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Aearo Technologies LLC – Gets 42-Day (Bridge) Extension of Exclusivity Periods until June 26th as Judge Graham Ponders Dismissal Order

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May 3, 2023 – The Court has approved the Debtors' request to extend the periods during which they have an exclusive right to file a Plan and solicit acceptances thereof, through and including June 26, 2023 and August 25, 2023, respectively [Docket No. 1649]. Absent the requested relief, the Plan filing and solicitation periods are scheduled to expire on May 15, 2023 and July 14, 2023, respectively.

This "bridge" extension was consented to the U.S. Trustee, the Official Committee of Unsecured Creditors for Tort Claimants — Related to Use of Combat Arms Version 2 Earplugs (the “CAE Committee”), the bellwether plaintiffs represented by Quinn Emanuel Urquhart & Sullivan LLP, Aylstock, Witkin, Kreis & Overholtz, PLLC and Seeger Weiss LLP (together with the CAE Committee, the “CAE Movants”) and the Official Committee of Unsecured Creditors for Tort Claimants — Related to Use of Respirators (the “Respirator Committee”) as part of a comprehensive agreement to avoid a contested hearing in advance of the Court’s ruling on Motions to Dismiss.

On April 25th, after what was a five day hearing on a motion to dismiss, Judge Jeffrey Graham said he will likely not be able to issue a ruling on the dismissal motion until "some time after" 15 days from the end of that hearing, the statutory requirement for entering an order. Graham also said he is asking the parties to file proposed findings of fact and conclusions of law before the opinion is entered.

"It is a difficult issue," Graham said of the core argument in a dismissal motion filed by the CAEv2 et al (defined below) that followed the recent dismissal of the LTL Management cases and which centers on CAEv2's assertion that the Debtors were not "in financial distress" at filing…and hence not entitled to be in Judge Graham's courtroom at all.

Background on Dismissal Motion

On February 2, 2023, the CAE Committee, the estate fiduciary for creditors injured by the Combat Arms Earplugs Version 2 ("CAEv2”), and over 200k CAEv2 claimants filed a motion asking the Court to dismiss the Debtors' Chapter 11 cases [Docket No. 1066].

On February 25, 2023, largely tracking arguments made by the CAE Committee in their motion to dismiss, the U.S. Trustee assigned to the Debtor’s case has filed its own motion to dismiss citing the recent dismissal of the LTL Management cases* and arguing that, “the Aearo Debtors were not in financial distress when they filed their petitions….There [ie in LTL], as here, the existence of an intercompany ‘funding agreement’—sufficient to pay the debtor’s liabilities in the ordinary course— justified dismissal.” [Docket No. 1198].  At a status conference held on February 13th, the U.S. Trustee had stated its intent to file a dismissal motion in the near that would largely mirror the motion filed by the CAE Committee.

*The CAE Committee 's dismissal motion came on the heels of a January 30th U.S. Court of Appeals for the Third Circuit ruling [the Debtors' cases are in the Seventh Circuit] ruling dismissing the Chapter 11 cases of Johnson & Johnson subsidiary LTL Management, with the CAE Committee citing (as does the U.S. Trustee) similarities in the funding arrangements between (i) Aearo parent 3M Company and the Debtors and (ii) that of LTL Management and J&J.

The Debtors' Official Committee of Unsecured Creditors for Tort Claimants – Related to Use of Respirators (the “Respirator Committee”) has, however, taken a very different approach, filing a motion requesting the appointment of a Chapter 11 Trustee with dismissal serving as their second, and less-preferred choice [Docket No. 1197]. Although specifically citing the dismissal motions of the CAE Committee and the U.S. Trustee, and like each of those dismissal motions' argument that the Debtors' filing was not in good faith, the Respirator Committee makes no mention of the Seventh Circuit's LTL decision.

In arguing that the appointment of a Chapter 11 Trustee is preferrable to dismissal, the Respirator Committee notes that a Chapter 11 Trustee "will aid in getting the most amount of money to creditors in the shortest period of time for their claims against the Debtors."

Case Status

On July 26, 2022, Aearo Technologies LLC and six affiliated debtors (together “Aereo Technologies” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. At filing, the Debtors’ parent 3M (NYSE: MMM), noted 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.”

