3M fights a growing legal battle over combat-grade earplugs

Former active duty U.S. army infantry officer Nathan Frei says from 2011 to 2015 he went through some of the most intense training that the U.S. Army had to offer. With it, came loud noises — everything from weapons to helicopters to explosions.

To protect his hearing, Frei wore standard issue earplugs made by 3M.

Today, he’s one of more than 200,000 military service members and veterans suing the conglomerate. 3M stock, which hit a new 52-week low Wednesday, is one of the worst-performing industrial stocks this year, down more than 16% in 2023, versus the XLI Industrials ETF, which is down 1.5% year to date.

Plaintiffs claim 3M earplugs were “defective” and failed to protect against hearing loss and tinnitus.

“We used [the earplugs] every time that we were around loud noises,” Frei, who lives in Seattle, told CNBC. “And I relied on that hearing protection during that time.”

From 2003 to 2015, Aearo Technologies and its parent company, 3M, manufactured and supplied the U.S. military with the Combat Arms CAEv2 earplugs. The plugs were standard issue for soldiers in Afghanistan and Iraq and were designed to protect service members’ hearing in military training and during combat.

Each earplug had two ends: The green end was designed to block out all sound. The yellow end, signaling “whisper mode,” purported to block out loud sound — but allowed the user to hear quieter noises, like conversations.

“We were told that by wearing ‘whisper mode’ that we could still protect our hearing,” said Frei, who claims he first noticed issues with his hearing in 2013.

“I was hearing ringing,” Frei recalled. “At first, I thought it was a TV that was on. And so I searched and scoured the house looking for where the noise was coming from before I realized that it was just in my head.”

As the years passed, the 35-year-old said, his hearing issues got worse. Department of Veterans Affairs records shared by Frei with CNBC show he was later diagnosed with tinnitus.

“It’s constant,” he said. “It’s a loud ringing in my ears — very similar to just like a buzz noise.”

He said the ringing is so disruptive it occasionally keeps him awake.

“I don’t look like somebody who probably should have as much hearing loss as I do at my age,” he said.

Eric Rucker, an attorney for 3M, told CNBC the company has great respect for the men and women in the military and that their safety has always been a priority.

“The purpose of the creation of [the Combat Arms earplugs] was to collaborate with the military to solve one of the longest-standing problems they have had, that soldiers won’t wear their hearing protection around loud noises and in combat,” Rucker said.

Rucker said the plugs were designed in collaboration with the U.S. military and tested by the Air Force, Army, National Institute for Occupational Safety and Health, and others.

“All of that testing shows the Combat Arms earplugs, when properly fitted and when used according to its instructions, work to protect people’s hearing,” he said.

Rucker conceded that military audiologists were “well trained in how to train people and fit people for the use of earplugs,” but maintained, “it should have worked and protected their hearing in environments where it was appropriate to be using these earplugs.”

After a whistleblower suit was filed in 2016, accusing 3M of selling “dangerously defective” earplugs, the company agreed to pay $9.1 million to the Department of Justice to resolve the allegations without admitting liability.

Soon after, there was a flood of new suits from hundreds of thousands of other service members.

Today, the lawsuits have been consolidated in Florida federal court, creating what some are calling the largest mass tort in U.S. history, surpassing even the multidistrict litigation involving Johnson & Johnson’s talc products.

3M has lost 10 of the 16 cases that have gone to trial so far, with a total of $265 million awarded to 13 plaintiffs to date.

“There have been several bellwether trials. And unfortunately, Aearo and 3M have not been able to present all of the evidence related to the original design of the product, the military’s involvement in the design of the product, all of the issues concerning the instructions, and how to use the product, and how well the product performed, including some testing information which has been excluded from certain trials,” Rucker said.

“All of that is on appeal. And we’re hoping that the decisions on appeal will cause more of that information to come forward,” he added.

3M recently unveiled new data that shows 90% of a group of 175,000 plaintiffs have no hearing impairment under medically accepted standards, according to U.S. Department of Defense records. The lead attorneys for the plaintiffs call the data a “misrepresentation.”

“3M has purposefully skewed this data by relying on hearing standards that do not measure frequencies most affected by noise, concealing the hearing damage suffered by veterans,” said Bryan Aylstock and Chris Seeger, co-lead counsel for the service members and veterans, in a joint statement.

3M disagreed with those claims, telling CNBC: “The data support what 3M has maintained throughout this litigation: the Combat Arms Earplugs version two were safe and effective to use. This has been confirmed by every independent, third-party organization that has tested the product, including the Army Research Lab, the Air Force Research lab, NIOSH, and others.”

Mizuho’s executive director Brett Linzey wrote in a note to clients that “even the low end of previously settled Combat Arms lawsuits (or even half that amount) equates to some pretty healthy liabilities 3M may have to address.”

According to one Wall Street analyst, 3M’s liability risk could potentially be in the billions.

“Do the math on the number of plaintiffs, which is north of 200,000 and you take the average settlement value — the simple math on that gets you well north of $10 billion to $20 billion,” JPMorgan analyst Stephen Tusa told CNBC. 3M told CNBC that estimate was “completely speculative.”

“We will continue to defend the cases. But the vast majority of these claims do not have complete information,” said Rucker.

In a legal maneuver that would indemnify 3M, the company’s attorneys attempted to put its subsidiary Aearo Technologies into bankruptcy protection, and put aside a $1 billion trust to settle the suits. The service members suing 3M are accusing the company of using the bankruptcy to shield itself and have asked a judge to dismiss it.

A ruling on that potential dismissal is scheduled for April. Oral arguments for the appeal of the initial bellwether trials are scheduled for May 1.

As for Frei, he expects his case to go to trial by year-end.

“It does make me mad,” Frei told CNBC, accusing 3M of “trying to scheme away through either bankruptcy or through these arguments to try and avoid responsibility for what they’ve done.”