THE PRODUCT LIABILITY MORASS : Complications Set In : Dow Corning’s Bankruptcy Talk Discounted

Dow Corning is unlikely to follow through on its warning that it might seek bankruptcy protection to help resolve massive silicone breast implant litigation because it is the least attractive option for the company, legal experts said Friday.

Meanwhile, about 175 lawyers representing implant recipients met Friday in Chicago to urge plaintiffs to stick together in efforts to back a proposed $4.23-billion global settlement fund established last year. The settlement is in danger of “cratering,” as one plaintiffs’ lawyer put it, because many more women than expected have filed claims. The federal judge who is overseeing the settlement fund has said it will fall short of cash.

Thursday’s announcement by Dow Corning, once the leading supplier of silicone implants, that it is considering a Chapter 11 bankruptcy reorganization has added new urgency to negotiations among hundreds of lawyers representing implant suppliers and women who claim that implants have damaged their health.

Legal specialists note that Dow Corning has hinted at bankruptcy before and most consider it a negotiating tactic to persuade other implant suppliers to ante up more money for the settlement fund.

John C. Coffee, a Columbia University law professor and specialist in mass tort litigation, noted that very few companies announce intentions to declare bankruptcy. “That is almost as unusual,” he said, “as a dog that doesn’t bark in a Sherlock Holmes mystery.”

Coffee and other lawyers said Dow Corning, a 50-50 joint venture of Dow Chemical Co. and Corning Inc., is likely trying to bring some additional leverage on Judge Sam C. Pointer Jr. as he tries to get the key corporate defendants--including Baxter International and Bristol-Myers Squibb--to put more money into the pot.

“It’s a threat; they’ll never file bankruptcy,” said William B. Griffin, a San Francisco lawyer who represented Mentor Corp., a Santa Barbara implant manufacturer that earlier settled all its litigation. “If you file bankruptcy, you effectively lose control of the company, lose control of the assets and the plaintiffs’ lawyers will determine what happens to the company.”

The negotiations come as Congress considers legislation that would make it tougher for consumers to win multimillion-dollar damage awards in product liability cases--the so-called tort reform debate. Breast implant recipients are concerned that any delays in concluding a settlement could jeopardize their ability to recover large awards.

“If there isn’t a settlement soon, we’ll tell the women to file their cases soon,” said Sybil Goldrich, co-founder of the Command Trust Network, a nationwide support group for implant recipients. “If worst came to worst, we would organize a nationwide boycott of Dow products by women.”

If Dow Corning did file for bankruptcy, it would be among the largest cases ever in which corporations sought court protection when faced with mass lawsuits. Manville Corp.’s predecessor, an asbestos manufacturer, sought such protection, as did A. H. Robins, maker of the Dalkon Shield birth-control device.

“If it goes into bankruptcy, we’ll probably see the same thing that happened with Johns Manville,” Coffee said.

In the Manville case, a trust fund was established with independent trustees. The fund was used by the trustees to pay off claimants as they filed, but the trust went bankrupt in two years after its funds were depleted. A federal judge then had to restructure the settlement to ensure there was enough money for future claims.

Thomas A. Smith, a University of San Diego law professor, says bankruptcy would buy Dow Corning more time to allow for further scientific studies about the health issues related to implants. Dow and other manufacturers have contended that there is no scientific evidence that leakage from implants has caused a host of illnesses. In the Manville and A. H. Robins cases, there was stronger evidence linking the products to health hazards.

“It’s not clear that the science is trending in favor of the plaintiffs,” Smith said. “As time goes on, the science might become clearer” and, the corporations would hope, more to their advantage.

“One thing Chapter 11 allows you is to delay” payments to women, Smith added. “But it’s a very expensive way to buy time because it’s complicated and lawyers get a big piece of the money.”

Dow Corning executives have stressed that a bankruptcy filing would not be an attempt to shirk its obligation to pay women. “The truth is just the opposite,” said company President Gary Anderson. “If we were to get into financial trouble, we would be unable to pay that $2 billion over 30 years”--the amount pledged by the firm under the current agreement.

Besides the number of claims filed with the settlement, Dow Corning officials have said that 2,000 to 4,000 women--far more than expected--have decided not to participate in the global fund and instead pursue lawsuits in state and federal courts. Under terms of the deal, the corporate defendants can back out of the deal if the number of women opting out is too high. And women will get another chance to opt out of the settlement once it’s known exactly how much money they are going to receive.

The bankruptcy threat also increases pressure on Dow Chemical Co., which owns 50% of Dow Corning but has claimed that it has no legal liability because it was not directly involved in manufacturing or selling the implants. Dow Chemical has not contributed to the settlement fund, although it is named in thousands of lawsuits.

Plaintiff attorneys’ hopes of reaching into Dow Chemical’s deep pockets opened up on April 25 when Judge Pointer reversed an earlier ruling and said that the Midland, Mich., firm could be sued by individual women.

In his ruling, Pointer wrote that Dow Chemical had performed tests on breast-implant components and knew “no later” than 1973 “which silicones were contained in breast implants and was aware of possible problems associated with such silicones.”

Knowles said settlement negotiations would resume Monday in Washington. Even if the parties reach a settlement in the next few days, that may not end the story, some experts said.

Pointer “will recognize that unless there is enough money, he has a continuing problem,” Coffee said.

“If the parties come back to the judge and say we will change the opt-out rights (meaning less ability of women to opt out), you have a real conflict of interest between the plaintiff lawyers and the class members,” he said.