testing the novel strategy. The parent firms, he said, would give these subsidiaries plenty of money — billions of dollars — to compensate plaintiffs.

It turns out that Gordon’s play to reassure bankruptcy judges created a new legal problem. The 3rd Circuit Court of Appeals on Monday stopped the music on J&J’s two-step, ruling that its cash-flush subsidiary had no legitimate claim to bankruptcy protection because it wasn’t in “financial distress.” The ruling forces J&J back into trial courts to battle nearly 40,000 lawsuits and casts a cloud over the legality of the Texas two-step strategy. The plaintiffs allege J&J’s talc products, including Baby Powder, caused cancer, which the company denies.

The appeal court judges’ reasoning underscored what some legal experts call an inherent contradiction: bankruptcies being executed by multinational firms worth billions of dollars that were in little danger of running out of money to pay plaintiff-creditors. The panel dismissed the main argument underpinning Gordon’s and the companies’ primary defense of the strategy. The companies had contended the bankruptcies served the greater good of all parties, including plaintiffs, by delivering fair payouts more efficiently and equitably than the “lottery” offered

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