Perhaps it wasn’t a good idea for 3M Corp. to say that its multidistrict litigation was a “failure,” because the district judge might have an opportunity to get even.
And she did.
The December 22 opinion by District Judge M. Casey Rodgers of Pensacola, Fla., reflects a growing antipathy among some Article III judges regarding the use of chapter 11 by large, solvent companies as an alleged litigation tactic to fend off mass tort liability without filing bankruptcy themselves. Judge Rodgers said that 3M, the nonbankrupt parent in her MDL case, intended to “reap all the benefits of bankruptcy with none of the attendant burdens.”
The December 22 decision by Judge Rodgers is a treatise on the court’s use of inherent powers “to fill the gaps left by other sanctioning mechanisms.” As a sanction, she basically ruled that the 3M parent would be liable for whatever judgments there may be for defective earplugs manufactured by the subsidiary that’s in chapter 11 in Indiana. She also barred the 3M parent from contending that the bankrupt subsidiary alone should be liable for judgments.
The Defective-Earplug Lawsuits
A company that is now a subsidiary of 3M Corp. manufactured earplugs sold to the miliary beginning in 2000. 3M acquired the company in 2008. 3M and the subsidiary were saddled with 290,000 claims alleging that the earplugs were defective. Lawsuits based on the claims were consolidated four years ago into a multidistrict litigation, or MDL, in Judge Rodgers’ court in Florida.
The subsidiary filed a chapter 11 petition in Indiana in July. The newly minted debtor immediately filed a complaint asking the bankruptcy judge to enjoin the earplug lawsuits against the 3M parent, because 3M itself did not file for bankruptcy.
In August, the bankruptcy court refused to protect the 3M parent with a stay and certified a direct appeal to the Seventh Circuit. See 3M Occupational Safety LLC v. Those Parties Listed on Appendix to the Complaint (In re Aearo Technologies LLC), 642 B.R. 891 (Bankr. S.D. Ind. Aug. 26, 2022). Briefing in the Seventh Circuit should be completed in the first quarter of 2023. To read ABI’s report on the bankruptcy court decision, click here.
According to Judge Rodgers, 3M previously made “explicit statements” in which it conceded its liability for earplug claims. She wrote the December 22 opinion after 3M changed course and began contending that it has no liability whatsoever and that the subsidiary alone should be liable for earplug lawsuits.
Judge Rodgers described the tort plaintiffs in the MDL as responding to 3M’s change in strategy by asking her to bar the 3M parent “from attempting to avoid any portion of its alleged liability for the [earplug] claims in this litigation by shifting blame to the” bankrupt subsidiary.
The Law on Inherent Powers
Judge Rodgers granted the tort claimants’ motion based on the court’s inherent powers, which, she said, “furnishes a legal and contextual framework that allows for consideration of the full range of litigation abuses alleged in this matter.”
Judge Rodgers said that a court may exercise its inherent powers to fill in gaps left by other sanctioning mechanisms and may use inherent powers even when there are procedural rules that could sanction the same conduct.
However, Judge Rodgers said that the imposition of sanctions under a court’s inherent powers requires conduct tantamount to bad faith. But when “the requirements of due process are met and a finding of bad faith has been made,” she said that “a court has ‘broad discretion’ to fashion an appropriate sanction,” citing the Eleventh Circuit.
The Resort to Bankruptcy Court
In the MDL, Judge Rodgers said that the parent litigated on “every theory of liability” but with “nary a whisper” that the subsidiary alone should be liable. “Then came the bellwether trials,” where the tort plaintiffs won 16 judgments for almost $300 million in jury verdicts, she said. The defendants won in six bellwether trials.
“Suddenly,” 3M began to say that the MDL was a “failure,” and that it wanted “a new forum” and “no more of this MDL nonsense,” Judge Rodgers said.
