The 7th U.S. Circuit Court of Appeals approved 3M’s Aearo Technologies LLC's petition to reconsider a bankruptcy court's judgement, refusing to prevent MDL action against the parent firm notwithstanding Aearo's Chapter 11 bankruptcy.
The 7th Circuit decision implies that Aearo will not have to first contest the judgement of the United States Bankruptcy Judge for the Southern District of Indiana in federal district court, which is generally the initial destination for bankruptcy appeals. Instead, Aearo can inform the 7th Circuit why it feels over 200,000 war veterans should not be allowed to pursue their claims against 3M for selling allegedly faulty earplugs in an MDL in Pensacola, Florida.
As you may recall, the Third Circuit is considering a comparable case. Last month, the court heard oral arguments on whether the bankruptcy of a Johnson & Johnson subsidiary can put an end to over 40,000 claims that J&J's talc products contained hazardous asbestos.
The two appellate decisions raise substantially the same issues, but from opposing perspectives. The bankruptcy court supervising the J&J subsidiary's Chapter 11 case delayed action against the parent business, but permitted MDL plaintiffs to continue their case against 3M.
However, with both circuit courts expected to decide in the coming months, we may expect answers to critical statutory concerns such as whether parent firms embroiled in mass tort lawsuits can benefit from the bankruptcy of their subsidiaries. If the 7th and 3rd Circuits reach different decisions, it's a safe chance that these cases will end up before the United States Supreme Court.
Plaintiffs in the earplug MDL, in which war veterans have won 10 of 16 bellwether jury trials and a total of $25 million in damages, challenged Aearo's attempt to bypass the trial court and move straight to the 7th Circuit. The Aearo tort claimants' creditors committee agreed, arguing that there is no compelling need to disturb normal bankruptcy proceedings.
The earplug MDL's lead counsel stated in an email statement that Aearo's appeal is without merit. The statement even stated that the 7th Circuit should affirm the judge's detailed conclusion denying non-debtor 3M's request to avoid bankruptcy.
However, on the first question of whether the case should be heard directly, the 7th Circuit obviously agreed with Aearo's lawyers, who framed the case as a matter of grave and widespread public interest. Lawyers say this is important not only because appellate review will expedite the resolution of the more than 200,000 cases in the earplug MDL, but also because it will clarify whether 3M, J&J, and other corporations can use subsidiaries' Chapter 11 filings as an escape hatch from mass tort litigation.
Both firms have claimed that the bankruptcy procedure is a speedier and more equitable approach to resolving plaintiffs' claims than complicated federal-court litigation. Aearo's petition for direct review by the 7th Circuit outlined the two fundamental paths through which a parent firm might use a subsidiary's bankruptcy to avoid ongoing litigation. The first is to invoke exceptions to the general rule that the automatic stay of action for Chapter 11 debtors does not extend to non-debtors, such as parent businesses. The second approach is to seek an injunction on the grounds that litigation involving a parent business is connected to the bankruptcy of a subsidiary and may impede the debtor's reorganisation.
The central argument in Aearo's petition to the 7th Circuit foreshadowed the central argument it will make in the appellate briefing: the 7th Circuit should clarify its interpretation of the relevant bankruptcy statutes in order to align its precedent with that of other appellate courts that have given bankruptcy courts broad power to block claims that could affect the debtor.
According to Aearo, nine other circuits have previously embraced a broad interpretation of bankruptcy courts' ability to enjoin related litigation. In addition, at least three appellate courts have found that parent firms are subject to the automatic stay where claims against the parent will reduce the estate of the bankrupt subsidiary.
But there's no denying that the ramifications of these numbing concerns about the connection between parent corporations and bankrupt subsidiaries have never been more severe than they are now, in the era of the so-called Texas two-step, which uses bankruptcy to shut off large tort lawsuits. The fate of mass tort lawsuits may be decided by the 7th and 3rd Circuits.
A group of veterans pursuing lawsuits over hearing injuries caused by 3M Combat Arms earplugs filed a motion for summary judgement, asking the U.S. District Judge presiding over the litigation to establish that 3M Company bears full and independent liability for problems caused by the earplugs, even after its wholly owned subsidiary, Aearo Technologies, filed for bankruptcy.
More than 250,000 service veterans are seeking 3M earplug claims after suffering severe hearing loss and tinnitus damage as a result of using the earplugs, which were standard issue equipment prior to all deployments between 2004 and 2015.
Each action alleges that the reversible Combat Arms earplugs provided to the United States military by 3M Company and its Aearo Technologies business were defectively built and did not offer proper ear protection for service personnel.
Plaintiffs claim that 3M Company is suddenly attempting to argue that it does not have an independent obligation for earplug-related injuries after more than three and a half years of litigation, including at least 19 bellwether judgments and millions in damages given by juries.
Hundreds of plaintiffs included in the first wave of claims being prepared for remand to U.S. District Courts nationwide in the coming months have asked the Court to clarify the scope of 3M Company's liability for injuries related to Combat Arms earplugs, both before and after 3M acquired Aearo Technologies in 2008.
The lawsuit arose after 3M Company negotiated a $9.1 million settlement with the Department of Justice in July 2018 to address claims that the company intentionally provided faulty earplugs to the US government for years that were too tiny to effectively seal the ear canal.
As a result of those discoveries, military veterans suffering from hearing loss and tinnitus began suing 3M and its Aearo Technologies business directly, claiming that the company prioritised profits over the safety of service members.
