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3M Co. should be blocked from spinning off its health care business and paying shareholder dividends in order to preserve money that soldiers suing the industrial conglomerate expect to win, according to a new federal lawsuit, Bloomberg News reported. A group of soldiers who claim faulty 3M earplugs damaged their hearing want a judge to ensure that the company has enough assets to pay tens of billions of dollars in judgments it could lose in the future. The company faces more than 200,000 lawsuits from veterans who used the earplugs. The complaint, filed in Pensacola, Florida, accuses 3M of trying to protect valuable assets in its health care business from being used to pay soldiers who win their cases. Verdicts against 3M in a handful of initial trials shows that the company may be forced to pay out at least $82 billion, according to the complaint. A representative of the company did not immediately respond to a request for comment. The company has said it is willing to set up a trust fund with $1 billion to pay legitimate claims. 3M has been fighting the claims in federal court in Pensacola for about 3 years. A federal judge is overseeing the initial, procedural steps needed to prepare the lawsuits for separate jury trials that would take place in other courts. Read more.

3M Co. plans to eliminate jobs as part of a broader cost-cutting drive in response to the slowing economy, according to internal communications, Bloomberg News reported. The move comes just days after 3M suffered a setback over a key legal strategy designed to mitigate mounting liabilities and as it faces an array of other challenges, ranging from inflationary woes to sluggish growth. Michael Vale, head of 3M’s safety and industrial division, disclosed the planned cuts in a message to employees of the unit. “The business can’t avoid this tough necessity,” he said in the communication, which was reviewed by Bloomberg News. The scope of the workforce reduction couldn’t be immediately determined, but in the memo Vale said other parts of the company would see similar actions. 3M, which makes everything from dental adhesives to Post-it notes, employed about 95,000 people at the end of 2021, according to securities filings. The multinational manufacturer has underperformed in recent years amid supply-chain snags, currency fluctuations and rising costs. 3M said in July it will spin off its health-care operation, which accounted for almost a quarter of sales. Management also cut its full-year sales and profit outlook. It also potentially faces billions of dollars in future costs tied to environmental liabilities and lawsuits alleging that it sold faulty combat earplugs to the U.S. military that led to hearing damage. A bankruptcy judge last week rejected 3M’s attempt to use controversial bankruptcy rules to halt those claims, allowing them to proceed to trial. 3M has said it plans to appeal the ruling. Read more.

The Boy Scouts of America is nearing final approval of a reorganization plan that would allow the youth organization to set up a $2.3 billion trust to settle decades’ worth of claims by more than 80,000 men who say they were abused as children by troop leaders, Reuters reported. Bankruptcy Judge Laurie Selber Silverstein in Wilmington, Delaware, at a Thursday court hearing overruled remaining objections to the Boy Scouts' chapter 11 plan. She stopped short of approving it, however, instead asking for further revisions that the organization said could be completed relatively quickly. Boy Scouts' attorney Jessica Lauria acknowledged in court that it had some "work to do," but said that the remaining changes could be completed in less than a week. The Boy Scouts had sought confirmation of a modified chapter 11 plan that aimed to address Silverstein's July 29 ruling rejecting some parts of the plan. The biggest change was the removal of a $250 million settlement between the Boy Scouts and the Church of Jesus Christ of Latter-day Saints, which Judge Silverstein refused to approve because it went too far in protecting the Mormon church from abuse claims that were only loosely connected to scouting activities. Judge Silverstein overruled the remaining objections to the plan from insurers and sexual abuse claimants who argued that recent revisions went beyond the scope of Silverstein's July opinion. The insurers, for example, objected to a new assertion that the bankruptcy court's estimation of the value of abuse claims did not act as a limit on insurers' eventual liability for those claims.

Celsius Network Ltd., the bankrupt cryptocurrency lender, is seeking to give coins back to a sliver of users who are locked out of their accounts, Bloomberg News reported. The company asked for a bankruptcy judge’s permission to release about $50 million worth of cryptocurrency stuck on the platform in so-called custody accounts, which were designed to store digital assets rather than generate returns. A full hearing on the request is set for October 6, according to court papers. The move highlights a split among the many thousands of users burned by the company’s bankruptcy. Those who deposited crypto with the goal of earning interest on their holdings signed over their ownership of the coins to Celsius, according to the company, while those who only stored their assets on the platform technically retained title to the coins. The roughly $50 million Celsius is seeking to return now is just a fraction of the more than $200 million trapped in custody accounts on the platform. That’s because many users shifted their holdings from interest-bearing accounts into custody arrangements shortly before the bankruptcy, which may allow Celsius to assert ownership over the coins, a lawyer for Celsius told Bankruptcy Judge Martin Glenn in a hearing yesterday. The custody accounts are also just a tiny slice of the crypto users haven’t recovered from Celsius. The market value of assets in so-called earn accounts totaled about $4.2 billion as of July 10, according to court papers.