Judge Rodgers observed:
3M devised a scheme to oust the Congressionally-established system for resolving mass tort disputes in Article III courts and install its new favored forum (for the moment, anyway), an Article I court, at the helm. Not because any of the entities was facing a bona fide threat of financial distress, and not due to managerial or operational difficulties that were jeopardizing the entities’ continued viability. No, this was good old-fashioned litigation forum shopping, solely — and admittedly — designed to evade dissatisfactory legal rulings and verdicts in the MDL, and to avoid potential future liability for a non-debtor, 3M, in the tort system.
Judge Rodgers wasn’t through. She continued:
And there’s the catch. 3M itself was not willing to pay the price of admission to an Article I forum [by] submission to the oversight of a bankruptcy court . . . . [T]he company hatched a workaround. [The subsidiary] would file for Chapter 11 bankruptcy protection but seek an extension of the statutory automatic stay of litigation to 3M, who would never file a bankruptcy petition itself.
Judge Rodgers went on to describe how 3M devised a “funding and indemnity agreement” where the subsidiary would assume all liability for earplug claims, but 3M would fund all of the subsidiary’s liabilities and costs for the bankruptcy case. 3M believed that the resulting identity of interests would justify the bankruptcy court’s imposition of a stay of suits against the 3M parent.
Had the strategy been successful in bankruptcy court, Judge Rodgers said that 3M “would [have reaped] all the benefits of bankruptcy with none of the attendant burdens.” However, the bankruptcy court declined to protect the 3M parent with a stay, subjecting the parent to continuing litigation in the MDL.
Having been rebuffed in bankruptcy court, Judge Rodgers said that 3M “returned to the MDL and sought to rewrite . . . history . . . by asserting for the first time that it has neither independent nor successor liability for any alleged [earplug]-related injuries.” [Emphasis in original.] She called the parent’s new theory “a brazen abuse of the litigation process after 3M’s nearly four years of affirmatively asserting, advocating, and wielding . . . the precise opposite position in the MDL.”
Judge Rodgers continued by recounting some of the instances in the MDL and in bellwether trials where the 3M parent declared its “exclusive responsibility for” earplug claims. The previous representations, she said, were “either knowingly false at the time or, instead, and much more likely the case, regrettable truths that became incompatible with their bankruptcy strategy.”
“Either way,” Judge Rodgers said, “3M’s attempt to renege on those positions now, and its duplicitous motives and mode of doing so, are beyond the pale of acceptable litigation conduct and reflect a flagrant contempt for this Court and the MDL process.” The parent’s “machinations,” she said, “have frustrated, manipulated, and delayed the fair, efficient, and effective resolution of hundreds of thousands of [earplug] claims.” The “abuses,” she said, “are the epitome of bad faith and deserve sanctions.”
Judge Rogers found “[o]nly one sanction . . . commensurate with the seriousness of that assault on the integrity of the MDL and this Court.” Reprimands and monetary sanctions, she said, “would fail to address the nature, purpose, and ramifications of 3M’s abuses.”
Rather than change strategy, Judge Rodgers said that the parent “had legitimate options.” One of them was to “[f]ile a petition for bankruptcy alongside its codefendants.” [Emphasis in original.]
As a sanction, Judge Rodgers precluded the parent from “attempting to avoid any portion of its alleged liability for the [earplug] claims” in any cases “currently filed in the MDL . . . and in all cases filed or transferred to the MDL in the future.”
Judge Rodgers ended her opinion by certifying an interlocutory appeal to the Eleventh Circuit and staying proceedings in the MDL pending the appeal. She urged the appeals court “to hear any appeal from this Order as soon as possible.”
Perhaps it wasn’t a good idea for 3M Corp. to say that its multidistrict litigation was a “failure,” because the district judge might have an opportunity to get even.
And she did.
The December 22 opinion by District Judge M. Casey Rodgers of Pensacola, Fla., reflects a growing antipathy among some Article III judges regarding the use of chapter 11 by large, solvent companies as an alleged litigation tactic to fend off mass tort liability without filing bankruptcy themselves. Judge Rodgers said that 3M, the nonbankrupt parent in her MDL case, intended to “reap all the benefits of bankruptcy with none of the attendant burdens.”