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Aearo Technologies LLC – 3M Puts Subsidiaries into Bankruptcy as Exposure to Defective Military Earplug Litigation Mounts, Will Record $1.2bn Pre-Tax Charge to Fund Trust and Case Expenses


July 26, 2022 – Aearo Technologies LLC and six affiliated debtors (together “Aereo Technologies” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Indiana, lead case No. 22-02890 (Judge TBD). The Debtors, wholly-owned subsidiaries of 3M (NYSE: MMM), are represented by Jeffrey A. Hokanson of Ice Miller LLP. Further board-authorized engagements include: (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) AlixPartners LLP as restructuring advisor (with AlixPartner's John Castellano to serve as CRO) and (iii) Kroll LLC as claims agent. Additional engagements include PJT Partners and White & Case LLP as as financial advisor and legal counsel, respectively, for 3M.

The Debtors’ lead petition notes over 100,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. Documents filed with the Court note that a;; of the Debtors’ 20 largest unsecured creditors (each a personal injury law firm) hold undetermined, contingent, unliquidated, disputed claims.

In a press release (8-K, here) announcing the filing, the 3M advised that: “…it is taking action to resolve litigation related to Combat Arms Earplugs Version 2 ('Combat Arms Earplugs'). Aearo Technologies and related entities ('Aearo Technologies'), all of which are wholly-owned 3M subsidiaries, have voluntarily initiated chapter 11 proceedings seeking court supervision to help establish a trust – funded by 3M – to efficiently and equitably resolve all claims determined to be entitled to compensation.

3M and Aearo Technologies believe the Combat Arms Earplugs were effective and safe when used properly, but nevertheless face increasing litigation, including approximately 115,000 filed claims and an additional 120,000 claims on an administrative docket as of June 30, 2022. The well-established chapter 11 process 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. 3M and its other businesses have not filed for chapter 11 and will continue to operate as usual. Aearo Technologies will also continue to operate in the ordinary course.

The company believes that, absent the actions taken today, the claims could take years, if not decades, to litigate on a case-by-case basis. With this change in strategy, this process is intended to resolve claims related to Combat Arms Earplugs in a manner that is more efficient and equitable to all parties."

Announcement Details

  • Aearo Technologies was acquired by 3M in 2008 and has since operated as a wholly-owned subsidiary of 3M.
  • 3M has entered into a funding agreement with Aearo Technologies to establish a trust to resolve all claims determined to be entitled to compensation, and to support Aearo Technologies as it continues to operate during the chapter 11 process.
  • 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 utilized to reduce workplace exposure to asbestos, silica, coal mine dust or occupational dusts.
  • Aearo Technologies has indemnified 3M for obligations related to the claims.
  • 3M has committed $1 billion to fund the trust, based on the analysis of an experienced estimator of claims in chapter 11.
  • 3M has also committed an additional $240 million to fund projected related case expenses.
  • 3M will provide additional funding if required under the terms of the agreement.

As a result, 3M recorded a total pre-tax charge of $1.2 billion, or $1.66 per share, and reflected it as an adjustment in arriving at its results, adjusted for special tems."

Dual-Ended Combat Arms – Version 2 Earplugs Litigation

3M's latest 10-K provides the following overview of the Dual-Ended Combat Arms – Version 2 earplugs litigation: "Aearo Technologies sold Dual-Ended Combat Arms – Version 2 earplugs starting in about 2003. 3M acquired Aearo Technologies in 2008 and sold these earplugs from 2008 through 2015, when the product was discontinued. In December 2018, a military veteran filed an individual lawsuit against 3M in the San Bernardino Superior Court in California alleging that he sustained personal injuries while serving in the military caused by 3M’s Dual-Ended Combat Arms earplugs – Version 2. The plaintiff asserts claims of product liability and fraudulent misrepresentation and concealment. The plaintiff seeks various damages, including medical and related expenses, loss of income, and punitive damages. 


As of December 31, 2021, the Company is a named defendant in approximately 3,616 lawsuits (including 14 putative class actions) in various state and federal courts that purport to represent approximately 13,531 individual claimants making similar allegations. In April 2019, the U.S. Judicial Panel on Multidistrict Litigation granted motions to transfer and consolidate all cases pending in federal courts to the U.S. District Court for the Northern District of Florida to be managed in a multi-district litigation (MDL) proceeding to centralize pre-trial proceedings. The plaintiffs and 3M filed preliminary summary judgment motions on the government contractor defense. In July 2020, the MDL court granted the plaintiffs’ summary judgment motion and denied the defendants’ summary judgment motion, ruling that plaintiffs’ claims are not barred by the government contractor defense. The court denied the Company’s request to immediately certify the summary judgment ruling for appeal to the U.S. Court of Appeals for the Eleventh Circuit. In December 2020, the court granted the plaintiffs’ motion to consolidate three plaintiffs for the first bellwether trial, which began in March 2021. 

