# Aearo Technologies LLC v. Parties Listed on Appendix A to the Complaint et a

> United States Bankruptcy Court, S.D. Indiana · August 26, 2022

URL: https://www.frixlaw.com/law-library/cases/10457717

## Case

- **Court:** United States Bankruptcy Court, S.D. Indiana
- **Decided:** August 26, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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aT Si United spate {Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
IN RE: )
)
AEARO TECHNOLOGIES LLC, e¢ al. ! ) Case No. 22-02890-JJG-11
) (Jointly Administered)
Debtors. )
)
3M OCCUPATIONAL SAFETY LLC, )
AEARO HOLDING LLC, )
AEARO INTERMEDIATE LLC, )
AEARO LLC, and )
AEARO TECHNOLOGIES, LLC, )
)
Plaintiffs, )
)
V. ) Adv. Pro. No. 22-50059
)
THOSE PARTIES LISTED ON )
APPENDIX A TO THE COMPLAINT and_)
JOHN AND JANE DOES 1-1000, )
)
Defendants. )

ORDER DENYING PLAINTIFFS’
MOTION FOR PRELIMINARY INJUNCTION

1 The Debtors in these Chapter 11 cases, along with the last four digits of digits of each
Debtor’s federal tax identification number, are set forth in the Debtors’ First Day Motion for
Entry of an Order (2D Directing Joint Administration and (ID Granting Related Relief.

This matter comes before the Court on the Motion for Declaratory and
Injunctive Relief (I) Confirming that the Automatic Stay applies to Certain Action
Against a Non-Debtor; (II) Preliminarily Enjoining Certain Actions Against a Non-

Debtor; and (III) Granting a Temporary Restraining Order Pending an Order on the
Preliminary Injunction (the “PI Motion”) filed by Plaintiffs/Debtors Aearo Holding
LLC, Aearo Intermediate LLC, Aearo LLC, and Aearo Technologies LLC (together
“Aearo” or the “Aearo Plaintiffs”) and Objections thereto filed by the United States
Trustee (the “UST”) and certain Interested Parties. Aearo filed the PI Motion to
stay certain federal and stated litigation, described more fully below, involving

Aearo and Aearo’s parent, 3M Corporation (“3M”).
The Court conducted an evidentiary hearing on Aearo’s request for a
preliminary injunction on August 15-17, 2022 (the “PI Hearing”).2 Having fully
considered the submissions by the parties and the arguments and evidence
presented to the Court at the PI Hearing, and for the reasons stated below, the
Court hereby DENIES Aearo’s request for a preliminary injunction and declaratory
relief.

Venue and Jurisdiction
Except as noted herein, the Court has jurisdiction over this proceeding
pursuant to 28 U.S.C. §§ 1334(b) and 157(b) as well as the Standing Order of
Reference by United States District Court for the Southern District of Indiana dated

2 The Court conducted a hearing on Aearo’s request for a temporary restraining order on
July 27, 2022. At that hearing, the Court neither granted nor denied the request. Rather,
the matter was resolved, at least to some extent, by a limited three-week “pause” of the
subject litigation pending a hearing on Aearo’s request for a preliminary injunction.
July 11, 1984. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and
1409.
Factual and Procedural Background

On July 26, 2022, Aearo Technologies LLC and six related entities3 (together,
the “Aearo Entities” or “Aearo”) filed voluntary petitions for chapter 11 relief (the
“Petition Date”). The cases are being jointly administered under Case No. 22-2890.
The Aearo Entities are operating as debtors-in-possession pursuant to §§ 1107(a)
and 1108 of the Bankruptcy Code.
Aearo and 3M

The Aearo Entities are headquartered in, and have operated out of,
Indianapolis in one form or another for over forty years. They are, with one
exception, limited liability companies and are each incorporated under the laws of
Delaware. Aearo currently manufactures and sells custom noise, vibration,
thermal, and shock protection, primarily serving the aerospace, commercial vehicle,
heavy equipment, and electronics industries. Aearo had $108 million in direct sales
in 2021. Approximately 330 employees work directly for the Aearo Entities.

In the late 1990s Aearo designed a product called the Combat Arms earplug.
After noise reduction rating testing in 1999 and 2000, Aearo began selling Combat
Arms earplugs in 2000. Aearo eventually designed and manufactured an earplug
sold to the United States military under the name Combat Arms Earplug Version 2

3 The related entities are: Aearo LLC, Aearo Intermediate LLC, Aearo Holding, LLC,
Aearo Mexico Holding Corp., Cabot Safety Intermediate LLC, and 3M Occupational Safety
LLC.
(the “CAEv2”) and to civilian consumers under the name Arc Plug (the CAEv2 and
Arc Plug, collectively, the “CAEv2”).
3M is a multinational technology and manufacturing company that develops

products across a wide range of markets including pharmaceuticals, chemicals,
digital imaging and sound technology, office supply and consumer goods. 3M is
incorporated under the laws of Delaware and headquartered in St. Paul, Minnesota.
3M is a large, profitable company, boasting $35 billion in net sales in 2021.
3M acquired the Aearo Entities in April of 2008 through a stock purchase for
approximately $1.2 billion. For the first two years following the acquisition, Aearo’s

business remained separate from 3M. This changed in 2010, as Aearo transferred
its Head, Eye, Ear, Hearing and Face Safety business, including the CAEv2
business, to 3M (the “Upstream”). The Upstream generated a receivable on Aearo’s
books of approximately $965 million that remains unpaid and for which Aearo has
made no demand. After the Upstream, 3M continued to manufacture, market and
sell the CAEv2 until 2015.4 Approximately 80% of all sales relating to the CAEv2
occurred prior to the Upstream. It is unclear whether 3M assumed any liabilities

from Aearo relating to the Upstream or if such liabilities remained with Aearo.
Aearo became much more integrated into 3M after the Upstream,
relinquishing many functions to 3M. Pursuant to a Shared Services Agreement (the
“SSA”), 3M agreed to provide, among other things, legal, accounting and insurance

4 There were less than $100 in CAEv2 sales in 2016.
services to Aearo in exchange for a fee. 3M has not charged Aearo for services
under the SSA since 2016.
In 2016, relators filed a qui tam action styled as United States ex rel. Moldex-

Metric, Inc. v. 3M Company, Case No. 1601533. The action was dismissed by
stipulation in July of 2018, following execution of a settlement agreement and 3M’s
payment of $9,100,000 to the United States thereunder. Shortly thereafter,
servicemembers began to file lawsuits against 3M and/or Aearo alleging defects and
injuries related to their use of the CAEv2.
The MDL

On April 3, 2019, approximately 700 CAEv2 lawsuits were
consolidated into multidistrict litigation (the “MDL”) before the Honorable M. Casey
Rodgers in the United States District Court for the Northern District of Florida (the
“MDL Court”). The Aearo Plaintiffs and 3M are co-defendants in the MDL and in
approximately 2000 lawsuits pending in the state courts of Minnesota (the MDL
and Minnesota actions, collectively, the “Pending Actions”). The Court notes that
most, though not all, of the claims filed in the Pending Actions assert that 3M and