A company partially owned by Alex Jones is asking a judge to allow a court-appointed trustee to review the bankrupt Infowars parent’s finances, a request that could delay Sandy Hook victim families’ attempt to remove him from the chapter 11 proceeding, Bloomberg Law reported. PQPR Holdings Ltd., which is owned by the right-wing conspiracist and his parents, on Wednesday said it would pay up to $100,000 for an examination of bankrupt Free Speech Systems LLC’s finances by the bankruptcy trustee working on the case. Free Speech, a Jones-controlled company which operates his website Infowars, declared bankruptcy in July after a state court ordered him to pay judgments for his lies that the 2012 school massacre was a hoax. Last month, a jury awarded two parents nearly $50 million in damages. PQPR’s motion comes after families of Sandy Hook Elementary School shooting victims last week asked a Texas bankruptcy court to remove Jones and his bankrupt company from running its operations and chapter 11 proceedings. The families’ requests to remove Jones should be put on hold until a trustee has reported its findings to the court, PQPR said. PQPR, which is listed as one of the largest creditors of Free Speech, is partially owned by Jones through several limited liability companies and managed by Jones’ father, according to court papers. Jones father and mother also hold interests in PQPR via separate limited liability companies, according to court records.

Altera Infrastructure LP’s proposal to take out a bankruptcy loan from its owner Brookfield Asset Management Inc. raises broader questions on how insider dealings should be investigated in chapter 11 cases—and by whom, WSJ Pro Bankruptcy reported. Despite Altera’s bankruptcy filing last month, Brookfield has a path to maintaining its 100% stake in the offshore vessel business. Altera has proposed a chapter 11 restructuring that keeps its owner in control in return for the cancellation of $769 million in secured debt held by Brookfield. Funding for the proposed plan would also come from Brookfield, which has offered a $50 million bankruptcy loan to keep the business afloat. Such insider debts are always scrutinized in bankruptcy, but especially so for Altera. Its chapter 11 case has centered on how bankruptcy courts should evaluate disputed transactions between a troubled company and its controlling investor, and on how to satisfy creditors’ demands for an accounting while still saving the business. Brookfield is in a position to bankroll the restructuring after a controversial debt exchange last year in which it swapped $699 million in unsecured bonds it held for an equivalent amount of secured debt. That effectively subordinated $276 million in similar claims held by BlackRock Financial Management, Capital Group and other creditors that elected not to participate in the exchange. The chapter 11 plan nearly wipes out those bondholders, offering them only warrants for a minority stake in Altera. As it neared chapter 11 this year, the company decided to hire independent directors to review the debt exchange who found no viable causes of action against Brookfield. Altera has said that further investigation into its dealings with Brookfield, or the possible impact on its creditors, isn’t needed. “The question has been asked and the question has been answered,” Altera lawyer Joshua Sussberg said at a court hearing in August. Unsecured creditors don’t agree, saying that an outside probe is needed to determine whether Brookfield made off with value it doesn’t deserve. So Altera is headed toward a contested hearing on its bankruptcy loan, which includes a broad release of liability for Brookfield in connection with the disputed exchange. Brookfield is requiring that its proposed loan won’t be used to fund “a second investigation and the pursuit of claims against Brookfield that have already been determined by independent fiduciaries to be meritless,” according to its court papers. At the same time, Altera has said it needs the funding urgently.

