In re Dow Corning Corp.

Decision Date22 June 2000
Docket NumberNo. 95-20512.,95-20512.
Citation250 BR 298
CourtU.S. Bankruptcy Court — Eastern District of Michigan







Craig J. Litherland, Houston, TX, Peter A. Nolan, Sheinfeld, Maley & Kay, P.C., Austin, TX, for Debtor.

Patrick L. Hughes, Verner, Liipfert, Bernhard, McPherson and Hand, Chartered, Houston, TX, Kenneth H. Eckstein, Kramer Levin Naftalis & Frankel LLP, Tallahassee, FL, for the Official Committee of Tort Claimants.

Ruth A. Harvey, Mary R. Bohan, Anne M. McCormick, Glenn D. Gillett, Lacy R. Harwell, Washington, DC, for United States Government.



This matter is before the Court on the Debtor's and the Official Committee of Tort Claimants' (the "Movants") Joint Motion for Summary Judgment Disallowing United States' Claims (the "Motion"). The Movants' primary assertion is that the United States' claims are either defective, incomplete or undocumented and, therefore, are incapable of being proven as a matter of law. Secondary grounds include the Movants' contention that one of the Government's proofs of claim was filed on behalf of the wrong party and that the applicable statute of limitations bars substantial portions of the Government's claims. The Motion further seeks summary judgment on the Movants' request to disallow, pursuant to 11 U.S.C. § 502(e), and subordinate, pursuant to § 509, those claims of the Government that are not disallowed by the Court. Resolution of this matter constitutes a core proceeding within the jurisdiction of the Court. 28 U.S.C. §§ 1334, 157(a), (b)(2)(B). For the reasons which follow, the Motion is granted in part and denied in part.

I. Background
A. Nature of Claims Filed by the United States and Objections Thereto

On January 14, 1997, the United States filed proofs of claim on behalf of four federal agencies: Department of Defense ("DoD"); Department of Veterans Affairs ("VA"); Indian Health Services division of Department of Health and Human Services ("IHS"); and Health Care Financing Administration ("HCFA"). The claims seek to recover the costs of medical care either provided or paid for by these agencies as a result of injuries allegedly caused by breast implants manufactured by or containing materials supplied by the Debtor. The HCFA claim is based on the Medicare Secondary Payer Act ("MSPA"), 42 U.S.C. § 1395y. The IHS, VA and DoD claims are based on the Federal Medical Care Recovery Act ("MCRA"), 42 U.S.C. §§ 2651-2653.

The proof of claim filed on behalf of HCFA originally sought reimbursement for an unstated amount of Medicare payments for medical care provided to 10,879 unidentified individuals. Movants' Ex. I: Declaration of Linda A. Ruiz of HCFA in Support of Proof of Claim ("Decl. of Ruiz") at 11. It was clear from this declaration, however, that the Government intended to expand the scope and amount of its HCFA proof of claim beyond these unidentified individuals. Id. at 11-12. The proof of claim filed on behalf of DoD was for $58,710,039. Movants' Ex. J: Declaration of Mark B. Barta in Support of DoD Proof of Claim at 4-5. This amount consisted of an estimated $9,406,039 of medical care provided to 4,123 unidentified individuals as well as a $49,304,000 estimate for the costs of breast-implant-related medical care that DoD expected to provide post-confirmation. Id. at 4-5. The VA proof of claim was for $1,091,834 for services provided to 135 unidentified individuals and an unknown amount of medical care expected to be provided post-confirmation. Movants' Ex. K: Declaration of Nancy Howard in Support of VA Proof of Claim at 2-5. The IHS claim was for an unstated amount for services provided to 58 unidentified individuals as well as anticipated post-confirmation medical care. Movants' Ex. L: Declaration of Leo J. Nolan in Support of IHS Proof of Claim at 6-7.

The Government's original proofs of claim were woefully inadequate, a point never seriously disputed by the Government. See Transcript, February 5, 1998 at 101-04 (counsel for the United States stating that it did not yet know the identities of the federal beneficiaries underlying its claims but that it was in the process of gathering additional information); Transcript, July 16, 1998 at 85 (counsel for the United States acknowledging that its proofs of claim were "incomplete"); Transcript, August 6, 1998 at 213 (counsel for the United States explaining that it intended to supplement its proofs of claim). Some nine months after filing the proofs of claim, the Government still had not amended them to be in compliance with Official Form 10. On October 29, 1997, the Debtor filed its objections.

