Maker of Implants Seeks Bankruptcy, Freezing Lawsuits : Health: Action by Dow Corning deals severe blow to women who claim breast devices made them ill. Fragile $4.23-billion settlement is jeopardized.
Hundreds of thousands of women who received silicone-gel breast implants--and who now claim the devices made them sick--were dealt a severe blow Monday when Dow Corning Corp., once the biggest manufacturer of the implants, filed for federal bankruptcy protection.
The legal action put at further jeopardy an already fragile $4.23-billion settlement under which nearly 60 breast implant manufacturers and suppliers agreed to settle the bulk of the women’s claims. Implant recipients may have to wait years longer, legal observers said, before getting money to pay for removal of the devices or for other medical treatment.
Midland, Mich.-based Dow Corning, which stopped making the implants in 1992, is the biggest contributor to the global settlement, having pledged about $2.02 billion over 30 years. But a federal judge said May 3 that the settlement was inadequately funded, and dozens of lawyers for both sides have been in negotiations to raise more cash.
For Dow Corning, which had warned the next day that it might seek bankruptcy protection, the move effectively freezes some 19,000 implant lawsuits, including about 200 set for trial in 1995.
In Sacramento, a breast implant trial that started last week was immediately halted on news of the action; an Orange County case where jury selection was to have begun Monday was put on hold until September.
Sandy Anderson, a San Diego woman who believes her immune system was damaged by cosmetic breast implants she received in the mid-1970s, fought back tears after being told about the bankruptcy filing.
“I think it is the ultimate act of irresponsibility,” she said. “This is a huge multinational, multibillion-dollar company that doesn’t take responsibility for what it’s done.”
Dow Corning officials said the company had little choice but to file for bankruptcy protection, due to the unexpectedly large number of women who opted not to participate in the global settlement and have instead sued the firm in courthouses across the country.
“Attorneys with lawsuits outside of the global settlement have not reduced their exorbitant demands,” said Richard A. Hazleton, Dow Corning’s chairman and chief executive. Those suits, he said, represent “a potentially enormous financial and management drain which threatened our business.”
The Chapter 11 filing is among the largest ever in connection with product liability claims. A.H. Robins Co. sought bankruptcy protection under a deluge of claims regarding the Dalkon Shield contraceptive device; asbestos manufacturer Manville Corp. also retreated to bankruptcy court. In all, Dow Corning’s filing marks the 17th time since 1982 that a U.S. corporation has sought federal bankruptcy protection as a result of product liability litigation.
Both Manville and Robins eventually emerged from bankruptcy court with reorganization plans that created trusts which both paid injury claims and protected the companies from further litigation.
Hazleton stressed that Dow Corning--a joint venture of Dow Chemical and Corning Inc.--is financially sound, adding that the firm was not trying to shirk its pledge to fund the global settlement. More than 400,000 women have filed claims under the settlement process, including 137,000 who say they already are ill.
But Hazleton and others close to the situation said the entire global settlement may have to be significantly restructured.
“It is clear that no women will get paid any money any time soon,” said Alan Morrison, senior attorney at Ralph Nader’s Public Citizen Litigation Group in Washington, D.C., and who has been following the case closely. “The worst thing is that the women who were counting on getting medical monitoring or ex-plantation [for removal of implants] or other medical emergency funds will not be able to get a nickel until the reorganization plan is approved.”
Some legal observers said Dow Corning’s filing appeared to be an effort to make it much less attractive for women to seek redress in court, outside the settlement.
“I think this is a very novel and clever tactic designed to lock claimants into the class-action settlement,” said John Coffee, a Columbia University law professor and specialist in such litigation. “I don’t believe that this bankruptcy is really driven by the cases pending in state and federal courts.”
With the Chapter 11 filing, even a woman who believed she had a strong case against the company might have to wait years to get her day in court. Plaintiffs would run the risk that the scientific evidence supporting a link between breast implants and health risks--the central claim in their lawsuits--could weaken. Women might decide that the least risky decision would be to join the settlement and guarantee themselves at least some compensation.
“We believe the science will continue to come in as it has been coming in, and that will ultimately assist in resolving this litigation,” John Churchfield, Dow Corning’s chief financial officer, told Bloomberg Business News.
Women contend that the implants are linked to a host of ailments, including autoimmune disease, scleroderma, joint swelling and chronic fatigue. But Dow Corning and other suppliers contend that the products are safe.