A federal appeals court on Wednesday ruled that bankrupt Florida grocery store owners could discharge debts owed to a produce supplier, resolving a "tug-of-war" between U.S. bankruptcy law and a federal law intended to protect companies delivering perishable foods, Reuters reported. Spring Valley Produce Inc. had appealed a bankruptcy court order allowing Central Market of FL Inc. to discharge a $261,504.15 debt for produce that Central Market never paid for. Spring Valley argued that the Perishable Agricultural Commodities Act (PACA) overrules bankruptcy law's normal discharge of debts, because PACA makes it illegal for a buyer to fail to make prompt payment for produce. PACA automatically creates a "statutory trust" when produce is delivered, and Spring Valley argued that Central Market was a fiduciary of the PACA trust created by its deliveries. Because Central Market was a fiduciary, its owners' debts to Spring Valley were not dischargable under normal bankruptcy rules, Spring Valley argued. The U.S. Court of Appeals for the 11th Circuit disagreed, saying that PACA "imposes some trust-like duties," but it did not qualify for the fiduciary exemption in bankruptcy law. Specifically, PACA does not require a produce buyer to keep trust assets segregated from its other assets or prevent the buyer from using the trust assets for other purposes, the 11th Circuit ruled. The 11th Circuit said that its decision balanced "two statutes with competing interests" without eroding PACA's protections for produce suppliers. Produce suppliers can ask a court to force the disgorgement of payments made in breach of the PACA trust, and they are entitled to the highest priority for repayment in bankruptcy, the 11th Circuit wrote. "Allowing PACA debtors to be freed from personal liability for their debts through bankruptcy discharge promotes the overarching goal of the Bankruptcy Code of providing debtors with a fresh start," the 11th Circuit wrote. "At the same time, PACA still provides significant benefits to unpaid produce sellers."

3M Co. had good reason to bet that it could use U.S. bankruptcy laws to shield itself from a mountain of personal-injury lawsuits filed over its allegedly defective military earplugs. But after a bankruptcy judge rejected a key aspect of its legal strategy, 3M is facing an uphill battle to find a way to control its costs stemming from 230,000 lawsuits on behalf of military veterans, the largest single multidistrict litigation by number in U.S. history, WSJ Pro Bankruptcy reported. A handful of large, solvent businesses have accessed chapter 11 in recent years to fight back against tort litigation, moving those liabilities to a new subsidiary and then to bankruptcy court for settlement. And bankruptcy courts have shielded them from further trials and verdicts in the civil justice system, even though they didn’t file for chapter 11 themselves. 3M used an existing subsidiary to try to replicate that outcome for its own legal problem: the mass lawsuits alleging the company’s combat earplugs exposed U.S. service members to harmful noise that damaged their hearing. It hasn’t worked as planned. Last week, a bankruptcy court declined to extend chapter 11 protections to 3M based on a bankruptcy filing by its subsidiary Aearo Technologies LLC, the earplugs’ manufacturer. As a result, 3M remains exposed to further jury verdicts in the earplug cases, which have yielded $265 million in damage awards against 3M in the small number that have gone to trial.

A bankruptcy court is expected to approve the Boy Scouts of America’s sex-abuse settlement plan, advancing the use of chapter 11 to resolve mass torts in an evolving area of the law, WSJ Pro Bankruptcy reported. Large companies and nonprofits have drawn controversy for invoking bankruptcy as a litigation management tactic and using the tools of chapter 11 to forge settlements outside the civil jury system. The Boy Scouts faced protests from insurance companies, abuse victims and others involved in its strategy for settling 82,200 claims of childhood sexual abuse. Ultimately, 86% of the survivors who cast ballots on the plan voted yes. In July, Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court in Wilmington, Del., largely overruled those objections and indicated she would approve the chapter 11 plan once it was revised to reflect her views. Her ruling is likely to be appealed. The Boy Scouts are expected today to propose a revised plan for the judge’s confirmation.

The bankrupt estate of Sears Holding Corp. won court approval to settle complex litigation against former CEO Eddie Lampert and other investors for $175 million, helping bring the retail chain’s four-year-old Chapter 11 case to a close, Bloomberg Law reported. Resolution of the litigation, which focused on $2 billion worth of pre-bankruptcy transactions engineered by Lampert and his hedge fund ESL Investments Inc., dispels lingering uncertainty about the estate’s ability to pay creditors pursuant to a chapter 11 plan approved nearly three years ago. Judge Robert Drain of the US Bankruptcy Court for the Southern District of New York said he would approve the deal during a virtual court hearing yesterday, marking what should be the retiring jurist‘s final appearance in the case. The settlement, which was negotiated over the course of several months with the help of three mediators, allows the estate to avoid what would likely be two more years of litigating “complex, and therefore expensive” legal claims, Drain said. Although the amount of claims asserted “were substantially higher than the settlement amount,” those figures are discounted “by probability of success,” he said. He noted that the deal allows the company to pay all administrative and priority claims required under the plan.