3M-Aearo Files Bankruptcy Amid Earplug Flap

by | Sep 7, 2022 | Injuries

Company CEO Mike Roman said the move is “really about us — 3M — stepping up to do right by veterans.” Others aren’t convinced that the proposed $1 billion settlement fund would adequately compensate victims.

The entity which sold allegedly defective earplugs to the U.S. government has spent over $350 million defending product liability lawsuits, according to court documents filed in Indianapolis. So far, the company has lost thirteen of nineteen cases. Juries have awarded over $300 million to victims in these cases. To the company, bankruptcy is the only way forward. The Chapter 11 filing will “reorganize a business with healthy operations that has become saddled with unsustainable tort liabilities,” John R. Castellano, Aearo’s chief restructuring officer, said in a sworn declaration.

Victims claim the proposed settlement fund isn’t nearly enough to resolve all claims. “The $1 billion that is being seeded by 3M to cover claims should be viewed as a first installment,” Nigel Coe, senior research analyst with Wolfe Research, told the judge. “We maintain that $10 billion is more realistic.”

What Happens in Chapter 11 Bankruptcy

Courts have consistently held that restructuring bankruptcy is a shield and not a sword. In other words, debtors can use Chapter 11 to stop adverse actions and get out from under unfavorable contracts. However, they cannot use Chapter 11 to metaphorically slash at victims. In a museum, it’s easy to tell the difference between a sword and a shield. In a court of law, it’s not as easy.

When a debtor faces over 280,000 lawsuits, possible bankruptcy misuse is a big deal. If the bankruptcy judge determines that 3M is misusing the process, the judge could punish the company or even throw the bankruptcy out of court.

The overall bankruptcy process is a bit more certain. The immediate issue is Section 362 of the Bankruptcy Code, which contains provisions for the Automatic Stay. This rule immediately stops all adverse actions, including liability lawsuits. So, all defective earplug claims immediately move from the civil court where they are currently pending to a bankruptcy court in Indiana.

Usually, debtors and creditors agree on a restructuring plan, such as the creation of a victim compensation fund, and present that agreed plan to the judge. That’s basically what happened when the Los Angeles Dodgers filed bankruptcy in 2011. If there is a dispute, and it looks like there will be a dispute in the 3M bankruptcy, the judge resolves it.

Sometimes, people ask us how bankruptcy affects a personal injury case. We got this question a lot in the wake of the Amber Heard/Johnny Depp defamation judgment.

Most personal injury claims, such as car crash claims, are unintentional torts. These judgments are dischargeable in bankruptcy. Defamation is an intentional tort. It’s not dischargeable in bankruptcy. Hypothetically, if Amber Heard filed bankruptcy, the Automatic Stay would prevent Johnny Depp from collecting the judgment, at least temporarily. However, the judgment would remain.

If a victim files bankruptcy, economic and noneconomic damages are exempt, meaning the trustee cannot seize the money. Punitive damages are not exempt. On a related note, the income tax rules are a bit more complex, but generally, personal injury settlements aren’t taxable.

Defective Earplug Injuries

The combat earplugs in question resemble two empty ice cream cones (the pointy kind) joined at the open end. These earplugs have a small gap between the two ice cream cones. Although the gap is barely as thick as your fingernail, it’s wide enough to let loud noises into the eardrum.

Hearing loss is relatively easy to address, if doctors catch it early. Today’s hearing aids are very small and very sophisticated. Unfortunately, most victims don’t run to the doctor as soon as they have to turn up the TV volume. So, their hearing degrades. Very quickly, the only possible solution is radical ear surgery. This procedure has no guarantees, and not everyone is a candidate for this kind of surgery.

For hearing loss victims, the physical problems are only the beginning. Since they cannot hear well, these victims often withdraw from family, friends, and hobby groups. The severe isolation usually causes deep depression.

A Lexington personal injury attorney can obtain compensation for all these losses in court. Additional punitive damages are available as well, if there is clear and convincing evidence that the company deliberately ignored a known risk. 

Trust Fund Compensation Claims

In general, trust fund claims are rather easy to establish. However, it’s much more difficult to obtain fair compensation.

There’s no defendant in a trust fund claim. Therefore, victims need only make bare-bones prima facie claims. If their evidence is weak, it doesn’t matter, because there’s no one to rebut their claims.

However, trust fund administrators are notoriously stingy. When the money runs out, their jobs end. So, they try to keep the trust fund as large as possible. That means minimizing victim payments. Fortunately, a Lexington personal injury lawyer is a good negotiator as well as a good litigator. Victims with attorneys have a much better chance of obtaining fair compensation than victims without lawyers.

Injury victims are usually entitled to substantial compensation. For a free consultation with an experienced personal injury lawyer in Lexington, contact the Goode Law Office, PLLC. You have a limited amount of time to act.