3M earplug MDL judge adds to bankruptcy’s tangles with injunction order

The logo of 3M is seen at the 3M plant in Tilloy-Lez-Cambrai, France, August 18, 2019. REUTERS/Pascal Rossignol

(Reuters) - The Florida federal judge overseeing multidistrict litigation alleging that 3M Co earplugs caused hearing loss for more than 200,000 veterans issued an extremely unusual order on Tuesday, barring 3M from attacking her MDL rulings in bankruptcy court.

If 3M, according to the new ruling, attempts to relitigate the MDL judge’s orders in the bankruptcy case brought by its subsidiary Aearo Technologies LLC — or even if 3M merely provides Aearo with funding to attack rulings from the MDL — the company faces the prospect of a contempt hearing before the MDL judge, U.S. District Judge M. Casey Rodgers of Pensacola.

You are wondering, of course, exactly how that order is going to affect 3M’s avowed goal of using Aearo’s bankruptcy to resolve the veterans’ claims. The company, as you know, has said it believes bankruptcy court will provide “a more efficient and equitable” route to resolution than the MDL, which Aearo has criticized mercilessly in bankruptcy court filings.

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One caveat before I dive in more deeply: 3M, which denies that its earplugs were defective, may well appeal Rodgers’ new order. A company spokesman told me by email just that it is “reviewing the order and will take appropriate next steps.”

Aearo has asked Chief U.S. Bankruptcy Judge Jeffrey Graham of Indianapolis to stay litigation against its parent, 3M, to facilitate an epic bankruptcy case to decide how much, if anything, the companies owe to the veterans in the MDL. Lawyers for the veterans, meanwhile, have told Graham in hearings this week that he should reject the companies’ naked attempt to evade liability in the MDL and allow them to continue litigating against 3M.

What does it mean that 3M is now barred from contesting Rodgers’ underlying MDL evidentiary rulings before Graham in bankruptcy court? And what does it mean that Aearo, which was a non-operating subsidiary until 3M revived it early this month on the eve of its bankruptcy filing, can’t rely on money from 3M to challenge the MDL judge’s holdings?

I put those questions on Wednesday morning to six law professors who are regarded as experts on the intersection of MDLs and bankruptcy. I wish I could say that their interpretations clarified the impact of the new decision. Alas, this case is so novel and complex that even experts can’t agree on the significance of Rodgers’ injunction order.

So, while Lewis & Clark Law School professor Samir Parikh said Rodgers exceeded her authority under the All Writs Act and her ruling “ultimately could be much ado about nothing,” professor Zachary Clopton of Northwestern Pritzker School of Law told me that the injunction “keeps the MDL judge squarely in the action” even if the bankruptcy judge stays MDL litigation against 3M. Ordinarily, Clopton explained, it's up to bankruptcy judges to decide whether disputed issues have already been resolved in previous rulings. But now, he said, "the MDL judge can rule on this question in the context of the injunction."

At the very least, said Lindsey Simon of the University of Georgia School of Law, it appears that Rodgers' injunction will add to the bankruptcy case’s complications by forcing Aearo to account for its funding for key parts of the proceeding. And if Aearo’s bankruptcy ultimately leads to a trial to estimate the value of the veterans’ claims, said Adam Levitin of Georgetown Law, Aearo will have to come up with “untainted” funds from a source other than 3M to pay for an estimation trial that is likely to cost millions of dollars.

Rodgers issued Tuesday’s order in response to a motion from Keller Postman on behalf of an MDL claimant whose case was teed up for trial. The motion asked Rodgers to issue an injunction under the All Writs Act, which allows federal district courts to bar intrusions on their jurisdiction, to preclude 3M from supporting Aearo’s bid for a bankruptcy stay and to block 3M from asking the bankruptcy court to reconsider the MDL judge’s rulings. 3M, as I’ve reported, urged the MDL judge not to interfere with the bankruptcy case. (The MDL judge on Sunday denied a separate motion that could have allowed MDL plaintiffs to continue litigating against 3M by amending their master complaint to drop Aearo as a defendant.)

In Tuesday’s order, Rodgers said she would defer to Graham, the bankruptcy judge, to determine whether 3M was “using its subsidiaries’ bankruptcy petition as bad faith subterfuge to defeat this court’s jurisdiction.” But she said Aearo’s “substantive challenges to this court’s many legal and evidentiary rulings in the MDL” represented a specific “threat to this court’s previously exercised jurisdiction [that] cannot and will not be countenanced.”

It's not entirely clear under the new order, according to professors Alexandra Lahav of Cornell Law School and Melissa Jacoby of the University of North Carolina School of Law, which MDL rulings are now off limits for 3M challenges in bankruptcy court. Lahav said she interprets the order only to bar challenges to Rodgers’ decisions in the bellwether cases that have already been litigated to a conclusion in the MDL court. Jacoby said there are still open questions about whether an estimation process for claims that haven’t been litigated in the MDL could proceed without implicating Rodgers’ order.

But what is entirely evident, after Rodgers’ two rulings this week, is that the MDL judge is deeply skeptical of 3M’s motives for resurrecting its once-obsolete subsidiary — saddling Aearo with all of the liabilities from the MDL through a last-minute funding and indemnification agreement and then sending Aearo off to bankruptcy court to request a stay of all litigation in the MDL. The subtext of Rodgers' latest order, Lahav said, is a call for the bankruptcy court to pay respect and deference to the decisions she has made in more than three years of hard-fought litigation.

Indeed, the MDL judge’s orders seem intended to remind Graham that, in her view, 3M and Aearo have pitted their courts against each other — and that's important context, said Georgia professor Simon. 3M and Aearo are “saying the quiet part out loud,” by calling for the bankruptcy court to take over the process of determining the value of the veterans’ claims and presiding over a global settlement.

The action at the moment is before Graham, who will soon decide whether to stay litigation against 3M. After that, who knows?

Read more:

Florida judge won't block 3M from asking bankruptcy judge to stop earplug suits

3M wins early skirmish on stay of earplug MDL, but two-court war rages on

Is 3M earplug bankruptcy the beginning of the end of mass tort MDLs?

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Alison Frankel has covered high-stakes commercial litigation as a columnist for Reuters since 2011. A Dartmouth college graduate, she has worked as a journalist in New York covering the legal industry and the law for more than three decades. Before joining Reuters, she was a writer and editor at The American Lawyer. Frankel is the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.