A federal judge in Florida had sharp words for 3M on Thursday over the company's decision to file bankruptcy protection for its Aearo earplug subsidiary.
Aearo's line of military earplugs is at the heart of one of the largest mass torts in U.S. history, potentially saddling 3M with tens of billions of dollars in liabilities.
"It is troubling to me," said U.S. District Judge Casey Rodgers, regarding 3M's move last month to seek Chapter 11 bankruptcy protection for its Aearo Technologies subsidiary.
Rodgers said 3M appears to be trying to shift judgment on roughly 230,000 earplug lawsuits from federal court juries to a U.S. bankruptcy court judge in southern Indiana.
In her three-plus years handling multidistrict litigation involving the 3M earplugs, she said, 3M never sought to separate itself from Aearo. Instead, it had maintained to her that the two entities were 100% the same.
The bankruptcy filing named all Aearo subsidiaries, but not 3M Co. In the bankruptcy filing, 3M said it has put $1 billion in a fund for Aero for settlement of the Aearo claims.
The bankruptcy court in Indiana is scheduled to begin hearing arguments next week about whether litigation against 3M deserves a stay in that court, said 3M's defense attorney, Jessica Lauria. Chapter 11 allows a debtor to reorganize, automatically freezing creditor claims and lawsuits against a bankrupt company.
In Aearo's bankruptcy, 3M effectively wants that stay to be extended to itself for the earplug cases.
During the two-hour hearing Thursday, Rodgers questioned the indemnity agreement 3M set up with Aearo in which Aearo agreed to assume all the of liability for the earplugs and in which 3M agreed to pay Aearo $1.24 billion to cover the liabilities and reorganize.
By putting Aearo in bankruptcy court, 3M "very creatively and craftily" sought to shift the case out of the U.S. District Court, said Rodgers, who has overseen 3M's multidistrict litigation and 16 bellwether cases for several years from Pensacola, Fla.
Two military veterans, who previously sued 3M, sought emergency court orders to prevent 3M and Aearo from using the bankruptcy court to handle the massive number of earplug lawsuits.
Rodgers took the request under advisement Thursday.
It is unclear which court will have the final say on the litigation.
Ashley Keller, a plaintiff's attorney, argued 3M's bankruptcy filing was a move to undermine Rodgers' authority and shred 3½ years worth of District Court rulings in the cases, as well as to limit 3M's mounting legal costs.
"This is not the story of a down-on-its-luck debtor looking for a brief pause to get its affairs in order before returning to the fray. It is the story of a solvent, profitable enterprise that has decided it would rather be done with the tort system and jury trials altogether, and is trying to use this [bankruptcy] court's jurisdiction to commandeer the federal docket," Keller and other plaintiff attorneys said in a bankruptcy filing this week.
Lauria, insisted that the "proper venue" going forward was bankruptcy court, not U.S. District Court.
The bankruptcy court in Indiana will be hearing arguments about whether 3M's debts deserve a stay by that court, Lauria said.
But Rodgers said "the only reason Aearo needs to reorganize is just because of this newly created indemnity agreement," which financially stressed Aearo.
"It seems to me that the funding and the indemnity agreement were structured for the sole purpose of resolving 3M's liability in bankruptcy as opposed to under this court's jurisdiction," she said. "It seems that Aero did not have any liability [apart from 3M] until this agreement was entered into."
At one point, Rodgers reprimanded an attorney saying: "You cannot use this court to perpetuate a fraud on a bankruptcy court."
3M defense attorney Charles Beall insisted 3M had not perpetrated any fraud. Instead the company had the right to select the legal strategy used in each earplug case, since each of the lawsuits were different.
In a statement, 3M said, "We are prepared to move forward and believe the applicable law supports our position."
To date, juries have sided with 3M six times, agreeing that Aearo earplugs were safe and not defective. But juries have also awarded nearly $300 million to plaintiffs in 10 other bellwether trials.
Rodgers took issue with Aearo's declaration in bankruptcy court that the "multidistrict litigation," also known as MDL, for the earplug cases was "broken beyond repair."
She said 3M could feel however it wanted to about the case and jury rulings, but that it behooved the courts not to allow defendants to simply skip from District Court to bankruptcy court because it didn't like past rulings and sought to overturn them.
MDLs are used in the federal court system for complex product liability matters with many separate claims. They commonly feature bellwether trials that are supposed to set a tone for settling all claims.