Two U.S. military veterans on Thursday sued 3M Co. to block a planned spin-off of its healthcare business in what they called an illegal attempt to avoid compensation to veterans for hearing damage caused by the company’s military-grade earplugs.
The veterans said in a lawsuit in federal court in Pensacola, Fla., that the spin-off was “nothing more than a formality” designed to “fence off” assets, violating a Florida law that prohibits debtors from fraudulently transferring assets to protect them from creditors. .
The case is expected to go to US District Judge M. Casey Rogers, who already oversees more than 220,000 earplug lawsuits and has been a vocal critic of the company’s legal strategy.
“Fortunately, the law does not allow companies to gift their assets to shareholders if it makes it impossible for them to pay their debts,” veterans lawyer Ashley Keller said in a statement.
3M spokesperson Tamara Sander said in an email that “the claim is without merit and we will vigorously defend ourselves.”
The lawsuit Thursday was filed after an Indianapolis bankruptcy court denied 3M’s plea to dismiss Rogers and instead settled the veterans’ claims through the bankruptcy of 3M’s subsidiary Aearo Technologies LLC, the original manufacturer of the Combat Arms version 2 earplugs.
Lawsuits by veterans alleging that earplugs failed to protect their hearing in combat or training constitute the largest mass tort lawsuit in U.S. history.
In July, Aearo filed for bankruptcy, agreeing to indemnify 3M for earplug claims and set aside $1 billion to settle them. Rogers called the maneuver attempt “outright duplicity”. Read completely
On the same day, 3M announced its plan to spin off its healthcare business, which accounted for about 25% of last year’s $35.35 billion in sales, into a new public company. CEO Michael Roman told investors during a July 26 phone call that Aearo’s spin-off and bankruptcy were the result of “separate…strategies and decisions.”
The plaintiffs, in a lawsuit filed on Thursday, said the company had already depleted its cash reserves through dividends and share buybacks, and that the spin-off would prevent it from meeting its earplug obligations, which they say are at least 82 billion dollars, but probably much more.
The company has lost 10 of the 16 earplug cases it has litigated so far, with about $265 million awarded to a total of 13 plaintiffs.
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