A tiny business for 3M Co. -- making foam earplugs for the U.S. military -- threatens to become a major liability for the manufacturing giant.
More than 100,000 U.S. military veterans have filed lawsuits against Minnesota-based 3M over hearing damage linked to what they claim are defects in the company's military-grade earplugs. The company faces billions of dollars in potential costs from legal settlements or trials after soldiers alleged they returned from war with hearing damage due to the earplugs, which the government bought for around $7.63 a pair.
3M is set to begin court-ordered negotiations next month with lawyers representing soldiers who used the earplugs. The lawsuits are weighing on 3M shares, analysts said, and signal a warning to other manufacturers that liability risks may outweigh the gains from making protective products.
Earplug cases from across the country, involving dozens of lawyers, have been consolidated into a multidistrict litigation based in Florida. There are currently around 107,000 active cases and an additional 127,000 cases that could move over to the active list if filing fees are paid and other steps are taken.
3M said the earplugs work when soldiers are given proper training and use them as intended. The company also claimed it has a legal protection known as a government contractor defense, meaning that a supplier can't be held liable for manufacturing a product that the government requested.
Eric Rucker, a 3M attorney, said the military is continuing to use newer versions of the 3M earplugs. "The product does work," he said. "It was designed based on our collaboration with the military."
Bryan Aylstock, the court-appointed lead lawyer for the plaintiffs, said soldiers have hearing damage and ringing in the ears, known as tinnitus, after using the product. "This is a bad earplug," he said. "Most juries look at the evidence and they award significant damages."
Soldiers are given a hearing exam when they first join the military and annual exams afterward, which allows their hearing damage to be documented. At issue in the cases is whether soldiers' hearing issues are due to allegedly faulty earplugs, not wearing them enough, or something else entirely.
The lawsuits, which also include a smaller number of consumers and police plaintiffs, started after 3M settled a case with the Justice Department. In July 2018, 3M agreed to pay $9.1 million to the U.S. government to resolve allegations that it knowingly sold the earplugs to the military without disclosing defects. 3M denied any wrongdoing or liability.
Earlier this year, 3M appealed the ruling of a federal judge in Florida that the contractor defense doesn't apply because the military didn't offer reasonably precise specifications for the product. The U.S. Chamber of Commerce has supported 3M's appeal, saying that weakening of the contractor defense could deter companies from making products for the military.
So far, lawyers for 3M and the soldiers have completed 16 court-ordered bellwether trials, which are designed to see how much in damages are awarded in the cases and help inform settlement discussions.
Plaintiffs won 10 of the trials, 3M won six of the cases and an additional eight were dismissed. In the cases that the plaintiffs won, juries awarded damages as high as $77.5 million and as low as $1.7 million. 3M has appealed some of the decisions and said it would likely appeal more.
In June, a Florida judge ordered lawyers for the parties to begin discussions in July that could result in a settlement. The judge also ordered lawyers to start preparing 1,500 cases for trials. In financial disclosures, 3M has said it hasn't set aside any money for settlements related to the earplug case because it says the liability isn't probable and that it can't reasonably estimate potential costs. 3M also said its reputation and cash flow could be hurt by product liability lawsuits.
From the early 2000s to 2015, the U.S. Army and other branches of the military bought about $32 million worth of the earplugs, according to 3M. The company reported total revenue of $35.36 billion for 2021.
3M said earlier this year that for financial reporting purposes, it would start carving out legal-related expenses from its adjusted profit per share, a metric closely watched by analysts.
Even without a settlement, legal fees are piling up. In the first three months of 2022, 3M estimated legal fees of $63 million related to the earplug lawsuit and an older case involving industrial masks. It had $249 million in legal costs in 2021 for those cases.
3M's earplug challenges arose after the company's 2008 purchase of Aearo Technologies Inc., the creator of the dual-sided earplugs, for $1.2 billion.
The earplugs operated in two modes. One side is designed to reduce all noise, like a traditional earplug, while the other side is designed to allow spoken communication to be heard while still protecting the wearer from loud sounds like explosions. Aearo had contracts to supply the military with the earplugs, and they were given to every soldier in some units.
"Hear the action now, hear life later," a 3M poster advertising the earplugs said.
The earplug lawsuits are one of several legal challenges before 3M, which makes office supplies, industrial sandpaper and dental products. It also has a slate of other cases involving so-called forever chemicals, which accumulate and take a long time to break down. These legal liabilities have weighed on 3M's stock, analysts said. Since the start of 2019, 3M shares are down by nearly 30% while the S&P 500 is up more than 50%.
Scott Davis, chief executive of corporate analysis firm Melius Research, said it was difficult to forecast the potential liabilities from the earplug lawsuits but that most investors view it as a multibillion-dollar liability.
3M, like many manufacturers, has faced other product liability lawsuits over the years. For decades it has dealt with claims from people who alleged they got sick after wearing the company's industrial-grade masks while dealing with asbestos. 3M has set aside $640 million for liabilities related to these cases. 3M has said the masks work.
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