Aearo are jointly and severally liable. Some of the claims, however, have been
asserted against only 3M.
To say that the MDL is large is an understatement of epic proportions.
According to a July 15, 2022 statistical report of the United States Judicial Panel on
Multidistrict Litigation, the MDL had grown to include more than 290,000 claims,
down from a high of over 308,000 claims. It is the largest MDL in history by an
order of magnitude and represents a staggering 30% of cases currently pending in
the federal district courts.
The Pending Actions allege that the CAEv2 hearing protection devices

manufactured, distributed and sold by the Aearo Entities and/or 3M were defective,
resulting in hearing loss and related hearing defects. The purported design flaws at
issue in the Pending Actions allegedly date to a period prior to 3M’s acquisition of
Aearo.
As part of the MDL process, 27 claimants were designated as “bellwethers.”
Of that group, eight plaintiffs’ claims were dismissed prior to trial. As to the

remaining plaintiffs, the parties have participated in 16 trials. Ten of the
bellwether trials resulted in verdicts for 12 claimants, and the remaining six
resulted in verdicts in favor of 3M and Aearo. The verdicts, each of which imposed
joint and several liability against 3M and Aearo, ranged from $1.7 million to $77.5
million. Appeals are pending in five of the bellwether cases, and to date, no
payment has been made to any of the plaintiffs who have obtained a verdict in their
favor. Attempts to negotiate a settlement in the MDL have, to date, failed.

The MDL Court has selected several “waves” of cases, approximately 500 at a
time, to engage in active discovery. Three such waves have been created to date
which, after accounting for voluntary dismissals, include approximately 1,200 cases
in active discovery. It is the Court’s understanding that the MDL Court is poised to
remand for trial some or all of those 1,200 cases to the district courts from which
they originated.
As to the Pending Actions asserted in state court, the first of the bellwether
trials is scheduled to begin on August 29, 2022, with four additional trial dates
selected for 2023 and 2024. Thirty additional bellwether state cases are in various

phases of discovery in preparation for trials scheduled within the next two years.
The Funding Agreement
Beginning in March 2022, 3M began exploring strategic alternatives to the
MDL. Among those alternatives was a chapter 11 bankruptcy for the Aearo
Entities. 3M appointed two disinterested directors to Aearo’s Board of Directors:
Jeffrey Stein and Roger Meltzer (the “Independent Directors”). The Independent

Directors were tasked with negotiating the terms under which 3M would fund a
chapter 11 bankruptcy as well as a claims trust for the CAEv2 claims and certain
“respirator claims” (the “Respirator Claims”) that are also the subject of litigation
involving both 3M and Aearo but which are not the subject of the instant
proceeding. A draft funding agreement—circulated by Kirkland & Ellis, proposed
bankruptcy counsel for the Aearo Entities—became the framework for negotiations
between 3M and the Independent Directors.

Stein testified that the negotiations among 3M and the Independent
Directors were “vigorous.” Hyperbole aside, Aearo did obtain several significant
concessions from 3M. Pertinent to our discussion here, early versions of a funding
agreement contained the following provisions:
• No funded trust for CAEv2 claims or Respirator Claims outside of a
chapter 11 plan;
• Aearo Entities indemnification of 3M with no funding obligation
from 3M;

• Any funding requests to be conditioned on an extension of the stay
of the Pending Actions to 3M;

• Each funding request required to include an officer certification,
detailed narrative, documentation, and assurances regarding use;

• Inclusion of several events of default, including conversion or
dismissal of the bankruptcy case as well as if the bankruptcy court
declined to extend the stay or grant a restraining order in favor of
3M; and

• Termination as a remedy for an event of default.

Aearo, through the Independent Directors, pushed back on these points, as well as
asking 3M to collateralize its funding commitment and maintain its credit ratings.
Negotiations continued, and 3M’s initial ask on the terms highlighted above
were modified as set forth below:
• 3M made a commitment of $1.24 billion, including $240 million for
funding a chapter 11 case and a trust of $1 billion for CAEv2 claims
and Respirator Claims, the commitment being uncapped and
funded inside or outside of bankruptcy;

• Aearo would indemnify 3M but not assume liabilities, paragraph
added to funding agreement where a “Permitted Funding Use”
would be for 3M to pay any liability of the Aearo Entities to 3M,
including indemnification obligations;

• Funding not conditioned on extension of the stay or any other
requests; Aearo must only abide by a budget;

• Events of default no longer include extension of the automatic stay,
conversion or dismissal; 3M does not have right to terminate
agreement; and

• No financial conditions on 3M other than 3M to use commercially
reasonable efforts to maintain credit rating.
These changes were presented to the Aearo Board on July 23, 2022, at which
the time the Board resolved to execute the funding agreement. The Independent
Directors advised that Aearo “[s]hould not take the risk Bankruptcy Court declines

to extend the automatic stay, or other bankruptcy [events of default], leaving the
Aearo Entities marooned in chapter 11 proceeding without funding.”
3M and the Aearo Entities executed a final funding agreement on July 25,
2022 (the “Funding Agreement”). Per the Funding Agreement’s Recitals, 3M has
committed to “satisfy all of the respective Aearo Entities’ Liabilities specified herein
on the terms set forth herein, such that each of the respective Aearo Entities will

have assets with a value greater than its Liabilities and will have the financial
capacity to satisfy its obligations as they become due in the ordinary course of its
business . . . .” An initial $1 billion was committed to fund a trust to compensate
allowed CAEv2 claims and Respirator Claims, as well as $240 million to fund the
chapter 11 cases.
In exchange for this commitment, Aearo has agreed to indemnify 3M and its
non-debtor affiliates for liabilities related to the CAE2v and Respirator Claims.

3M’s commitment under the Funding Agreement, both as to the chapter 11 case
expenses and the trust, is on an uncapped basis. The Funding Agreement is not a
loan, as it does not impose any real repayment obligations on Aearo.
The Court needs to pause a moment and explain why it used the phrase “real
repayment obligations.” Section 2(d) of the Funding Agreement States:
No Requirement of Repayment. For the avoidance of doubt, the Aearo
Entities shall not be required to return or repay any Payment, in
whole or in part, except to the extent any Payment is used to satisfy
the Aearo Entities’ obligations under Section 3.

Section 3 of the Funding Agreement contains the Aearo Entities’ indemnification of
any 3M liability relating to the CAEv2 claims and the Respirator Claims. This
language initially gave the Court pause, as it seems to say there is a repayment
obligation as to the indemnity. But § 2(c) of the Funding Agreement—the section
referenced in the recap of the Funding Agreement negotiations—provides that a
Permitted Funding Use includes a request “to pay Liabilities of an Aearo Entity
owed by [3M], including any indemnification or obligation of any Aearo Entity
under Section 3.”
A plain reading of the Funding Agreement is that Aearo must repay any
indemnity obligation to 3M, but may do so by asking 3M for the money to do so.
The net effect to Aearo is zero.5 But if we assume, for the purposes of this opinion,

that the language of the Funding Agreement is ambiguous, the Court resolves that
ambiguity in favor of Aearo. Aearo’s Board approved the Funding Agreement after
being told, via a Power Point slide deck presentation, of the negotiated change that
Aearo could pay any indemnity obligation to 3M by making a funding request to
3M. Aearo provided no evidence or testimony that there was a repayment
obligation under the Funding Request. Furthermore, counsel for 3M went on record
at the July 27, 2022, hearing when posed with questions about what payments

under Aearo’s first day motions might create a claim by 3M against Aearo:

5 One might call this circular. In fact, more than one does call it such as discussed
later.
This was something that we discussed in connection with the funding
agreement and 3M’s agreements to provide shared services during the
cases. 3M Company will not be seeking any type of claim or any
reimbursement from the debtors during the cases on account of any of
the payments it makes pursuant to the funding agreement. So that
applies across the various relief requested in all of the first day
motions.

