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(Reuters) – The largest multidistrict lawsuit in U.S. history is “broken beyond repair” – stuffed with hundreds of thousands of unverified and most likely unwarranted claims, twisted beyond reason by the publicity of plaintiffs’ attorneys and tainted by flawed evidentiary rulings that made indicative trial verdicts an unnecessary indicator of the defendants’ true exposure.
Or, at least, that’s how Aeroro Technologies LLC – a subsidiary of 3M Co that made the military earplugs that are said to have damaged the hearing of thousands of American veterans – described the MDL process on Tuesday in a Short explaining why Aearo is seeking Chapter 11 protection in federal bankruptcy court in Indianapolis.
Aearo’s attorneys at Kirkland & Ellis have asked the bankruptcy court to stay MDL’s claims against the subsidiary and 3M, arguing that the MDL process has failed and that only bankruptcy proceedings can provide a fair outcome for defendants and complainants with legitimate grievances.
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3M shareholders applauded Aearo’s bankruptcy filing. As my colleagues at Reuters reported on Tuesday, 3M’s share price rose nearly 6% even though the company announced it would commit $1 billion or more to an unsecured trust fund. capped for earplug seekers.
Aearo’s bankruptcy filing recalls, of course, a similar move last fall by Johnson & Johnson, which dumped tens of thousands of claims that its talc products cause cancer at a new subsidiary, then filed for bankruptcy protection for the subsidiary. (J&J maintains that its talc products are safe.)
What struck me reading Aearo’s memoir is how closely his complaints about the MDL process follow the recriminations we regularly hear from critics of MDL in the organized defense bar. As you likely recall, critics of the MDL have been pushing for years for federal rules to be changed to ensure early and rigorous verification of plaintiffs’ claims and allow defendants to seek interlocutory review of crucial advance rulings. At the trial.
Aearo’s bankruptcy filing cited these two alleged deficiencies as fatal flaws in MDL earplugs. He argued that of the 280,000 plaintiffs who filed claims on administrative record, only about 1,500 were required to substantiate their cases with medical and military records to prove they actually used the earplugs allegedly. defective and have suffered hearing loss. When that verification takes place, Aearo said, the cases suddenly evaporate.
But in the meantime, the company argued, MDL Judge Casey Rodgers of Pensacola, Fla., has pursued more than a dozen landmark lawsuits — without waiting for the 11th U.S. Circuit Court of Appeals to decide whether it properly barred 3M and Aeroro. to blame the allegedly defective earplugs on the US military.
“In short, the tort system is no longer a viable forum for resolving this litigation, which instead is now a cautionary tale of an MDL that is beyond repair,” Aearo said in the brief. Critics of the MDL, he said, have long questioned whether these sprawling consolidated cases are the best way to solve mass crimes. The earplug litigation, he said, proves the flaws in the MDL system.
If the MDL process is as broken as Aearo and 3M claim, and if the bankruptcy courts allow otherwise successful companies like 3M and J&J to take on mass tort liability, I wouldn’t be surprised to see more MDL defendants follow the same manual.
But there is a giant question in this hypothesis: did the MDL process really fail in the earplug litigation?
Not according to plaintiffs’ steering committee leaders Bryan Aylstock of Aylstock, Witkin, Kreis & Overholtz and Christopher Seeger of Seeger Weiss. In an e-mailed statement to me on Wednesday, Aylstock and Seeger pointed out that 3M and its defendant subsidiaries had agreed to and complied with all administrative procedures they now waived. Defendants only began complaining, Aylstock and Seeger said, when representative juries sided with the plaintiffs. (Plaintiffs prevailed in 10 of the 16 landmark cases to reach a jury, winning a total of $265 million in damages. 3M won six defense verdicts and eight other landmark cases were dismissed before trial.)
Aylstock and Seeger blamed the failure to reach a comprehensive settlement of the earplug claims, even after multiple rounds of mediation, on 3M — not the MDL process. “3M is a massively profitable $100 billion company that estimates that US service members should be paid less than $5,000 each,” plaintiffs’ attorneys said. “Instead of negotiating in good faith as ordered by the court, 3M decided to shift its relentless attack on American soldiers from the civilian courts to the bankruptcy system. We will challenge this bankruptcy filing and are confident that 3M will fail in court.
MDL Judge Rodgers also challenged Aearo’s representation of the consolidated litigation at a audience Wednesday morning. Rodgers noted that over the past six months, as cases have moved from the administrative role to the active role of the MDL, 60,000 prosecutions have been dismissed. This is on top of nearly 20,000 previously dismissed cases, the judge said, for a total of 80,000 dismissed cases – a sure sign, she suggested, that the vetting process is working.
“I don’t think most defendants would call it dysfunctional,” Rodgers said during Wednesday’s hearing. (The judge wrote a law review article last summer explaining its rationale for minimal initial claims verification and had previously lambasted 3M for criticizing the procedure after initially agreeing to it.)
The judge stated categorically at the hearing that the vastness of the MDL is no excuse “for a bankruptcy court to offer sanctuary or bankruptcy protection to a perfectly solvent defendant, depriving more than 200,000 plaintiffs of their right to have their case resolved in a U.S. District Court. She also said she planned to convene a hearing to determine whether 3M was acting in bad faith in a mediation that had just concluded with plaintiffs’ attorneys, as the bankruptcy filing was filed soon after.(A 3M spokesperson said via email that the company believed bankruptcy would produce “an effective and fair resolution,” adding, “We are ready to move forward and believe that applicable law supports our position.”)
The MDL process, and, in particular, the discretion of trial judges to handle their MDL cases, is going to be the main issue in Aearo’s bankruptcy. It’s no understatement to say that this case will help decide whether mass tort MDLs remain viable, or whether defendants like Aearo will routinely use bankruptcy to avoid them.
3M spins off healthcare business, earplugs unit files for bankruptcy
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