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

(Reuters) - The biggest multidistrict litigation in U.S. history is “broken beyond repair” — stuffed with hundreds of thousands of unvetted and quite possibly unwarranted claims, distorted beyond reason by plaintiffs lawyers’ advertising and tainted by erroneous evidentiary rulings that made bellwether trial verdicts a useless indicator of defendants’ true exposure.

Or, at least, that’s how Aearo Technologies LLC — a 3M Co subsidiary that manufactured the military-issued earplugs that allegedly damaged the hearing of thousands of U.S. veterans — depicted the MDL process on Tuesday in a brief explaining why Aearo is seeking Chapter 11 protection in federal bankruptcy court in Indianapolis.

Aearo’s lawyers at Kirkland & Ellis asked the bankruptcy court to stay MDL claims against both the subsidiary and 3M, arguing that the MDL process has failed and only a bankruptcy proceeding can deliver a fair outcome to the defendants and to plaintiffs with legitimate claims.

3M shareholders cheered the Aearo bankruptcy filing. As my Reuters colleagues reported on Tuesday, 3M’s share price rose by nearly 6%, even though the company said it would commit $1 billion, and possibly more, to an uncapped trust fund for earplug claimants.

The Aearo bankruptcy filing is reminiscent, of course, of a similar maneuver last fall by Johnson & Johnson, which offloaded tens of thousands of claims that its talc products cause cancer into a new subsidiary, then sought bankruptcy protection for the subsidiary. (J&J maintains that its talc products are safe.)

What struck me as I read Aearo’s brief was how closely its complaints about the MDL process track the griping we routinely hear from MDL critics in the organized defense bar. As you probably recall, MDL detractors have been lobbying for years for changes in the federal rules in order to assure early and rigorous vetting of plaintiffs’ claims and to allow defendants to seek interlocutory review of crucial pre-trial rulings.

Aearo's bankruptcy brief cited both of those purported shortcomings as fatal flaws in the earplugs MDL. It contended that of the 280,000 plaintiffs who have registered claims on an administrative docket, only about 1,500 have been required to substantiate their cases with medical and military records to prove that they actually used the allegedly defective earplugs and suffered hearing loss. When that vetting takes place, Aearo said, cases suddenly evaporate.

But in the meantime, the company argued, the MDL judge, Casey Rodgers of Pensacola, Florida, has pushed ahead with more than a dozen bellwether trials — without waiting for the 11th U.S. Circuit Court of Appeals to decide whether she correctly barred 3M and Aearo from shifting blame for the allegedly defective earplugs to the U.S. military.

“In short, the tort system is no longer a viable forum to resolve this litigation, which is instead now a cautionary tale of an MDL that is broken beyond repair,” Aearo said in the brief. MDL critics, it said, have long questioned whether these sprawling consolidated cases are the best vehicles for resolving mass torts. The earplug litigation, it said, proves the flaws in the MDL system.

If the MDL process is as broken as Aearo and 3M assert, and if bankruptcy courts allow otherwise thriving companies like 3M and J&J to cabin mass tort liability, I would not be surprised to see more MDL defendants follow the same playbook.

But there's a giant question in that assumption: Did the MDL process actually fail in the earplug litigation?

Not according to the leaders of the plaintiffs' steering committee, Bryan Aylstock of Aylstock, Witkin, Kreis & Overholtz and Christopher Seeger of Seeger Weiss. In an email statement to me on Wednesday, Aylstock and Seeger pointed out that 3M and its subsidiary defendants agreed to and abided by all of the administrative procedures that they are now renouncing. The defendants only began complaining, Aylstock and Seeger said, when bellwether juries sided with plaintiffs. (Plaintiffs have prevailed in 10 of the 16 bellwether trials to reach a jury, winning a combined $265 million in damages. 3M won six defense verdicts, and eight other bellwether cases were dismissed before trial.)

Aylstock and Seeger laid blame for the failure to attain a global settlement of earplug claims, even after multiple rounds of mediation, on 3M — not on the MDL process. “3M is a massively profitable, $100 billion corporation that believes U.S. servicemembers should receive less than $5,000 each,” the plaintiffs lawyers said. “Instead of negotiating in good faith as ordered by the court, 3M decided to move its relentless attack on U.S. soldiers from the civil courts to the bankruptcy system. We will challenge this bankruptcy filing and are confident 3M will fail in the courts.”

The MDL judge, Rodgers, also disputed Aearo's portrayal of the consolidated litigation at a hearing on Wednesday morning. Rodgers noted that in the last six months, as cases have moved off of the administrative docket and onto the MDL’s active docket, 60,000 suits have been dismissed. That’s 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 characterize that as dysfunctional,” said Rodgers at Wednesday's hearing. (The judge wrote a law review article last summer explaining her rationale for the minimal vetting of initial claims and previously castigated 3M for criticizing the procedure after originally agreeing to it.)

The judge said flatly at the hearing that the vast size of the MDL is not an excuse “for a bankruptcy court to offer safe haven or bankruptcy protection to a perfectly solvent defendant, depriving over 200,000 plaintiffs of their right to have their case resolved by a United States district court.” She also said she plans to convene a hearing to determine if 3M was acting in bad faith in a just-concluded mediation with plaintiffs lawyers, since the bankruptcy case was filed right afterward. (A 3M spokesperson said via email that the company believes the bankruptcy will produce "an efficient and equitable resolution," adding, "We are prepared to move forward and believe the applicable law supports our position.")

The MDL process, and, in particular, trial judges’ discretion to manage their MDL dockets, is going to be the foremost issue in Aearo’s bankruptcy. It’s not an understatement to say this case will help decide whether mass tort MDLs remain viable, or whether defendants like Aearo will routinely use bankruptcy to avoid them.

Read more:

3M to spin off healthcare business, earplugs unit seeks bankruptcy

3M benchslapped for trying to tell MDL judge how to run her docket

J&J puts talc liabilities into bankruptcy

Our Standards: The Thomson Reuters Trust Principles.