Transcript of Miscellaneous Motions by Plaintiffs/Debtors, July 27, 2022 P.M.
Session, at 24, lines 6-12 (Docket No. 43).
Given the conduct and statements of Aearo and 3M before the Court and in
negotiations of the Funding Agreement, the Court finds that if there is a repayment
obligation “ado” under § 3 of the Funding Agreement, § 2(c) makes it much ado
about nothing. We now return to the discussion of the Funding Agreement as a
whole.
The Funding Agreement is not without condition, however. 3M is obligated
to pay Aearo’s Chapter 11 administrative expenses and indemnification obligations
only after Aearo has exhausted its own assets, including cash reserves and all
available insurance.6 Significantly, 3M’s obligations under the Funding Agreement
are not conditioned on Aearo seeking or obtaining a stay of the Pending Litigation
at to 3M.
The Independent Directors reviewed 3M’s finances and concluded that 3M
will be able to fund the payments provided for under the Funding Agreement. 3M’s

6 The Funding Agreement provides that the Aearo Entities must exhaust all of their
assets before 3M’s funding commitment is triggered. At the PI Hearing, Aearo focused only
on its obligation to use its cash reserves and available insurance under the Funding
Agreement and did not address whether there are other assets—i.e., physical assets—that
might need to be liquidated prior to funding or whether the liquidation of such assets, if
any, would impact Aearo’s estate or ability to reorganize.
most recent SEC filings show it to be strong financially with no going concern
warnings. Specifically, Stein testified that he was confident of 3M’s financial
wherewithal and believed that the Funding Agreement provided a “clear path” to

restructuring the Aearo Entities even absent a stay of the Pending Actions.
Insurance
3M manages two insurance programs that might cover the CAEv2 claims:
the “3M Tower” and the “Aearo Legacy” programs. The 3M Tower provides $1.05
billion in coverage for claims made during the applicable policy period of March 1,
2018, to March 1, 2019. 3M pays the premiums related to, and is the primary

insured under, the 3M Tower; however, Aearo is named as an additional insured
under the 3M Tower. On June 28, 2019, 3M provided notice to its insurers of the
CAEv2 claims, and these are the only claims for which notice has been given. The
3M Tower coverage is otherwise fully available and free of any other demands.
The Aearo Legacy provides $550 million in coverage. The policies were paid
for by Aearo and existed prior to 3M’s purchase of Aearo in 2008. The coverage
provided by the policies covers “occurrences” during the years 1997 to 2008. Aearo

is the named insured. On June 28, 2019, 3M provided notice to the insurers in the
Aearo Legacy program of the CAEv2 claims.
The only payments made, to date, by any insurer have come from an Aearo
Legacy insurer. Liberty Mutual Insurance Company issued four checks of
$1,000,000 each to 3M and the Aearo Entities. Liberty Mutual issued these checks
on February 17, 2002, as partial payment to 3M of a verdict issued in the MDL. 3M
has not resolved certain issues related to Liberty Mutual’s coverage and, thus, has
not negotiated the checks. The checks currently sit in 3M’s vault.
Procedural Posture

On the Petition Date, Aearo filed its Complaint for Declaratory and
Injunctive Relief (I) Confirming that the Automatic Stay Applies to Certain Actions
against a Non-Debtor; (II) Preliminarily Enjoining Certain Actions Against a Non-
Debtor; and (III) Granting a Temporary Restraining Order Pending an Order on the
Preliminary Injunction Motion (the “Complaint”), along with the PI Motion, against
“those Parties listed on Appendix to the Complaint,” i.e., the named plaintiffs in the

Pending Actions, as well as any party who holds, or may seek to hold, Aearo and/or
3M liable for injury related to the CAEv2 (the “Stay Defendants”).
The Complaint, coupled with the PI Motion, seek to stay the Pending Actions
as to 3M and its affiliates. More specifically, Aearo insists that the automatic stay
imposed by § 362(a) of the Bankruptcy Code prohibits further prosecution of the
Pending Actions against not just Aearo, but also 3M. Per the PI Motion, Aearo
essentially makes three arguments: (1) that the Stay Defendants have asserted

claims of joint and several liability against 3M and Aearo, essentially treating them
as a single entity, such that a judgment against 3M is effectively a judgment
against Aearo; (2) 3M and Aearo are co-insured under shared insurance policies, the
proceeds of which may be depleted if the Pending Actions are not stayed as to 3M;
and (3) Aearo is obligated to indemnify 3M and its non-debtor affiliates for any
losses related to the CAEv2 claims. For essentially these same reasons, Aearo
alternatively asks the Court to exercise its authority under § 105(a) of the
Bankruptcy Code to enjoin the Pending Actions as to 3M.
Various of the firms who represent the Stay Defendants in the Pending

Actions (collectively, the “Objecting Parties”),7 have appeared in this proceeding—
either on their own behalf or on behalf of their Stay Defendant clients. They, along
with the UST, have objected to the PI Motion. While no committee of the firms or
the Stay Defendants themselves has yet been formed8 in the bankruptcy case itself
(and, as such, they do not formally speak with one voice), the Objecting Parties do,
as a group, oppose Aearo’s requested relief. And while the Objecting Parties

concede that the Court generally has the power to enjoin non-debtor parties, at least
pursuant to § 105(a) of the Bankruptcy Code, they vehemently insist that the facts
and equities here do not warrant such extraordinary relief.
Discussion and Decision
At the outset of its discussion, the Court wishes to make clear what this
decision is not about. Much has been written and said about the MDL and the MDL
process as overseen by Judge Rodgers. But this Court’s decision is not a referendum

on the MDL or Judge Rodgers’ administration thereof. This Court is neither
authorized nor inclined to address or review Judge Rodgers’ handling of the MDL or

7 The Objecting Parties include: The Bailey Glasser and Pulaski Kherkher Plaintiffs; the
Adkins, Wilkerson & Vaughn Plaintiffs; the Heninger Garrison Davis, LLC Plaintiffs; The
Gori Law Firm, P.C. Plaintiffs; the Cory Watson, P.C. Plaintiffs; and Charles Rataj, along
with the law firms of Paul, LLP, Keller Postman LLC; Aylstock, Witkin Kreis & Overholtz,
PLLC; Seeger Weiss LLP; Clark, Love & Hutson, PLLC; Tracey Fox King & Walters; The
Johnson Law Group; Weitz & Luxenberg, P.C.; and Quinn Emanuel, Urquart & Sullivan,
LLP.
8 The UST’s objection is largely based on the fact that no committee has yet been formed.
her rulings. The Court is similarly not authorized or inclined to review or opine on
the results of the bellwether trials or on the evidence or argument presented
therein.