Given the common issues of fact and law raised in claims brought throughout the federal court system, all 3M earplug hearing loss lawsuits were consolidated as part of an MDL (multidistrict litigation) in early 2019, which is centralised before the United States District Court for the Northern District of Florida for coordinated discovery and pretrial proceedings.
Following hundreds of complaints of difficulties among women who had the coils implanted, the US Food and Drug Administration (FDA) compelled Bayer to perform a post-marketing study on the negative effects of Essure birth control implants.
However, due to a high incidence of dropouts among participants, the FDA recently labelled the study's progress as "inadequate." For years, Bayer advertised Essure as a safe and effective method of permanent birth control that involved flexible coils implanted into the Fallopian tubes during an outpatient surgery. Its purpose is to create scar tissue to form, which will obstruct the tubes and impede insemination. However, the device was withdrawn off the market in 2018 as a result of hundreds of claims of painful and severe Essure problems.
Following the device's recall, Bayer was instructed to do post-marketing monitoring on women who had received the implant in order to gain a better understanding of the birth control device's potential harmful health consequences.
In the most recent FDA Essure update, issued on October 6, the agency announced that the post-marketing surveillance study's status has been changed to "Progress Inadequate" due to declining follow-up rates among subjects who either received Essure implants or underwent laparoscopic tubal sterilisation (LTS), the group used as a comparison to determine Essure complication and efficacy rates.
Patients included in the trial were expected to return at 36-month, 48-month, and 60-month intervals. However, too many recruited patients in both groups are stopping, resulting in poor quality follow-up data, according to a report on the FDA's Postmarket Surveillance Studies Database.
The FDA discovered that 47.4% of Essure patients, or 161 out of 340, had dropped out of the research, with 29%, or 100 patients, dropping out due to missed follow-up. 43.6% of the LTS patients, or 344 out of 790 recruited in the trial, have dropped out, with one-third due to missed follow-up.
According to the report, the FDA downgraded the research status to 'progress insufficient' due to a rise in interim loss to follow-up rates in both groups after the previous database lock in 2021. 'Inadequate Progress' denotes that the research's progress is not in accordance with the study design.
According to the FDA, the COVID-19 pandemic may have contributed to some of the drop in follow-up rates in both groups. The FDA has warned Bayer that further initiatives to increase follow-up rates must be developed and implemented.
The data will be analysed again once all patients have completed three years of follow-up, and a final analysis will be performed when all patients have completed five years of follow-up. However, if the number of patients who discontinue treatment is not handled in some way, the results may be incorrect.
In a March update on Essure adverse event and product problem complaints, the FDA stated that it had received a total of 67,643 medical device reports related to the Essure implant. While the majority of reports received between 2013 and 2015 were voluntary submissions from women who got Essure implants, Bayer submitted 98% of the 3,701 reports received by the FDA last year. According to the FDA, 85% of those were connected to device removal, and the majority were related to litigation.
Tens of thousands of Essure lawsuits were brought against Bayer by women who reported negative health consequences when implanted with the birth control device.
Following several years of litigation, the firm stated in 2020 that it would pay $1.6 billion to resolve almost 90% of all Essure lawsuits that were ongoing at the time. However, with over 750,000 women implanted with the device globally, and 70% of those Essure surgeries taking place in the United States, it is likely that more cases will be brought in the future years as women continue to have difficulties.
Bayer AG is on a winning run as it tackles the remaining claims involving its Roundup weedkiller, a turnaround after multiple juries found it liable for cancer and the firm put up almost $16 billion for settlements.
In September, a St. Louis jury ruled in favor of Bayer in a trial involving several plaintiffs, giving the company its fifth consecutive trial victory as it seeks to settle tens of thousands of lawsuits alleging that Roundup, the world's most widely used herbicide, caused cancer in homeowners, landscapers, and farmers.
Bayer argues that Roundup is safe to use, citing regulatory evaluations conducted by the U.S. Environmental Protection Agency and other agencies that found it did not pose a cancer risk. Between 2018 and 2019, the German corporation lost three trials brought by Roundup users who claimed the product caused their cancer and that the company failed to sufficiently warn about Roundup's hazards.
In a recent interview, Bayer's CEO stated that the company's recent victories in trials across a range of jurisdictions shift momentum in Bayer's favor.
In August 2018, Bayer lost the first trial over Roundup's potential cancer risk, just after completing its $63 billion acquisition of Monsanto, which created Roundup as well as genetically altered crops meant to tolerate the pesticide. Uncertainty over the culpability and growing litigation expenses have enraged investors and dragged on Bayer's share price, which has dropped about 50% since the start of August 2018.
In June, the United States Supreme Court declined to consider Bayer's appeal, which might have halted most of the case.
Bayer stated that it had handled around 108,000 of the 141,000 overall Roundup claims. Legal observers believe Bayer's recent trial victories have given the business a better position as it attempts to resolve the hundreds of complaints that remain.
According to plaintiffs' attorneys and legal observers, Bayer's recent trial success stems from focusing on the scientific question of whether Roundup causes cancer and delivering more strong facts to jurors. According to the experts, the firm has also been more active in contesting plaintiffs' assertions about their specific usage of the medication.
Bayer has tried to have courts accept split trials concentrating initially on the science in six of its eight trials. If jurors decide that Roundup can cause cancer, they will consider the company's responsibility. In two instances, judges authorized the separation, and Bayer won one of them.
In the other cases, the company has argued that employees' behaviour, such as emails that plaintiffs' lawyers argue demonstrate the company's resistance to conducting more scientific studies, is a red herring because the product does not cause cancer in the first place, according to counsel representing thousands of claimants.