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Dec. 2, 2023

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3M’s $6 billion earplug accord risks failure if veterans reject deal

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3M Co.’s $6 billion settlement of lawsuits accusing the company of selling defective combat earplugs to the U.S. military could fall apart if enough veterans reject the deal as inadequate for their injuries.

Given 250,000 or so active claims of hearing loss 3M has identified, the accord works out to about $24,000 a head, and would be even less after court costs and legal fees. That may not be enough to make up for the life-altering injuries service members say they suffered after the earplugs failed to protect them from the roar of heavy artillery and tanks.

3M itself can walk away from the pact if it doesn’t get the support of at least 98% of claimants eligible for compensation. But that would force the company back to the negotiating table and leave it facing hundreds of thousands of lawsuits and a formidable array of jury trials — the very outcome it sought to avoid by striking the deal.

Under the terms of the settlement, which Bloomberg reported Sunday and 3M announced Tuesday, the plaintiffs will have about six months to decide whether to accept a payout under the accord, opt out of the deal to demand a trial, or drop their suit, according to court filings.

The lawsuits have been consolidated in a multi-district litigation case in federal court in Pensacola, Florida — one of the biggest MDLs in U.S. history.

Getting to 98%

Carl Tobias, a University of Richmond professor who teaches product liability law, finds the settlement amount low.

“I don’t see how 3M gets to that 98% number based on the money,” he said.

Tobias noted that in a recent trial over the earplugs, a Florida jury last year ordered the company to pay a U.S. Army veteran $77.5 million in damages. Faced with a settlement payout in the thousands of dollars, veterans may decide to take their chances at trial. 3M lost 10 of 16 early cases tried, and the juries awarded the plaintiffs a total of $265 million in damages.

Elizabeth Burch, a University of Georgia law professor who specializes in MDLs, said she thinks a bigger payout would have improved the deal’s likely opt-in rate.

“$6 billion sounds like a lot of money,” she said. “But it’s really not, especially for the more serious cases.”

In announcing the deal, 3M resolved a major source of uncertainty for investors who have watched its market value decline by more than half since 2019 amid liability from the earplug claims and PFAS “forever chemicals.” The company’s shares closed up 1.4% on Tuesday, when it announced the pact, following a gain of 1.5% Monday.

The shares closed down 1.1% on Wednesday, after S&P Global Ratings downgraded the St. Paul, Minnesota, manufacturer’s long-term credit rating one notch to BBB+ from A-, citing cash payments required under the earplug deal that it said would “somewhat limit financial flexibility.” The agency also said it expects 3M to incur additional costs related to PFAS.

3M Chief Legal Affairs Officer Kevin Rhodes said on a conference call with analysts Tuesday that all the parties involved intend to meet or exceed the 98% threshold.

“The settlement agreement is structured to promote claimants’ participation,” 3M said in a statement then. “In terms of how much each plaintiff receives under the agreement, the exact amount will depend on the number of claimants that decide to participate in the agreement.

Under the settlement’s terms, veterans who suffered the most from hearing-related afflictions will be eligible for a recovery greater than the average payout, drawn from an “extraordinary injury fund.”

‘The cheap seats’

Bryan Aylstock, a Florida-based lawyer for the earplug plaintiffs, predicted the settlement would reach the 98% threshold and said he was proud of the deal. He said he and the other plaintiffs lawyers leading the talks sought to get “real value” for their clients “without pushing the company into bankruptcy,” which could lessen or even wipe out the payments.

Chris Seeger, another of the leading plaintiffs attorneys, called criticism of the sum simplistic.

“It’s easy to make these predictions from the cheap seats, when you don’t have any clients who are depending on you to deliver some justice for their injuries,” especially from a company facing such financial challenges, he said.

Some veterans groups themselves cheered the settlement. The Enlisted Association of the National Guard of the United States, which represents 5.5 million veterans, and the Military Order of the Purple Heart, which advocates for more than 45,000 wounded vets, are both backing the deal, saying it provides relief for former service members grappling with chronic ailments from their years on the battlefield.

The pact still must be approved by U.S. District Judge M. Casey Rodgers in Pensacola. On Tuesday Rodgers ordered the plaintiffs lawyers to disclose any outside investors backing the suits, saying she wants to ensure that the claimants aren’t being “exploited by predatory lending practices.”

The earplug case is In Re 3M Products Liability Litigation, 19-md-2885, U.S. District Court, Northern District of Florida (Pensacola).

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