This is also not a debate as to the relative merits or demerits of the MDL and
bankruptcy processes. Both are merely tools, engineered by Congress, for the
adjudication and resolution of claims. Neither is perfect and each present both risk
and reward for all of the various constituencies. There has been some suggestion
that the bankruptcy process is the only avenue by which the claimants may globally
settle the Claims. But this is not so. Multidistrict litigation, through the

bellwether process, is itself designed to “enhance and accelerate both the [litigation
process itself and the global resolutions that often emerge from that process.”
ELDON E. FALLON ET. AL., Bellwether Trials in Multidistrict Litigation, 82 TUL.
L. REV. 2323, 2337 (2008).” See also, In re E. I. Du Pont De Nemours, 204 F. Supp.
3d 962 (S.D. Ohio 2016) (discussion bellwether process and its value in encouraging
settlement). The fact that the bellwether trials conducted in the MDL have not yet
yielded a global settlement does not mean that the MDL itself is broken.

That said, the Court also takes issue with the suggestions made by the
Objecting Parties throughout this proceeding that the bankruptcy process
necessarily deprives the Stay Defendants of their Constitutional right to a jury trial
before an Article III judge. Even in bankruptcy that right is preserved. See 28
U.S.C. § 157(b)(5). It is accurate to say, however, that most mass tort claims in a
bankruptcy are resolved not through jury trials before a district court, but by
consensual resolution through a plan of reorganization, often through a trust
mechanism akin to § 524(g) of the Bankruptcy Code. But it is also accurate to say
that it is unlikely that all of the 290,000 Stay Defendants will have a jury trial in

the MDL if the Pending Actions are not stayed.
Finally, the Court emphasizes that this Order is not a decision as to whether
the Aearo Entities’ bankruptcy petitions were filed in good faith. No party has, at
least to date, moved for dismissal, and the Court expresses no opinion as to the
various suggestions made by the Objecting Parties that Aearo sought bankruptcy
protection for an improper purpose or with “unclean hands,” as those issues are not

squarely before the Court. Nor does the Court express any opinion, more generally,
as to the propriety of the various devices used here and in other jurisdictions—
including the much-maligned “Texas Two-Step”—by entities facing mass tort
liability. Again, those issues are not squarely before the Court.
In response to charges made within the MDL that 3M is acting in bad faith in
seeking a stay,9 Judge Rodgers has indicated that she believes that Aearo is a
defendant in the Pending Actions “in name only,” stating that Aearo has had no

meaningful role or identity in the MDL. Certainly, the Court does not question
Judge Rodgers’ prerogative to reach that conclusion within the context of the MDL.
But this Court, at present, has a necessarily different vantage point. Pending
before this Court are bankruptcy petitions and a related adversary proceeding filed
by companies currently (and historically) operating in Indiana. The Aearo Entities

9 The Court emphasizes that 3M itself did not seek an extension of the stay and is not a
party to this proceeding.
are named as defendants in most, if not nearly all, of the Pending Actions for their
role in designing, manufacturing and selling the CAEv2 both prior to and after their
purchase by 3M. The Stay Defendants presumably have claims against Aearo as

that term is defined by § 101(5) of the Bankruptcy Code. Positions 3M and/or Aearo
may have taken in the MDL do not alter this Court’s view that the Aearo Entities,
at least for purposes of the PI Motion, are appropriate debtors with cognizable
liabilities under the Bankruptcy Code and that this Court has jurisdiction to at
least consider whether an injunction of the Pending Actions as to 3M is necessary or
appropriate. The positions or courses of conduct allegedly taken by any of the

parties to the Pending Actions to the contrary are not relevant to this Court’s
inquiry here.
With that out of the way, the Court moves onto what this matter is about—
whether the Pending Actions are, or should be stayed, as to 3M under the relevant
provisions of the United States Bankruptcy Code, Title 28 of the United States
Code, and controlling decisional law in light of the facts and evidence properly
before the Court.

11 U.S.C. § 362(a)

When a bankruptcy petition is filed, the stay provisions of § 362(a)
automatically take effect and pre-petition creditors are prohibited from taking
certain actions to collect their debts. See 11 U.S.C. § 362; In re Vitreous Steel Prod.
Co., 911 F.2d 1223, 1231 (7th Cir.1990). The automatic stay is self-executing,
effective upon filing of the bankruptcy petition. In re Gruntz, 202 F.3d 1074, 1081
(9th Cir.2000). “The automatic stay is indeed a powerful tool of the bankruptcy
courts” designed to “‘protect the debtor from an uncontrollable scramble for its
assets in different courts. . . . ‘” Fox Valley Constr. Workers Fringe Benefit Funds v.

Pride of the Fox Masonry and Expert Restorations, 140 F.3d 661, 666 (7th Cir.1998)
(quoting A.H. Robins Co., Inc. v. Piccinin (In re A.H. Robins Co., Inc.), 788 F.2d 994,
998 (4th Cir.1986)).
The purpose of the automatic stay is “‘to prevent certain creditors from
gaining a preference for their claims against the debtor; to forestall the depletion of
the debtor’s assets due to legal costs in defending proceedings against it; and, in

general, to avoid interference with the orderly liquidation or rehabilitation of the
debtor.’” In re Rexene Prod. Co., 141 B.R. 574, 576 (Bankr. D. Del. 1992) (quoting
Borman v. Raymark Indus., Inc., 946 F.2d 1031, 1036 (3rd Cir. 1991)). The stay
preserves what remains of the debtor’s estate and “provide[s] a systematic equitable
liquidation procedure for all creditors, secured as well as unsecured . . . thereby
preventing a ‘chaotic and uncontrolled scramble for the debtor’s assets in a variety
of uncoordinated proceedings in different courts.’” Holtkamp v. Littlefield (In re

Holtkamp), 669 F.2d 505, 508 (7th Cir. 1982) (quoting In re Frigitemp Corp., 8 B.R.
284, 289 (S.D.N.Y. 1981)).
Here, Aearo argues that the Pending Actions are, or should be, stayed
under both §§ 362(a)(1) and (a)(3) of the Bankruptcy Code as the Pending
Actions relate to 3M. Those sections provide a stay immediately upon the
filing of a bankruptcy petition as to:
(1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other proceeding
against the debtor that was or could have been commenced before the
commencement of the case under this title;

* * * * *

(3) any act to obtain possession of property of the estate or of property
from the estate or to exercise control over property of the estate . . . .

