The 3M Company has faced a wave of personal injury lawsuits in recent years, and it now looks like the Minnesota-based manufacturer’s legal woes are beginning to impact its bottom line.
The lawsuits involve everything from allegedly defective Combat Arms Earplugs to contaminated water.
According to CNBC, the 3M Company delivered disappointing first-quarter results in April, due in part to a 72 cents per share hit to earnings from litigation-related charges. As a result, the company’s share price has fallen 22% from its 52-week high in April.
J.P. Morgan analyst Stephen Tusa suggested the 3M Company would also see a “weak” second quarter, and even warned that a dividend cut is a possibility for the first time in nearly four decades.
“Importantly, these liabilities could significantly weigh on capital deployment capabilities – which has historically largely driven EPS (earnings per share) growth,” he said.
Larry Robbins, the CEO of Glenview Capital, noted that the current lawsuits are 80-times what they were in 2015. According to CNBC, his firm has predicted that the 3M Company will ultimately lose between $4 billion and $6 billion as a result of litigation charges.
The personal injury litigation involving 3M Combat Arms Earplugs, Version 2, only got underway this year, but already includes more than 600 cases.
All were filed on behalf of United States’ military veterans issued the dual-ended earplugs while serving in combat zones around the world between from 2003 through 2015, and all assert similar allegations regarding defects that exposed users to a risk of permanent hearing loss or tinnitus.
The earplugs were standard issue for all active duty combat personnel during that time period, so thousands of additional cases are a real possibility. Because of the potentially large litigation, all federally-filed lawsuits involving 3M Combat Arms Earplugs are undergoing coordinated pretrial proceedings before a single judge in the U.S. District Court, Northern District of Florida.
3M Combat Arms Earplugs, Version 2, was developed by Aearo Technologies, Inc., which won an exclusive contract to provide military hearing protection to the U.S. Defense Logistics Agency in 2002. The 3M Company took over that contract when it acquired Aearo in 2008.
Last July, 3M agreed to pay $9.1 billion to settle federal allegations that it knowingly sold defective Combat Arms Earplugs to the U.S. military, leaving thousands of active duty personnel unprotected for more than a decade.
Combat Arms Earplugs, Version 2, featured a yellow end that ostensibly blocked gunfire, explosions, and other damaging impact sounds, yet allowed the wearer to hear battle commands and other low-level sounds. The green end could be inserted when the wearer wished to block all sound, in the manner of traditional earplugs.
However, federal prosecutors claimed that the earplugs were too short to fit properly in certain individuals and could loosen without the wearer even noticing. According to the False Claims Act lawsuit, Aero Technologies discovered the defects during testing in 2000. But instead of doing anything to correct or mitigate these issues, Aearo – and then 3M – falsely certified that Combat Arms Earplugs, Version, 2, met all the standards of the military contract.
The 3M Company did not admit guilt when it agreed to the federal settlement, nor did it take any steps to compensate veterans who may have developed hearing loss or tinnitus due to the earplugs’ alleged defects. As a result, hundreds of former active duty personnel proceeded to file individual lawsuits that seek reimbursement for lost wages, medical bills, and other damages incurred as a result of service-related hearing disabilities.