For each of the Government's claims, the Debtor argued that the United States' right of recovery was dependent upon its ability to establish the Debtor's tort liability to the individual breast implant claimants who form the basis of its claim. The Debtor maintained that, among other things, this would require the Government to identify each of these individual breast implant claimants. And, as the Debtor noted, not one federal beneficiary was identified in the United States' proofs of claim. The Debtor also asserted that, as an entity co-liable with the Debtor on the primary claims, the United States' claims were subject to disallowance pursuant to Bankruptcy Code § 502(e)(1). Finally, the Debtor argued that those claims not otherwise subject to disallowance were subject to mandatory subordination pursuant to Bankruptcy Code § 509(c). See, e.g., Claim Objection No.4: First Amended Objection to the Medicare Claim of the United States at 6.

The United States responded to the Debtor's objections on January 22, 1998. It argued that HCFA's ability to obtain reimbursement from the Debtor pursuant to the MSPA was not predicated on a finding that the Debtor was liable in tort to the individual breast implant claimants underlying its claims. It also asserted that § 502(e)(1) and § 509(c) were not applicable to any of its claims because the Government was not an entity co-liable with the Debtor within the meaning of those Code sections. In the event that the Court found otherwise, however, the Government argued that its claims should not be disallowed pursuant to § 502(e)(1)(B) because they are not contingent. The United States would then be able to pursue allowance of its claim under either §§ 502 or 509(c). But the Government maintained that it would not be in a position to make such an election until it had been able to identify the nature of its claims. Problematically though, it stated that it could identify the nature of its claims only by analyzing the proofs of claim filed by individual breast implant claimants, something that it was being prevented from doing due to this Court's order sealing such information. See, e.g., Claim Objection No. 4: Initial Response of the United States of America to the Medicare Claim Objection at 6.

The Official Committee of Tort Claimants ("TCC") joined the fray when it filed four adversary proceedings against the United States on March 12, 1998. But for the fact that each of the adversary proceedings asserted a cause of action seeking to equitably subordinate the Government's claims pursuant to Bankruptcy Code § 510(c), the TCC's substantive and procedural objections were essentially identical to those raised by the Debtor.

To avoid confusion and unnecessary duplication of effort, the Court bifurcated from the adversary proceedings all issues raised therein, save for the issue of equitable subordination, and joined those issues with the Debtor's objections. Order Bifurcating and Consolidating Issues for Trial, August 20, 1998.1 The next day the Court entered a scheduling order for the trial of the Movants' now-joint objection to the United States' claims. See, e.g., Claim Objection No. 5 Scheduling Order ("Scheduling Order"), August 21, 1998. The Scheduling Order provided that all discovery, other than discovery pertaining to expert witnesses and the issue of tort causation, was to be completed by March 5, 1999.2Id. At the request of the Movants, this deadline was later extended to April 29, 1999. Transcript, April 15, 1999 at 51-55. Finally, on stipulation of the Movants and the Government, the deadline was again extended, this time to May 30, 1999. Order to Revise Discovery and Dispositive Motion Deadlines (entered May 7, 1999).

B. Orders Sealing Certain of the Claims Databases

After filing for relief under chapter 11, the Debtor sought permission to file certain portions of its schedules containing the names of breast implant claimants under protective seal. First Amended Expedited Motion for Authority to File Certain Portions of the Schedules, the Matrix and Certain Certificates of Service Under Protective Seal ("Matrix Motion"), filed June 21, 1995. The names of breast implant claimants covered by this request came from two sources. One source was the Implant Information Center ("IIC") operated by the Debtor during the four years prior to its filing for bankruptcy. The primary mission of the IIC was to "respond and provide current information to women with Dow Corning silicone gelfilled breast implant devices." Id. at 2. Women who contacted the IIC frequently expressed concern over the issue of confidentiality. As a result, the Debtor began making a formal confidentiality statement to all callers. Id. at 3.

The second source was a legal proceeding in which the Debtor participated prior to bankruptcy — the silicone-gel breast implant multidistrict litigation pending at that time before the Honorable Sam Pointer in federal district court in Alabama ("MDL...

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