Major scientific studies have bolstered the manufacturers’ contention. But awards for implant recipients in jury trials have demonstrated jurors’ considerable skepticism about those findings. In 11 trials since 1992, juries around the country have awarded plaintiffs about $80.9 million in damages.
Stanley Chesley, a Cincinnati attorney who is one of the lead lawyers for the plaintiffs in a federal class-action suit, blasted Dow’s move. “It’s disingenuous for them to blame lawyers rather than their defective products. Women are once again the victims,” Chesley said.
Anne Andrews, a Long Beach attorney who represents about 1,300 women with implants who have opted out of the global settlement, said she was telling her clients Monday that Dow Corning would not escape ultimate liability by filing for Chapter 11.
“At the earliest possible opportunity, there will be motions filed” asking the court to lift Dow’s bankruptcy-court protection as far as the implant cases are concerned, she said.
In Chapter 11 bankruptcy, a company receives protection from creditors’ claims while it prepares a reorganization plan to settle its debts. In Dow Corning’s case, the breast implant plaintiffs will join the company’s list of creditors, who must approve any reorganization plan before it goes to a bankruptcy judge for approval.
Meanwhile, Dow Corning and other implant makers, including Baxter International, Bristol-Myers Squibb, 3M Corp. and Union Carbide, face renegotiating the $4.23-billion settlement.
The federal jurist overseeing the bankruptcy, U.S. District Judge Samuel C. Pointer in Birmingham, Ala., has said the fund is inadequate.
One source close to the negotiations said it was hard to “imagine how the settlement will survive.”
The source said the current deal might survive as a building block for a restructured settlement. But any new settlement would likely create greater hurdles for women--particularly those with no current injuries--to participate, the source said.
“Right now, anyone can qualify. Right now, it’s a sieve, not a grid,” the source said. “It has to be something that looks different from the existing deal.”
The settlement does not require proof that a woman’s disease was caused by a breast implant.
Under the agreement, women can receive $105,000 to $1.4 million. The settlement is designed to operate like an insurance policy: By signing up now, a woman who has implants could get compensation if she becomes ill later.
Dow Corning said its Chapter 11 filing was further prompted by its unsuccessful efforts to persuade its liability insurers to negotiate payments for implant claims. So far, the firm has obtained less than $100 million of the $1.5 billion it is seeking from insurers; it is suing some 100 carriers for more money.
Another source of funds could be Dow Chemical Corp., a 50% owner of Dow Corning.
In late April, Pointer reversed his own earlier ruling to hold that plaintiffs could sue Dow Chemical directly for implant-related damages. Lawyers involved in the litigation said Monday that Dow, facing such exposure, might have encouraged Dow Corning to slow the legal process by filing for Chapter 11.
“It’s no accident that this bankruptcy [filing] came on the heels of Pointer’s order,” said Houston trial lawyer Richard Laminack, whose firm has won several large jury verdicts on behalf of implant recipients.
Dow Chemical spokesman Dan Fellner said only the firm believed it should not be a party to the litigation and insisted it would not contribute to the settlement fund.
Meanwhile, Dow Corning is facing other legal concerns related to breast implants. Dow Corning disclosed Monday that the U.S. Attorney’s office in Baltimore issued two federal grand jury subpoenas in February, 1993, seeking documents and information about breast implants. The company said it is cooperating “as this grand jury investigation proceeds.”
In addition, it said it is the target of an “informal investigation” by the Securities and Exchange Commission’s office in Boston. The company said the SEC requested documents pertaining to breast implants on July, 9, 1993.
Deborah Hensler, a legal expert at RAND Corp. in Santa Monica, said Monday’s action was another sign of how difficult it is for the American legal system to cope with the sweeping damage claims known as “mass torts.”
“There are good attorneys on both sides and an outstanding judge,” she said. “They brought to the table the experience of the last 15 years in trying to resolve this case, and they’re still coming up short. In the meantime, the victims are still not recovering.”
* WIDE IMPACT: How the bankruptcy filing affects consumers, others. D1.
* VICTIMS’ REACTIONS: O.C. activist Marie Walsh says she won’t give up her fight. D1
* BANKRUPTCY PRECEDENT: Lessons from Manville’s asbestos-related filing. D13
