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In this episode of ‘Law, disrupted,’ John is joined by Eric Winston, a Quinn Emanuel partner in the Los Angeles office. Eric is one the firm’s insolvency and restructuring partners. He is based in Los Angeles and appears in case around the country.

Together, they discuss the Aearo bankruptcy case in Indianapolis, Indiana – a case where Aearo’s (solvent) parent, 3M Company, tried (but failed) to use Aearo’s bankruptcy to enjoin the largest MDL litigation in the federal court – the Combat Arms Earplugs MDL in Pensacola, Florida. This may be the first time in the recent history of “mass tort” bankruptcy cases that tort victims were able to defeat an injunction to protect non-debtor parent companies. 

The conversation begins with events leading up to the bankruptcy and the MDL, comprising over 250,000 product liability claims relating to defective earplugs sold to the US military. The discussion highlights the work of Quinn Emanuel associate Matt Hosen who found, buried in a large document production in a prior (and successful) antitrust case against 3M, an internal 3M document that became known as “The Flange Report.” John explains that the report by a scientist at 3M revealed that the earplugs that 3M had been selling to the U.S. military for over 15 years were defective. The report led to the filing of a False Claims Act suit against 3M and became important evidence in the resulting lawsuits filed by a quarter million active and former US service members.

John and Eric then discuss Quinn Emanuel’s role in the ensuing mass tort litigation against 3M and Aearo, consolidated in an MDL proceeding in Pensacola, Florida. They recount the jury verdicts in “bellwether trials” and the sudden bankruptcy of just Aearo, in Indianapolis, as well as Aearo’s immediate efforts to extend the “automatic stay” protections of a bankruptcy filing to 3M, even though 3M itself was not in bankruptcy.

John asks Eric what 3M was trying to accomplish by the bankruptcy filing. Eric explains that 3M’s goal was to use controversial bankruptcy tools, including the automatic stay, claim estimation or channeling injunctions into a bankruptcy plan, and forcing plaintiffs to file proofs of claim. These tools have been used in other major mass tort cases, such as in the LTL/Johnson & Johnson litigation, where a subsidiary holding the mass tort liabilities files for bankruptcy, but the solvent parent does not. In these cases, the debtors have been overwhelmingly successful in protecting the non-debtor parents. 

John and Eric discuss why this matters. As Eric explains, 3M wanted to channel the resolution of all the tort claims into bankruptcy and, in turn, force plaintiffs to take less than they would usually get in civil court litigation, resulting in 3M keeping more money. Eric and his colleagues were able to defeat this strategy.

Together, John and Eric then cover the Aearo bankruptcy case, including the bankruptcy discovery, trial, and important cross-examinations, including the importance of a key funding agreement between 3M and Aearo. 

The discussion then turns to what happened in the MDL before and after the bankruptcy court denied the injunction Aearo sought for 3M’s benefit. This included the motions Quinn Emanuel filed in the MDL to stop 3M from arguing that it was not 100% directly and independently liable for all earplug litigation.

Finally, John and Eric discuss Eric’s experience working more broadly with the plaintiff lawyers in their bankruptcy arena and their different approaches to litigation, as well as the impact the Aearo case may have in future “mass tort” bankruptcies, before concluding their discussion.

Published: Nov 3 2022

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