mediated talks

The termination of 3M Co. unit Aearo Technologies LLC’s bankruptcy casts fresh doubt on the tactic of using Chapter 11 bankruptcy as a legal strategy in mass tort litigation, likely emboldening plaintiffs.

The June 9 decision from Judge Jeffrey J. Graham of the US Bankruptcy Court for the Southern District of Indiana hewed closely to the US Court of Appeals for the Third Circuit’s analysis earlier this year in its dismissal of a Johnson & Johnson subsidiary’s bankruptcy on similar grounds.

The two rulings are a pair of major setbacks for solvent companies eyeing bankruptcy to handle mass tort liabilities—a practice that has seen substantial growth in recent years.

Graham’s decision, along with the Third Circuit’s ruling on J&J unit LTL Management LLC, creates “hurdles that may be absent from the bankruptcy code,” said attorney Douglas Mintz of Schulte Roth & Zabel LLP.

“I think the biggest application here is it will empower plaintiffs to push more aggressively outside of bankruptcy and leave tort defendants with fewer tools in their toolbox or less certainty that one of the tools will work,” Mintz said.

Graham held that Aearo’s attempt to use bankruptcy to settle approximately 230,000 lawsuits over allegedly defective military