3M Bankruptcy Dismissed As “Fatally Premature” (In re Aearo, et al)

“Were Congress to . . . intervene and expand § 524(g) beyond asbestos cases, bankruptcy would become a more suitable alternative for resolving mass tort cases. Until then, such cases will likely remain problematic under the Code in the face of creditor opposition.”

From “Order Dismissing Bankruptcy Cases” in 3M bankruptcy.[Fn. 1]

The 3M bankruptcy results from a large number of lawsuits alleging injuries from use of Combat Arms earplugs that 3M sold to the United States military.

But the bankruptcy is dismissed as “fatally premature.”

Here’s how it happens.

Largest in History

The dismissal Order describes the situation like this: “What began as a trickle of lawsuits eventually became a tsunami.”

Many of those lawsuits are consolidated into a multidistrict litigation process (“MDL”) in the U.S. District Court of Northern Florida, which runs parallel with the bankruptcy filed in the Bankruptcy Court of Southern Indiana.

The 3M bankruptcy is the largest mass tort bankruptcy in history—by far. That’s because:

255,500 actions against 3M are now pending, which number is “down from a historical high of almost 336,000”;
“The MDL is the largest in history,” representing “a staggering 30% of cases currently pending in the federal district courts”; and
“By way of comparison, the next largest currently pending MDL is the Johnson & Johnson talcum powder litigation, with 37,543 actions pending as of May 15, 2023.”

Bellwether Process

Within 3M’s MDL, 27 lawsuits are designated as “bellwethers”—i.e, are to be tried first for the purpose of providing:

data for anticipating what future MDL trial results might be; and
guidance on what reasonable terms might be for settling other MDL cases.

As to results of those 27 bellwether cases:

8 plaintiffs’ claims are dismissed prior to trial;
16 trials have occurred for the remaining parties;
10 of the bellwether trials result in verdicts for 12 claimants, ranging from $1.7 million to $77.5 million each;
the remaining 6 trials result in defense verdicts;
appeals are pending in 5 of the bellwether cases; and
to date, no payment has been made to any of the plaintiffs who obtained favorable verdicts.

Largest Verdicts and Value of Claims

Here are the largest, “eye-popping” verdicts:

$77.5 million verdict, consisting of $72.5 million in punitive damages and $5 million in compensatory damages; and
$110 million verdict (for two plaintiffs), consisting of $40 million in punitive damages and $15 million in compensatory damages for each plaintiff.

The total estimated value of the claims against 3M range:

from “less than a billion,” according to one expert who remains “steadfast in his belief that 3M has the wherewithal” to pay all valid claims; and
to a claimants’ estimation at “trillions of dollars.”

Financial Condition of 3M

Here is the financial information on 3M and its subsidiaries.

During the 2022 calendar year they:

generated over $5.7 billion in sales;
paid over $3.2 billion in dividends to shareholders; and
spent $1.4 billion for stock repurchases—an increase over the prior year.

As of December 31, 2022, they:

have book equity values exceeding $14.7 billion;
are number 102 on the Fortune 500 list;
enjoy an “A” investment credit rating; and
have cash and cash equivalents of over $3.6 billion.

Summary of Decision and Rationale

Here is a summary of the Bankruptcy Court’s dismissal decision and rationale:

“requiring a valid bankruptcy purpose and a debtor in need of bankruptcy relief protects this Court’s jurisdictional integrity,” otherwise “a bankruptcy court risks becoming another court of general jurisdiction, which it most decidedly is not”;
“allowing an otherwise financially healthy debtor with no impending solvency issues to remain in bankruptcy . . . exceeds the boundaries of the Court’s limited jurisdiction”;
that’s especially true for a “financially healthy, Fortune 500, multinational conglomerate”; but
the dismissal is “without prejudice” because 3M is on an “exceedingly steep and slippery” slope, facing “significant waves of litigation upon dismissal” that “could rapidly and unequivocally” change 3M’s financial outlook.

The Bankruptcy Court concludes like this: “sitting here today and considering the evidence presented,” the current bankruptcy is “fatally premature” (emphasis added).

Conclusion

It will be interesting to see how the 3M lawsuits pan out in the MDL process.

Will the MDL process, without bankruptcy, work? Or will another bankruptcy be needed, if and when 3M or an affiliate gets into financial straights?

And will Congress intervene in the mass tort arena, as the Bankruptcy Court invites it to do in the quotation at the beginning of this article.

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Footnote 1. This quote is from “Order Dismissing Bankruptcy Cases” (fn. 24, at 49) entered 6/9/2023, in 3M bankruptcy (Case Nos. 22-02890 thru -02896) by Southern Indiana Bankruptcy Court.

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