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Companies Facing Massive Litigation Find Haven In Bankruptcy; Critics Call It “Evasion” - Chicago Daily Law Bulletin - May 18, 1995

Chicago Daily Law Bulletin
May 18, 1995

When Dow Corning Corp. filed for Chapter 11 bankruptcy protection Monday, it was not the first, nor probably the last, of companies that filed in the face of thousands of product liability lawsuits.

So-called strategic bankruptcies, where companies file Chapter 11 to protect themselves from a barrage product liability lawsuits, have been employed by companies before.

Professor Randal C. Picker of the University of Chicago said given the mass tort claims against Dow Corning, filing for Chapter 11 is one way to handle the claims.

"It's important that in society there be a mechanism to manage mass tort litigation, and the Bankruptcy Code might be an appropriate place to do so," Picker said.

He said protection under Chapter 11 allows the company to survive when faced with handling mass tort litigation.

Kenneth B. Moll, a Chicago lawyer who sits on the steering committee of the global settlement for breast implant product liability claims, said Dow Corning's bankruptcy filing was a way for it to evade its obligation to the women who have filed claims and lawsuits.

"For 30 years they manufactured breast implants and profited off of those implants," Moll said. "This is Dow Corning's way of not fessing up to what they've done and to get out the back door."

Richard Hazleton, chairman and chief executive officer of Dow Corning, said following the filing that the reorganization would allow the company to handle the litigation while preserving the company.

Picker said operating under Chapter 11 is sometimes the fairest way to resolve the outstanding product liability claims filed against the company.

"Chapter 11 does not allow you to avoid responsibility, the idea is that there are so many claimants and that if the company is no longer solvent, [using Chapter 11] it would be a fair and equitable way of dividing Dow Corning's assests," he said.

Other companies beset with product liability suits have filed for Chapter 11 protection. More than a dozen asbestos manufacturers filed for bankruptucy reorganization in the face of thousands of product liability suits.

Johns-Manville Corp. faced 16,000 lawsuits related to its asbestos products when it filed in August 1982. A.H. Robins was named a defendant in 14,000 claims from women who used its Dalkon Shield birth-control device when it filed in August 1985.

Dow Corning said it filed for Chapter 11 to limit its escalating costs arising out of the breast implant lawsuits.

The company had agreed to make the largest contribution - $2.1 billion - by 2026 to the global settlement fund. The fund was established for women who say their health was impaired by breast implants.

The $4.23 billion fund, the largest in history, covers 415,000 claims against companies that manufactured the implants.

But approximately 11,100 women opted out of the class and are pursuing litigation independently.

Last month the judge overseeing the case said the global settlement fund would be too small to cover all claims, and now the companies and plaintiffs' attorneys are renegotiating.

But the Chapter 11 filing throws into question Dow Corning's contribution to the global settlement fund since all pending claims and all unprofitable obligations are frozen by the bankruptcy court until the company files its plan for reorganization.

Dow Corning may be removed from the global settlement group if the judge determines that recouping its contribution would take too long while the company fashions its reorganization plan.

If that were to happen, Dow Corning would then create its own class and fund for women with its implants, including those who opted out originally. Moll said he anticipates that move.

Since Dow Corning controlled 40 percent of the silicone breast implant market, a separate class would still be large.

If Dow Corning created its own class, a court-appointed representative would determine the amount of the payments for current claims and would also set aside a fund for any future claims.

A similar plan was used in both the Johns-Manville bankruptcy for asbestos claims involving the Dalkon Shield.

Moll said he would prefer for Dow Corning to remain in the global settlement. "For them to create their own class would be so complicated, but also because of their action, that might be the death of the global class settlement," Moll said.

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