US veterans suing 3M over earplugs seek to stop unit's “false alarm” bankruptcy

The company logo and trading information for 3M is displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 29, 2022. REUTERS/Brendan McDermid

(Reuters) -U.S. veterans and members of the military on Wednesday urged a judge to dismiss 3M's bid to use the bankruptcy of its subsidiary Aearo Technologies to shield itself from nearly 260,000 lawsuits over military-issue earplugs that former users allege were defective and damaged their hearing.

3M and Aearo say the earplug litigation has spiraled out of control. But attorney Adam Silverstein, who represents veterans suing 3M over hearing loss, said at a court hearing in Indianapolis that filing for bankruptcy, like "pulling a fire alarm," should be reserved for urgent threats.

Aearo was not in need of emergency rescue, because it had filed for bankruptcy solely as "a strategic alternative to managing 3M's litigation," Silverstein said.

"If the firemen determine something is a false alarm, they don't wait around to see if a fire might start later or if there's some other problem they can assist with," he said. "They leave."

Aearo, which made the combat arms earplugs, filed for bankruptcy last July, with 3M pledging $1 billion to fund its liabilities stemming from the lawsuits that accuse both Aearo and 3M of misrepresenting the earplugs' effectiveness, leading to hearing damage.

The plaintiffs have called that move a bid to escape the Florida federal court where the earplug lawsuits are consolidated in a so-called multidistrict litigation, following a series of unfavorable legal rulings and trial losses.

On Tuesday, Aearo attorney Chad Husnick said U.S. law does not require the "house to be on fire" before a company files for bankruptcy. Aearo should be allowed to proactively resolve the growing problem of earplug lawsuits through a bankruptcy settlement, Husnick said.

U.S. Bankruptcy Judge Jeffrey Graham will continue to hear evidence on Thursday before he makes a ruling on whether to dismiss the case.

3M's bankruptcy strategy, along with a similar effort by Johnson & Johnson, has attracted both criticism and support, sparking a debate about whether bankruptcy is an appropriate solution for financially healthy companies facing significant litigation.

The case against 3M and Aearo is the largest-ever multidistrict litigation in U.S. history, with nearly 330,000 cases filed and approximately 260,000 pending cases, according to court statistics from March 16.

3M has lost 10 of the 16 cases that have gone to trial so far, with about $265 million being awarded in total to 13 plaintiffs.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi, David Gregorio and Richard Chang)