11 U.S.C. § 362(a). The Court will answer these questions in the order they were
received and address first whether § 362(a)(1) has any direct applicability—at least
within governing Seventh Circuit law—to non-debtors. As explained below, the
Court must conclude that it does not.
11 U.S.C. § 362(a)(1)
Section 362(a)(1), while broad, generally protects only the debtor, not non-
bankrupt co-debtors like 3M. Pitts v. Unarco Indus., Inc., 698 F.2d 313, 314 (7th
Cir. 1983) (“The clear language of Section 362(a)(1) thus extends the automatic stay
provision only to the debtor filing bankruptcy proceedings and not to non-bankrupt
co-defendants.”); Lee v. RCN Corp., No. 03 C 5866, 2004 WL 2108577, at *1 (N.D.
Ill. Sept. 20, 2004) (§ 362 is intended to protect the assets of the debtor for the
benefit of creditors and is “not designed to afford collateral benefits to non-debtor
parties involved in litigation with the debtor as party defendants or as co-
defendants.”). This section “does not prevent actions against non-debtor obligors,
debtor’s sureties or guarantors. It does not protect separate legal entities,
corporations, partnerships or non-debtor co-defendants in pending litigation.” In re
Lengacher, 485 B.R. 380, 383 (Bankr. N.D. Ind. 2012); see also In re White, 415 B.R.
696, 698 (Bankr. N.D. Ill. 2009) (“Generally, the automatic stay protects the
bankruptcy debtor and does not bar suits against third parties, such as non-debtor
entities, even when wholly owned by the debtor, or the debtor’s insurers,

guarantors, and sureties.”).
Based on the foregoing authority and the plain language of the Bankruptcy
Code, the Court is reluctant to conclude that § 362(a)(1), standing alone, offers
sufficient statutory authority to conclude that the Pending Actions are stayed
automatically as to 3M or to extend the protections of the stay to 3M.
Admittedly, there is ample case law holding otherwise. Most significantly,

the Fourth Circuit, in two opinions issued in the context of the A.H. Robins Co.
bankruptcy case, held that a bankruptcy court has multiple statutory bases for
extending the stay to a non-debtor party, including directly under § 362(a)(1). See
A.H. Robins, 788 F.2d at 1001-1003, and A.H. Robins Co., Inc. v. Aetna (In re A.H.
Robins Co., Inc.), 828 F.2d 1023-24 (4th Cir. 1987).
In particular, the Fourth Circuit identified two exceptions to the general rule
that § 362(a)(1) does not apply to non-debtor parties: (1) where there is such

identity between the debtor and third-party defendant where a judgment against
the third-party defendant will in effect be a judgment against the debtor, and (2)
where the pending litigation, though not brought against the debtor, would cause
the debtor irreparable harm. A.H. Robins, 788 F.2d at 999. Application of these
exceptions is rare and reserved for “unusual circumstances.” Id.
But while the Seventh Circuit, and other courts within the Circuit, have cited
A.H. Robins and the above exceptions to § 362(a)(1)’s seemingly plain language, the
Circuit has not, to date, expansively discussed or formally adopted A.H. Robins in

this regard. See Harley-Davidson Credit Corp. v. JHD Holdings, Inc., 19-cv-155jdp,
2020 WL 7078828 at *1 (W.D. Wis. Dec. 3, 2020) and In re Caesars Entm’t
Operating Co., 540 B.R. 637, 643 n.8 (Bankr. N.D. Ill. 2015). Nor has the Circuit
actually extended the stay to a non-debtor party under that reasoning. As observed
recently by the district court in Edelson, PC v. Girardi, No. 20 C 7115, 2021 WL
3033616 (N.D. Ill. July 19, 2021):

The Seventh Circuit has not yet had the opportunity to consider the
correct process for invoking an exception to the general rule regarding
the applicability of section 362(a)(1). That is because in the handful of
times the Seventh Circuit has considered A.H. Robins or other
exceptions to section 362(a)(1), it has found that the non-debtor does
not qualify for the exceptions. See Harley-Davidson Credit Corp. v.
JHD Holdings Inc., No. 19-CV-155-JDP, 2020 WL 7078828, at *1
(W.D. Wis. Dec. 3, 2020); Fernstrom, 938 F.2d at 736 (deciding non-
debtor did fit within A.H. Robins’ exception; Fox Valley, 140 F.3d at
666 (rejecting attorney’s argument that the automatic stay deprived
the district court of jurisdiction to sanction him).

Id. at *14.
The bankruptcy court in In re LTL Mgmt. LLC, 638 B.R. 291, 299-301
(Bankr. N.J. 2022), recently grappled with this same issue under similar
facts—having been asked to extend the stay to enjoin certain mass tort
litigation as to non-debtor parties. While the LTL court ultimately applied
A.H. Robins’ more expansive view of a bankruptcy Court’s power to “extend
the stay” to non-debtor parties directly under § 362(a)(1), the court
nevertheless acknowledged that “many courts have used some iteration of the
phrases “extension of the stay” and “injunctive relief” interchangeably when
discussing whether to permit actions against nondebtor third parties to

proceed,” while other courts have cited only to § 105. Id. at 300. See also,
Girardi, 2021 WL 3033616 at *2 (“‘It should be noted that . . . extensions [of
section 362(a)(1)] to non-debtors, although referred to as extensions of the
automatic stay, were in fact injunctions issued by the bankruptcy court after
hearing and the establishment of unusual need to take this action [under §
105] to protect the administration of the bankruptcy estate.’”) (quoting Patton

v. Bearden, 8 F.3d 343, 349 (6th Cir. 1993)).
Without more explicit guidance from the Seventh Circuit, the Court
declines Aearo’s invitation to extend § 362(a)(1) to 3M and instead frames its
analysis pursuant to the Court’s authority to issue injunctive relief under §
105(a) of the Bankruptcy Code.
11 U.S.C. § 362(a)(3)
Whereas § 362(a)(1) extends only to a debtor, § 362(a)(3) extends to property

of the estate. Specifically, § 362(a)(3) operates as a stay of “any act to obtain
possession of property of the estate or of property from the estate or to exercise
control over property of the estate.” The scope of § 363(a)(3) is, therefore, broader
than just the debtor. See Nat’l Tax Credit Partners v. Havlik, 20 F.3d 705, 708 (7th
Cir. 1994) (§ 362(a)(3) “reaches farther, encompassing every effort to ‘exercise
control over property of the estate.’”). Aearo argues that this broader scope includes
the Pending Actions against 3M. If that is the case, the Pending Actions were
automatically stayed by § 362(a)(3) as of the Petition Date, obviating the need for an
injunctive relief. All Aearo needs is a declaration that the automatic stay applies to

the Pending Actions. The Objecting Parties, not surprisingly, disagree. So does the
Court.
The Fourth Circuit’s A.H. Robins decision again looms large in this analysis,
as that court held that § 362(a)(3) is one of “four independent grounds on which it
could stay the plaintiff’s suit against [the nondebtor third party].” A.H. Robins., 828
F.2d at 1024 (the other three being §§ 362(a)(1) and § 105(a) of the Bankruptcy

Code and a court’s inherent powers under 28 U.S.C. § 1334); LTL Mgmt. 638 B.R. at
300-01. And the Court agrees with this conclusion to the extent that the non-debtor
third party seeks to exercise control over property of a debtor’s estate given the
plain language of the Bankruptcy Code and the Seventh Circuit’s pronouncement in
Havlik.
Whether § 362(a)(3) stays an action is a two-step inquiry. First, a court must
determine whether property of the estate is at issue; second, a court must determine

whether the action in question constitutes an action to obtain possession of, or
exercise control over, the property in question. See, e.g., In re Klarchek, 508 B.R.
386, 395 (Bankr. N.D. Ill. 2014); see also In re Lee, 524 B.R. 798 (Bankr. S.D. Ind.
2014).
Aearo asserts the property at issue here are its insurance policies, both the
Aearo Legacy and the 3M Tower. This assertion is in line with Seventh Circuit
caselaw, which has held that “[a]s a general matter, insurance contracts in which
the debtor has an interest at the time the petition is filed constitute property of the
estate for the purposes of § 541(a) [of the Bankruptcy Code].” In re Stinnett, 465