On October 12th, the U.S. Court of Appeals for the Seventh Circuit issued an order stating that it will hear a direct appeal of a Bankruptcy Court order denying parent company 3M relief from the automatic stay in its subsidiary’s Chapter 11 case, with the Debtors/3M looking for that stay in order to halt prosecution of more than 200k lawsuits filed in respect of the sale of allegedly defective earplugs to the U.S. military. In taking on the direct appeal, the Seventh Circuit saves all parties the time and expense of passing first through a district court.

In denying the request for a stay, bankruptcy court Judge Jeffrey J. Graham held that the Debtors’ bankruptcy cases could proceed in parallel with the lawsuits. While the “sheer size” of the consolidated litigation may have spurred 3M and Aearo to seek “additional leverage” through the bankruptcy proceedings, Judge Graham ruled, that did not create a legal need to protect 3M.

On December 22nd, the U.S. District Judge hearing the earplug injury lawsuits filed against 3M, ruled that 3M may not transfer its earplug litigation liability to the Debtor.

On February 25, 2023, largely tracking arguments made by the Debtors’ Official Committee of Unsecured Creditors for Tort Claimants – Related to Use of Combat Arms Version 2 Earplugs (the “CAE Committee”) in their February 2nd motion to dismiss [Docket No. 1066], the U.S. Trustee assigned to the Debtor’s case filed its own motion to dismiss citing the recent dismissal of the LTL Management cases* and arguing that, “the Aearo Debtors were not in financial distress when they filed their petitions….There [ie in LTL], as here, the existence of an intercompany ‘funding agreement’—sufficient to pay the debtor’s liabilities in the ordinary course— justified dismissal.” [Docket No. 1198].  At a status conference held on February 13th, the U.S. Trustee had stated its intent to file a dismissal motion in the near that would largely mirror the motion filed by the CAE Committee.

*The CAE Committee ‘s dismissal motion came on the heels of a January 30th U.S. Court of Appeals for the Third Circuit ruling [the Debtors’ cases are in the Seventh Circuit] ruling dismissing the Chapter 11 cases of Johnson & Johnson subsidiary LTL Management, with the CAE Committee citing (as does the U.S. Trustee) similarities in the funding arrangements between (i) Aearo parent 3M Company and the Debtors and (ii) that of LTL Management and J&J.

On February 28, 2023, the Debtors filed a motion for entry of an order authorizing estimation of the aggregate value of Combat Arms-related claims for the purposes of establishing a settlement trust and confirming a Plan and scheduling claims estimation proceedings.

Following a five-day hearing, on April 25, 2023, Judge Jeffrey Graham said he will likely not be able to issue a ruling on the dismissal motion until "some time after" 15 days from the end of the hearing. Graham also said he is asking the parties to file proposed findings of fact and conclusions of law before the opinion is entered.

The Extension Motion

The motion [Docket No. 1643] states, “The balance of the relief requested in the Third Exclusivity Extension Motion is scheduled to be heard by this Court at the May 10 omnibus hearing. This Court has indicated that it does not anticipate that it will issue a ruling on the pending Motions to Dismiss prior to the May 10 omnibus hearing. The Parties have therefore agreed to postpone consideration of certain contested matters, including the Third Exclusivity Extension Motion, to the omnibus hearing scheduled for June 20 and June 21, 2023, pending this Court’s ruling on the Motions to Dismiss

Accordingly, the Parties have agreed to entry of the Bridge Order, extending the Debtors’ Filing Exclusivity Period through and including through June 26, 2023 and Solicitation Exclusivity Period through and including August 25, 2023, in order to avoid a contested hearing in advance of this Court’s ruling on the Motions to Dismiss and as reflected in the Bridge Order. 

… The Parties consent to entry of the Bridge Order as part of a comprehensive agreement to provide sufficient time to avoid a contested hearing in advance of the Court’s ruling on the Motions to Dismiss and without prejudice to the CAE Movants’ and Respirator Committee’s position that the Motions to Dismiss should be granted. Thus, the Debtors request that the Court enter the Bridge Order extending the Debtors’ Exclusivity Periods.”

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.”

Read more Bankruptcy News

The post Aearo Technologies LLC – Gets 42-Day (Bridge) Extension of Exclusivity Periods until June 26th as Judge Graham Ponders Dismissal Order appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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