Driving the news: 3M, the conglomerate, recently put its Aearo Technologies subsidiary into bankruptcy. It aims to use the bankruptcy process to settle over 230,000 lawsuits from military service members who allege faulty earplugs made by Aearo caused hearing loss — the biggest multi-district litigation (MDL) in history.
Why it matters: Aearo’s rationale for the bankruptcy involves questioning whether the U.S. mass tort and MDL system is even functional, calling its own experience “a cautionary tale of a MDL that is broken beyond repair.”
And large companies regularly exposed to mass torts — think pharma and medical device makers — are closely watching what happens with both Aearo and last year’s bankruptcy of a Johnson & Johnson subsidiary. The latter was filed to help settle baby powder litigation and is the second largest MDL in history.
The outcomes could provide a playbook for large, profitable parent companies — which don’t appear to be insolvent — to take advantage of certain features of the bankruptcy process without actually filing for bankruptcy themselves.
The benefits: Bankruptcy provides an efficient route to settling with a sprawling group of claimants. Instead of plodding through thousands of individual cases, the bankruptcy court estimates the liability via expert testimony and bellwether verdicts so far and facilitates settlement negotiations if the company doesn’t have the money.