F.3d 309, 312 (7th Cir. 2006). But that is in the general. As to the specific, the
analysis hinges on whether a payment will inure to the debtor’s pecuniary benefit.
Id. at 313.10 The Court will assume, for the purposes of this opinion, that the Aearo
Legacy and 3M Tower insurance policies are property of the estate.
Having made this assumption, the Court turns to the second prong of the §
362(a)(3) analysis and whether the Pending Actions are an effort to exercise control

over property of the estate. There is no evidence that the Stay Defendants are
proceeding directly against the insurance policies. And 3M has taken no action
against the insurance policies other than to put insurers on notice of the Pending
Actions, although it apparently will seek reimbursement from the policies to the
extent that judgements are entered against it and Aearo in the Pending Actions.
So, there currently are no direct efforts to exercise control over property of the
estate, a factor found in many of the cases staying nondebtor actions against

property of the debtor pursuant to § 362(a)(3). See Girardi, 2021 WL 3033616 at *
16 (staying imposition of constructive trust over payments to debtor); Klarchek, 508
B.R. at 397 (staying dissolution of trust intended to interfere with possible claims
by chapter 7 trustee) and Lee, 524 B.R. at 804 (staying termination of membership
interests and voting rights).

10 The Seventh Circuit’s repeated focus on the pecuniary effect to the estate will be a
recurring theme throughout this opinion.
But Havlik teaches that § 362(a)(3) encompasses “every effort to ‘exercise
control over property of the estate’”, not just direct efforts. Havlik, 20 F.3d at 708.
It follows, then, that indirect efforts may also fall under § 362(a)(3)’s stay. But what

constitutes an indirect effort? How far can § 362(a)(3) extend? Contract rights are
property of the estate11, so can a debtor stop suits by a third party against the
contractual counter-party?
Fortunately, the Court does not have to go down this parade of horribles. At
the heart of the Seventh Circuit’s analysis under § 362(a)(3) is whether a third
party’s effort has a pecuniary effect on the estate. Let us start with Havlik, the

seminal 362(a)(3) case from the Seventh Circuit. Rather than veering off into the
esoteric, the Seventh Circuit plainly states that “[t]his case is all about how much
money will come into the debtor’s coffers.” Id., 20 F.3d at 709. Other courts in the
Seventh Circuit have acknowledged the same. See Stinnett, 465 F.3d at 313
(overriding question is whether a payment will inure to the debtor’s pecuniary
benefit); Klarchek, 508 B.R. at 397 (court looked to see if the action may have a
potential adverse impact on the property of the estate); and In re Gatke Corp., 117

B.R. 406, 410 (Bankr. N.D. Ind. 1989) (staying action against insurance policies
where there was a threat of inequitable distribution of insurance proceeds to
asbestos claimants).
Distilled to that essence, the Court finds that the Pending Actions are not
stayed by § 362(a)(3) because, ultimately, 3M will fully fund any liability incurred

11 See Klarchek, 508 B.R. at 395.
by Aearo relating to the Pending Actions pursuant to the Funding Agreement.
Granted, the Funding Agreement requires Aearo to seek recovery under the Aearo
Legacy insurance policies—and possibly the 3M Tower as well—prior to seeking

payment under the Funding Agreement. However, there is no threat of inequitable
distribution of insurance proceeds here as the Funding Agreement operates as a
complete, uncapped backstop to the insurance policies. So tapping the insurance
policies to cover any liability incurred in the Pending Actions does not affect the
amount of money Aearo can pay its creditors because the Funding Agreement
covers all claims arising from the Pending Actions in the absence or exhaustion of

the applicable insurance.
11 U.S.C. § 105(a)
That leaves Aearo’s argument that the Court should enjoin the Pending
Actions pursuant to § 105(a) of the Bankruptcy Code. Under that section,
bankruptcy courts have the express authority “to issue any order, process or
judgment that is necessary or appropriate to carry out the provisions of this title.”
11 U.S.C. § 105(a); see also, In re Caesars Entm’t. Operating Co., 808 F.3d 1186,

1188 (7th Cir. 2015). “Though § 105(a) does not give the bankruptcy court carte
blanche—the Court cannot, for example, take an action prohibited by another
provision of the Bankruptcy Code—it grants extensive equitable powers that
bankruptcy courts need in order to be able to perform their statutory duties.” Id.
The authority to “stay actions in other courts extends beyond claims by and against
the debtor, to include “suits to which the debtor need not be a party but which may
affect the amount of property in the bankrupt estate,” Zerand–Berna Grp., Inc., 23
F.3d 159, 161–62 (7th Ct. 1994), or “the allocation of property among creditors.” In re
Mem’l Estates, Inc., 950 F.2d 1364, 1368 (7th Cir.1992) (7th Cir.), cert. denied, 504

U.S. 986 (1992).
The burden is on the movant—here the Aearo Plaintiffs—to clearly establish
by a preponderance of the evidence the necessity for injunctive relief. See In re
Gathering Rest., Inc., 79 B.R. 992, 1000 (Bankr. N.D. Ind. 1986) (citations omitted).
“This will ordinarily require convincing evidence of an adverse impact on the
debtor’s estate which seriously threatens the debtor's ability to formulate and carry

out a plan of reorganization.” Id. (quoting In re Arrow Huss, Inc., 51 B.R. 853, 859
(Bankr. D. Utah 1985).
“Section 105, however, is merely a vehicle to carry out the otherwise provided
powers of the bankruptcy court [and] [m]ay not be used to create new law.” In re
Sybaris Clubs Inter., Inc., 189 B.R. 152, 155 (Bankr. N.D. Ill. 1995) (citing In re
Lloyd, 37 F.3d 271, 275 (7th Cir. 1994)). To that end, then, a proper exercise of the
Court’s authority to issue an injunction under § 105 first necessitates a finding by

the Court that the matter Aearo seeks to enjoin—the Pending Actions as they relate
to 3M—falls within the Court’s jurisdiction. See Celotex Corp. v. Edwards, 514 U.S.
300, 307 (1995). “It is the relation of dispute to estate, and not of party to estate,
that establishes jurisdiction,” Feld v. Zale Corp. (In re Zale Corp), 62 F.3d 746 (5th
Cir. 1995) (citing Elscint, Inc. v. First Wis. Fin. Corp. (In re Xonics), 813, F.2d 127
(7th Cir. 1987)). See also Dore v. Assoc.’s Contracting, Inc. v. American Druggist Ins.
Co., 54 B.R. 353, 357 (Bankr. W.D. Wis. 1985) (“Two separate inquiries need to be
undertaken before the bankruptcy court may issue a preliminary injunction
pursuant to § 105(a): The first inquiry is jurisdictional and the second inquiry is the

appropriateness of the injunction . . . .”).
Jurisdiction
The jurisdiction of the bankruptcy courts, like that of other federal courts, is
grounded in, and limited by, statute. Section 1334(b) of Title 28 provides that “the
district courts shall have original but not exclusive jurisdiction of all civil
proceedings arising under title 11, or arising in or related to cases under title 11.”

