3M files for Chapter 11 on behalf of subsidiary Aearo Technologies

October 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

October 2022 Issue

In an attempt to resolve litigation related to combat arms earplugs version 2 (CAEv2), American multinational conglomerate corporation 3M has filed for Chapter 11 bankruptcy protection on behalf of its subsidiary Aearo Technologies.

CAEv2 was the first earplug product to offer protection from loud sounds such as gunfire, while maintaining the ability to hear softer sounds such as speech, with limited interruption. 3M worked in close coordination with the US military on the CAEv2 product.

However, the earplugs, which were standard issue to active duty service members, have been linked to chronic hearing loss and other disabilities, leading to hundreds of thousands of complaints and multiple claims in recent years.

The claims largely relate to the previous generation combat arms earplugs manufactured by Aearo Technologies, as well as discontinued Aearo Technologies mask and respirator products utilised to reduce workplace exposure to asbestos, silica, coal mine dust or occupational dusts.

While 3M and Aearo Technologies believe CAEv2 were effective and safe when used properly, they nevertheless face increasing litigation, including approximately 115,000 filed claims and an additional 120,000 claims as of 30 June 2022.

The Chapter 11 process, according to 3M, is intended to achieve an efficient and equitable resolution, reduce uncertainty and increase clarity for all stakeholders, while reducing the cost and time that could otherwise be required to litigate thousands of cases.

“We have great respect for the brave men and women who protect us and remain committed to the military as an active partner and valued customer going forward,” said Mike Roman, chairman and chief executive of 3M. “We determined that taking this decisive action now will allow 3M and Aearo Technologies to address these claims in a way that is more efficient and equitable than the current litigation.”

Along with its other businesses, 3M has not filed for Chapter 11 and will continue to operate as usual. Aearo Technologies will also continue to operate in the ordinary course, without interruption or disruption to its customers, vendors and employees.

3M is also seeking court supervision to help establish a $1bn trust – funded by 3M – to efficiently and equitably resolve all claims determined to be entitled to compensation. The trust is also intended to support Aearo Technologies as it continues to operate during the Chapter 11 process. 3M has also committed an additional $240m to fund projected related case expenses and will provide additional funding if required under the terms of the agreement.

For more than 50 years Aearo Technologies LLC has led the way in energy control technology, striving to be a global leader in innovative, end-to-end noise, vibration and thermal system solutions. Aearo Technologies was acquired by 3M in 2008 and has since operated as a wholly-owned subsidiary of 3M.

Serving as legal counsel to Aearo Technologies is Kirkland & Ellis LLP, with AlixPartners LLP serving as restructuring adviser. PJT Partners is serving as financial adviser and White & Case LLP is serving as legal counsel to 3M.

3M believes that, without the Chapter 11 filing, claims could take years, if not decades, to litigate on a case by case basis. With this change in strategy, this bankruptcy process is intended to resolve claims related to CAEv2 in a manner that is more efficient and equitable to all parties.

Fraser Tennant