(Reuters) -3M Co must face more than 230,000 lawsuits accusing it of selling defective earplugs to the U.S. military, after a U.S. judge on Friday ruled that the bankruptcy of a subsidiary did not stop lawsuits against the non-bankrupt parent company.
Companies that file for bankruptcy typically receive an immediate reprieve from lawsuits, and 3M subsidiary Aearo Technologies LLC argued that extending those protections to 3M would buy Aearo time to address its debts and restructuring goals.
Aearo and 3M had argued that bankruptcy offered a faster and fairer way to compensate veterans who say that earplugs made by Aearo caused hearing loss.
But bankruptcy Judge Jeffrey J. Graham in Indianapolis said that Aearo's bankruptcy restructuring could proceed in parallel with the lawsuits.
While the "sheer size" of the consolidated litigation may have spurred 3M and Aearo to seek "additional leverage" through the bankruptcy proceedings, that did not create a legal need to protect 3M, Graham ruled.
Attorneys representing the veterans with hearing loss said they looked forward to continuing their lawsuits against 3M in other courts.
"Judge Graham's decision is a complete rejection of 3M's attempt to evade accountability and hide in bankruptcy," plaintiff attorneys Bryan Aylstock and Christopher Seeger said in a statement.
A spokesman for 3M said it intended to appeal.
"Continuing to litigate these cases one-by-one over the coming years will not provide certainty or fairness for any party," 3M spokesman Sean Lynch said.
3M subsidiary Aearo Technologies LLC filed for bankruptcy protection in Indiana on July 26, seeking to resolve lawsuits alleging that 3M's Combat Arms Earplugs Version 2 (CAEv2) caused hearing loss.
Aearo will continue in the chapter 11 proceedings and 3M will continue to defend its position in the litigation, the company said in a statement late on Friday.
"3M continues to expect to complete the pending separation of its food safety business on the targeted closing date of September 1," 3M added.
The lawsuits have been consolidated in federal court in Florida and have grown into the largest mass tort litigation in U.S. history. Aearo placed $1 billion in a trust to settle them and agreed to indemnify 3M for all liability related to CAEv2.
3M has denied liability, saying its earplugs offered protection to soldiers while allowing them to hear on the battlefield.
The Florida judge overseeing the earplug lawsuits, U.S. District Judge M. Casey Rodgers, has admonished 3M for "naked duplicity" in attempting to dump its liabilities into a bankrupt subsidiary.
3M and Aearo have in turn criticized Rodgers for allowing the consolidated litigation to balloon, pointing out that earplug cases now account for a whopping 30% of all cases pending in U.S. federal courts.
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.
3M's stock price was down 12% Friday to $129.
Companies have in recent years increasingly used bankruptcy proceedings to protect non-bankrupt owners and affiliates from litigation, with Johnson & Johnson's effort to offload lawsuits alleging that its talc-based baby powder caused cancer a recent example.
J&J has denied liability and said its talc-based baby powder is safe. The J&J affiliate's bankruptcy case is under review, after cancer victims appealed a court ruling that blocked their lawsuits against J&J.
(Reporting by Dietrich Knauth; Additional reporting by Ann Maria Shibu in Bengaluru; Editing by Josie Kao, Alexia Garamfalvi and Rosalba O'Brien)