The district courts may, in turn, refer “any or all proceedings arising under title 11
or arising in or related to a case under title 11 . . . to the bankruptcy judges for the
district.” Proceedings “arising in” the Bankruptcy Code are those that concern a
matter exclusive to bankruptcy law and practice. Bush v. U.S., 939 F.3d 839, 844
(7th Cir. 2019). Similarly, proceedings “arising under” the Bankruptcy Code are
those that present a substantive question of bankruptcy law. Id. Finally,
proceedings “related to” the Bankruptcy Code are those that have a potential effect

on other creditors. Id. at 844-46.
Here, the parties agree that the Court should focus its § 105 analysis on the
Court’s “related to” jurisdiction. The Court agrees.12 As the court in Zerand-Bernal

12 The Court notes that there is at least some argument to be made that it has “arising
under” jurisdiction to issue an injunction under § 105. See In re Caesars Entm’t Operating
Co, Inc., 533 B.R. 714 (Bankr. N.D. Ill. 2015) (“[A] claim to enjoin civil actions in other
courts [] is created by § 105(a) of the Code” and, thus, can be said to “arise under” the
Bankruptcy Code). While the Seventh Circuit did not expressly reject that statement in
reversing the bankruptcy court on appeal, the Court emphasized (literally) that the
instructs, “related to” jurisdiction is “primarily intended to encompass tort, contract,
and other legal claims by and against the debtor, claims that, were it not for
bankruptcy, would be ordinary stand-alone lawsuits between the debtor and others

but that § 1334(b) allows to be forced into bankruptcy court so that all claims by and
against the debtor can be determined in the same forum.” Zerand–Bernal, 23 F.3d
at 161 (citation omitted). See also Fisher v. Apostalou, 155 F.3d 876, 882 (7th Cir.
1998). Taken one step further, it would seem that claims asserted against a joint-
tortfeasor of the debtor are subject to this same logic.
Many courts recognize that an indirect effect upon the estate might be

sufficient to confer jurisdiction under an interpretation of § 1334(b)’s “related to”
jurisdiction adopted by many circuits. That sweeping standard requires only that
the outcome of the proceeding “could conceivably have any effect” upon the
bankruptcy estate. See Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984); In
re G.S.F. Corp., 938 F.2d 1467, 1475 (1st Cir. 1991); A.H. Robins Co., 788 F.2d 994,
1002 at n. 11; In re Wood, 825 F.2d 90, 93 (5th Cir. 1987); Robinson v. Michigan
Consol. Gas Co., 918 F.2d 579, 583–84 (6th Cir. 1990); In re Dogpatch U.S.A., Inc.,

810 F.2d 782, 786 (8th Cir. 1987); In re Fietz, 852 F.2d 455, 457 (9th Cir.1988); In re

bankruptcy court’s “related to” jurisdiction was the appropriate focus. See Caesars, 808
F.3d at 1188 (Section 1334(b) provides that “’the district courts have original but not
exclusive jurisdiction of all civil matters arising under title 11, or arising in or related to
cases under title 11.’”) (quoting 38 U.S.C. § 1334(b) (emphasis added by the Seventh
Circuit). Even without Caesar’s guidance, the Court is disinclined to read “arising under”
so broadly, as it would render § 105(a) far too powerful in light of the Court’s otherwise
limited jurisdiction.
Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990); In re Lemco Gypsum, Inc., 910 F.2d
784, 788 (11th Cir.1990).
The Seventh Circuit, however, has adopted a more constrained approach to

“related to” jurisdiction and has repeatedly emphasized that the bankruptcy court
should interpret its jurisdiction narrowly. Zerand–Bernal, 23 F.3d at 161; Home Ins.
Co. v. Cooper & Cooper, Ltd., 889 F.2d 746, 749 (7th Cir. 1989). Under this more
constrained approach, “[a] case is ‘related’ to a bankruptcy when the dispute ‘affects
the amount of property for distribution [i.e., the debtor’s estate] or the allocation of
property among creditors.’” Mem’l. Estates, 950 F.2d at 1368 (quoting Xonics, 813

F.2d at 131).
“[C]ommon sense cautions against an open-ended interpretation of the
‘related to’ statutory language ‘in a universe where everything is related to
everything else.” Matter of FedPak Sys., Inc., 80 F.3d 207, 214 (7th Cir. 1996).
Thus, simply because a dispute may have some type of nexus to a bankruptcy
proceeding is not enough to give the court “related to” jurisdiction over it. Home
Ins. Co., 889 F.2d at 749. That jurisdiction requires a direct effect upon either the

assets of the estate or their distribution to creditors. “Overlap between the
bankrupt’s affairs and another dispute is insufficient . . . ” Home Ins. Co., 889 F.2d
at 749.
At first blush, common sense would seem to readily support the conclusion
that the Pending Actions, as they relate to 3M, fall within even the Seventh
Circuit’s limited view of the Court’s “related to” jurisdiction. Aearo’s obligation to
indemnify 3M for any liability 3M incurs by virtue of the CAEv2 claims arguably
amounts to liability against Aearo. But such a conclusion ignores the economic
realities of the Funding Agreement. So additional scrutiny is required.

It is true that the Aearo Entities have agreed to indemnify all liabilities
related to the CAEv2 and Respirator Claims. But the Funding Agreement also
provides for an uncapped, non-recourse commitment from 3M to fund all of the
Aearo Entities liabilities pre- and post-petition financing, including those arising
from CAEv2 claims and Respirator Claims. This includes any indemnity
obligations arising from an assessment of liability against 3M relating to the

Pending Actions. In support of their objections, the Objecting Parties insist that the
Funding Agreement amounts to nothing more than a “circular arrangement.”
To counter that charge, Aearo points to Aearo’s requirement to first exhaust
its own assets, namely cash and insurance coverage, before triggering 3M’s funding
obligation. However, the Funding Agreements makes clear that if Aearo’s assets
are “or are projected to be . . . insufficient to pay or satisfy the Liabilities or
amounts or otherwise maintain the Minimum Balance,”13 then 3M must honor

Aearo’s funding request. Moreover, while Aearo seemingly is obligated to repay any
indemnity obligations to 3M, Aearo is authorized to make a funding request for
such indemnification from 3M. In essence, Aearo is able to ask 3M for the funds
required to pay Aearo’s indemnity obligation to…3M. This does indeed seem to be a
circular arrangement as the Objecting Parties argue.

13 “Minimum Balance” is defined as $5 million cash on hand held, in the aggregate, by the
Aearo Entities.
Significantly, 3M commitment under the Funding Agreement does not
depend on the Court enjoining the Pending Actions—a commitment that Aearo
expressly negotiated under the belief that it might be “marooned” in bankruptcy

with no funding source if such a condition was included and if the Court denied the
PI Motion. It would seem, then, that whatever liability the Pending Actions
generate—in bankruptcy, outside of bankruptcy, stay in place, or no stay—Aearo
can satisfy such liability by making a payment request under the Funding
Agreement. From this, the Court is unable to discern any financial impact to
creditors, let alone a significant and adverse one, from the continuation of the

Pending Actions. Stated differently, the Court cannot conclude that continuation of
the Pending Actions will affect the amount of property for distribution or the
allocation of property among creditors.
A number of other courts have extended the stay notwithstanding the
existence of an uncapped funding agreement. See, e.g., LTL Mgmt, 638 B.R. at 291;
In re Aldrich Pump LLC, No. 20-30608, 2021 WL 3729335 (Bankr. W.D.N.C. August
23, 2021); and In re Bestwall LLC, 606 B.R. 243 (Bankr. W.D.N.C. 2019).