In April 2021, 3M received an adverse jury verdict in the first bellwether trial. The jury awarded the three plaintiffs less than $1 million in compensatory damages and $6 million in punitive damages for a total of $7 million. 3M has appealed the verdicts, challenging, among other rulings, the MDL court's denial of 3M’s motion to assert the government contractor defense. The next two bellwether trials occurred in May and June of 2021. In May 2021, 3M received a verdict in its favor in the second bellwether trial, in which a jury rejected claims that 3M knowingly sold earplugs with design defects. In June 2021, 3M received an adverse verdict in the third bellwether trial. The jury found 3M liable for strict liability failure to warn, but found 3M not liable for design defect or fraud. The jury apportioned fault 62 percent to 3M and 38 percent to the plaintiff for a total damage award of approximately $1 million. 3M has appealed the verdict. In October 2021, 3M received an adverse verdict in the fourth bellwether trial, in which a jury awarded $8 million to the plaintiff. 3M plans to appeal the verdict. 3M received verdicts in its favor in the fifth and sixth bellwether trials. 3M received an adverse verdict in the seventh and eighth bellwether trials, in which the juries awarded the plaintiffs $13 million and $23 million, respectively. 3M plans to appeal these verdicts. 3M prevailed in the ninth and tenth bellwether cases but received adverse verdicts in the eleventh bellwether case in which the jury awarded each of the two plaintiffs $15 million in compensatory and $40 million in punitive damages. 3M plans to appeal these verdicts. The next five bellwether cases are scheduled for trial in March, April and May 2022. These trials will not include several bellwether cases that plaintiffs' counsel dismissed with prejudice either during discovery or after being set for trial. An administrative docket of approximately 240,000 unfiled and unverified claims (after factoring in approximately 50,000 claims in a transitional process as described below) has also been maintained at the MDL court. The MDL court in August 2021 provided notice of an intent to issue forthcoming transition orders requiring all claims be moved off the administrative docket to the active docket on a rolling basis over 12 months. The orders will provide that any case not moved to the active docket will be dismissed without prejudice, and the administrative docket will then be closed. To date approximately 50,000 claims are in the process of being transitioned to the active docket or dismissed. The MDL court also ordered the parties to prepare for trial 1,500 cases in three waves of 500 cases over the next 14 months. After the preparation of these cases is completed, the cases will be remanded to the federal district courts where the cases were originally filed. In November 2021, the judge issued the first wave order of the first 500 cases over the next eight months.

3M is also defending lawsuits brought primarily by non-military plaintiffs in state court in Hennepin County, Minnesota. 3M removed these actions to federal court, and the federal court remanded them to state court in March 2020. On appeal, the U.S. Court of Appeals for the Eighth Circuit ruled in October 2021 that the cases brought by non-military plaintiffs were properly remanded to state court, whereas the cases brought by military contractor plaintiffs who had received the Combat Arms Earplugs from the military should have remained in federal court. In November 2021, the Eighth Circuit granted 3M's unopposed motion to vacate the remand orders in the remaining appeals of military service member cases. The military service member cases are expected to be remanded to federal court and transferred to the MDL. There are approximately 65 lawsuits involving approximately 1,100 plaintiffs pending in the state court, but the number of plaintiffs is expected to decline as cases are remanded to federal court. The cases remaining in state court are subject to a bellwether case selection process. The first trial in Hennepin County is scheduled for no earlier than April 2022."

Goals of the Chapter 11 Filings

According to the Castellano Declaration (defined below), "The Debtors filed these chapter 11 cases to reorganize a business with healthy operations that has become saddled with unsustainable tort liabilities. To achieve this reorganization, the Debtors intend to utilize the tools available under the Bankruptcy Code to provide a full recovery to tort claimants who are entitled to compensation, while endeavoring to ensure that all general unsecured creditors will receive a 100% recovery in the chapter 11 cases….

Through these chapter 11 cases, the Debtors seek to establish and fund one or more trusts that will provide a full recovery to tort claimants who are entitled to compensation. Absent the filing of the chapter 11 cases, the Debtors believe that litigation related to Combat Arms and Respirators could go on for decades, continue to consume millions of dollars in defense costs annually, and continue to result in highly disparate outcomes for plaintiffs. The Debtors believe that the tools available under the Bankruptcy Code will allow for a faster and more efficient resolution of claims in a centralized forum, the establishment of a fully-funded trust for the benefit of claimants, and the establishment of procedures that ensure equitable recoveries to claimants entitled to compensation. To that end, the Debtors are prepared to negotiate a consensual plan of reorganization with affected stakeholders."