Respectively, this Court cannot follow suit. Given the Seventh Circuit’s instruction
in Xonics and its progeny, the Court must focus its analysis on the actual economic
effect continuation of the Pending Actions will have on the Aearo’s estate and
creditors, a concern that was a not a limiting factor in the above-cited decisions.
It is true that 3M’s commitment under the Funding Agreement is not without
condition, but Aearo’s obligation to exhaust its own assets (namely, its cash reserves
and available insurance policies) do not functionally impair the Aearo Entities from
operating or from offering a fully funded plan of reorganization (or a trust outside of
bankruptcy, for that matter). Or, perhaps more to the point, Aearo failed to

articulate what impairment, behind the merely theoretical, the conditions pose.
Aearo itself must have believed that a reorganization was possible, with the
financial assistance of 3M, without the promise of a stay in favor of 3M because
Aearo itself negotiated for the removal of that condition from the Funding
Agreement.
Of course, 3M’s ability to honor its commitment under the Funding

Agreement is very much the elephant in the room. To this point, Objecting Parties
Keller Postman LLC and Charles Rataj (collectively, “Keller”), in support of its
objection to the PI Motion,14 presented the expert testimony of Dr. J.B. Heaton that
3M’s liability for the CAEv2 claims is at least $100 billion, an amount that far
exceeds 3M’s cash reserves and would, according to Dr. Heaton, take 3M 17 years to
repay. Based on that testimony, the Court could readily conclude that continuation
of the Pending Actions as to 3M would have a significant, if not disastrous, effect on

Aaero’s bankruptcy, notwithstanding 3M’s commitment under the Funding
Agreement.

14 In its Objection, Keller asked the Court, as conditions to 3M’s enjoyment of any
injunction, to preclude 3M from effectuating stock dividends, stock repurchases and a
planned spin-off of its health care division. Dr. Heaton’s testimony was offered in at
attempt not to show that an injunction under § 105(a) was appropriate but to instead
suggest that 3M should be compelled to protect its viability—in order to meet its obligations
under the Funding Agreement—should it enjoy an injunction of the Pending Actions.
However, Keller presented Dr. Heaton’s testimony during the Objecting
Parties’ case15 for the limited purpose of seeking a condition on the stay should the
Court be inclined to grant the PI Motion. Presumably fearing the Court might rely

on Dr. Heaton’s testimony more broadly, the other Objecting Parties did not support
or adopt Dr. Heaton’s testimony. Aearo, for its part, objected to the Court hearing
the testimony under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993),
arguing that Dr. Heaton’s methodology was flawed.
While the Court overruled Aearo’s objection, it is unwilling to consider Dr.
Heaton’s testimony for anything other than the limited purpose for which it was

offered. The evidence that Aearo—the party that bears the burden of proof under §
105(a)—presented in support of the PI Motion emphasizes that 3M is more than
able to honor the Funding Agreement, even if the Pending Actions proceed. The
Court accepts that evidence at face value.16
The Court also rejects Aearo’s insistence that Court should invoke its § 105(a)
powers because the Pending Actions create a significant “distraction” such that 3M
will be unable to perform fully under the SSA. The Court puts little stock on this

15 Dr. Heaton was Keller’s witness; however, he did testify out of order and during Aearo’s
case-in-chief, as an accommodation to Dr. Heaton’s availability. But Dr. Heaton was not
called as part of Aearo’s case-in-chief.
16 In its closing argument, Aearo suggested that perhaps there was some truth in Dr.
Heaton’s testimony, notwithstanding Aearo’s earlier objection to it. The Court recognizes
that Aearo may have tactical reason not to question 3M’s ability to withstand the seemingly
obvious financial peril the Pending Actions pose, but in failing to present evidence to that
end (and instead providing evidence to establish that 3M has more than enough financial
wherewithal to honor the Funding Agreement), the Court is compelled to conclude that
continuation of the Pending Actions will not endanger or otherwise impair Aearo’s
reorganization.
claim. Aearo and 3M have been embroiled in the MDL for over three years, yet the
Court heard no evidence that 3M has, to date, been unable to perform under the
SSA. Undoubtedly those 3M employees tasked with providing services under the

SSA are busy and likely taxed on a regular basis in the ordinary course of 3M’s
business. But the Court has otherwise heard no evidence to conclude that Aearo’s
operations or its administration of these bankruptcy cases will be impacted in the
manner that Aearo argues.
Based on the foregoing, the Court declines Aearo’s request to enjoin the
Pending Actions as to 3M pursuant § 105(a). The Court notes that even if it were to

find that it has subject matter jurisdiction over the Pending Actions, the Court
would reach the same conclusion. An injunction under § 105(a) should issue only17
in extraordinary circumstances where it is “necessary or appropriate” to carry out
the provisions of the Code. In the end, the Court’s focus remains on the actual
economic effect that a continuation of the Pending Actions would have on Aearo’s
bankruptcy estate and, ultimately, its distribution to creditors. Having found no
such effect in light of the Funding Agreement, the Court finds no basis upon which

to invoke its § 105(a) powers.

17 In Fisher, the Seventh Circuit held that to obtain the benefit of a § 105(a) injunction, a
debtor need only show that (1) that there is a likelihood of success on the merits; and (2)
that the injunction serves the public interest.” Fisher, 155 F.3d at 882. The Court finds no
need to discuss these requirements here, as Fisher makes clear that a court does not reach
those issues unless it first concludes that the third-party litigation would “defeat or impair”
the Court’s jurisdiction. Id. The Court can make no such conclusion for the reasons already
stated.
Of course, the Court recognizes that this conclusion may ultimately prove
improvident if Dr. Heaton’s estimation of 3M’s liability and financial wherewithal
ultimately proves accurate. But as the Seventh Circuit’s decision in Bush instructs,

this Court’s analysis of “related to” jurisdiction is ex ante. Bush, 939 F.3d at 856.
From the evidence currently before the Court, the Court is unable to conclude that
3M is unable or unwilling to honor its commitment under the Funding Agreement
and, as such, an injunction of the Pending Actions is neither necessary nor
appropriate.
Conclusion

Admittedly, it is tempting to be swayed by the sheer size of the MDL at issue
in this case, but that alone provides insufficient reason for the Court to conclude
that an injunction is necessary for Aearo’s reorganization or that creditors will be
negatively impacted in the absence of an injunction. Might a stay influence these
proceedings or, more to the point, provide Aearo and/or 3M with additional leverage
to negotiate a global settlement? And might the Bankruptcy Code provide certain
tools that Aearo and 3M will lack outside of bankruptcy? The Court believes the

answer to both these questions is a resounding yes. Alas, those questions are not
things to be considered when reviewing the language of §§ 362(a)(1) and (a)(3), or in
a determination of subject matter jurisdiction for purposes of § 105(a).
For the reasons stated above, the Court hereby SUSTAINS the objections of
the Objecting Parties—other than those relating to unclean hands—and DENIES
the PI Motion. Because of the denial of the PI Motion, the Court OVERRULES as
moot the Keller Objection to the extent it sought conditions on an injunction.
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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10457717. Public record. Not legal advice.