Funding Agreement

The Castellano Declaration continues, "To ensure that they can achieve these goals, on July 25, 2022, the Debtors entered into a funding and indemnification agreement attached hereto as Exhibit B (the 'Funding Agreement') with 3M under which 3M has agreed to contribute $240 million to fund administration of these chapter 11 cases and $1 billion to a trust to ensure claimants entitled to compensation receive payment. If necessary to achieve a resolution, 3M has committed to provide additional funding.

Under the Funding Agreement, 3M has also committed to continue certain shared services traditionally provided by 3M and to fund, among other things, certain disbursements traditionally made by 3M on the Debtors’ behalf, the Debtors’ costs and expenses related to these chapter 11 cases, and other liabilities under a plan of reorganization. In exchange, the Debtors have agreed to indemnify 3M and its affiliates for all applicable tort claims, as well as defense costs related thereto… The Debtors have no repayment obligation to 3M pursuant to the Funding Agreement….

Adversary Proceeding

Contemporaneously herewith, the Debtors filed an adversary complaint and a motion seeking

(i) confirmation that the commencement or continued prosecution of Combat Arms Claims against 3M while these chapter 11 cases remain pending violates the automatic stay imposed by section 362(a) of the Bankruptcy Code,

(ii) a preliminary injunction pursuant to sections 105 and 362 of the Bankruptcy Code prohibiting the Stay Defendants from continuing to prosecute the Combat Arms Claims against 3M while the chapter 11 cases remain pending and

(iii) temporary restraining order prohibiting the prosecution of certain Combat Arms Claims against 3M pending an order on the Debtors’ request for a preliminary injunction."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Castellano Declaration”), John R. Castellano, the Debtors’ chief restructuring officer, detailed the events leading to Aearo’s Chapter 11 filing. The Castellano Declaration provides: “In recent years, the Debtors have been the subject of a flood of tort litigation. Specifically, five of the Debtors, plus 3M, are the named defendants in what has become by far the largest multidistrict litigation in United States history, in which over 230,000 claims are pending against the Debtors in the Northern District of Florida (the 'MDL').

The claims generally allege hearing injuries arising from the sale of noise-reduction earplugs, known as 'Dual-Ended Combat Arms — Version 2' earplugs ('Combat Arms,' and claims related thereto, including any Earplug Liabilities, the 'Combat Arms Claims'), which were historically manufactured by the Debtors… The Debtors began selling the earplugs in significant quantities in the early 2000s, and the Debtors and 3M continued to manufacture the earplugs after the 2008 acquisition until they discontinued the product in 2015. The earplugs were designed in close collaboration with, and were historically sold to, the United States military, and the Debtors understand that the vast majority of plaintiffs in the MDL are military veterans. The litigations commenced in December 2018, when a military veteran filed an individual lawsuit, and were consolidated into the MDL in April 2019.

The Combat Arms litigation remains in the early stages. Only 19 of the over 230,000 claims included in the MDL have been tried to a jury verdict. Appeals are pending on several issues, including whether the Debtors can assert the 'government contractor' defense, which I understand may be a total defense to liability. Discovery has not commenced as to the vast majority of claims, and the Debtors lack basic substantiating information regarding the vast majority of the claims pending in the MDL.

The Debtors and 3M have vigorously defended the litigation and believe the Combat Arms earplugs are effective and safe when used properly. Initial trials have resulted in disparate outcomes, ranging from complete defense verdicts to individual plaintiff’s verdicts of as much as $77.5 million. Other bellwether plaintiffs dismissed their cases before trial. According to one plaintiff’s attorney, the MDL poses an exposure risk of over $1 trillion. 3M has already spent approximately $347 million in fees and costs defending the Combat Arms claims to date….

[t]he Debtors submit that the MDL cannot provide fair and efficient resolution of the Combat Arms Claims. The Debtors believe that these chapter 11 cases present the optimal path to resolve the Combat Arms Claims and compensate claimants who are entitled to compensation in an expeditious fashion.

The Debtors are also subject to a smaller number of claims related to alleged personal injury from workplace exposures to asbestos, silica, coal mine dust or other occupational dusts in connection with the use of the Debtors’ mask and respirator products (the 'Respirators'). As of the filing of these chapter 11 cases, there are a number of mask and respirator claims pending against the Debtors, and the Debtors have a $41 million accounting accrual for both product liabilities and defense costs related to their mask and respirator claims." 

About the Debtors

According to the Debtors: “For more than 40 years, Aearo Technologies LLC has led the way in energy-control technology. We've pioneered new treatment techniques and developed proprietary, high performance materials that control unwanted energy – noise, vibration, shock, ergonomic and thermal control.

Our customers benefit from real-world applications experience we've gained over the past four decades in the aerospace, commercial vehicle, heavy equipment and electronics."

Corporate Structure Chart

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