In re Dow Corning Corp.

• Decision Date: 02 December 1999
• Docket Number: Bankruptcy No. 95-20512.
• Parties: In re DOW CORNING CORPORATION, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

244 B.R. 634 (1999)

In re DOW CORNING CORPORATION, Debtor.

Bankruptcy No. 95-20512.

United States Bankruptcy Court, E.D. Michigan, Northern Division.

December 2, 1999.

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Barbara J. Houser, George Tarpley, Craig J. Litherland, David Bernick, David Ellerbe, Sheinfeld, Maley & Kay, P.C., for Debtor.

Ogden N. Lewis, Michael S. Flynn, Davis Polk & Wardwell, Sheryl L. Toby, Honigman, Miller, Schwartz & Cohn, for the Official Committee of Unsecured Creditors.

Ralph R. Mabey, LeBoeuf, Lamb, Greene & MacRae, L.L.P., Robert S. Hertzberg, Hertz, Schram & Saretsky, P.C., for Halcyon.

Charles Wolfson, for Certain New Zealand Claimants.

David J. Hutchinson, Fernando Vergueiro, for Brazilian Claimants.

John White, Jr., Geoffrey White, for Class 5 Nevada Claimants.

Kenneth H. Eckstein, Jeffrey S. Trachtman, Kramer Levin Naftalis & Frankel LLP, for the Official Committee of Tort Claimants.

Mark Phillips, H. Jeffrey Schwartz, for Official Committee of Physicians Claimants.

Glenn Gillette, for the United States Government.

Sybil Shainwald, Stephen H. Weiner, for Foreign Claimants.

John T. Johnson, P.C., for Certain Claimants from The Netherlands.

Peter Cashman, David Goroff, for Australian Claimants.

Leslie K. Berg, Office of the U.S. Trustee.

AMENDED OPINION ON THE CLASSIFICATION AND TREATMENT OF CLAIMS

ARTHUR J. SPECTOR, Chief Judge.

The Debtor and the Official Committee of Tort Claimants negotiated and on November 9, 1998 filed a Joint Plan of Reorganization. The plan (hereafter referred to simply as the "Plan") was subsequently amended on February 4, 1999 and modified various times. The hearing on confirmation of the Plan commenced on June 28, 1999 and closing arguments were heard on July 30, 1999. Several post-hearing briefs and other submissions were received and the Court took the matter under advisement.

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. To supplement and explicate some of the findings and conclusions, the Court contemporaneously releases this opinion and several others.

A number of general unsecured creditors, whose claims arose from the Debtor's manufacture and sale of silicone-gel breast implants, objected to confirmation of the Plan. The objections addressed in this opinion assert that the Plan does not comply with 11 U.S.C. §§ 1122(a) and 1123(a)(4).¹ The Court disagrees, and for the reasons stated below these objections are overruled.

I. Background

Section 1129(a) sets forth 13 requirements for confirmation of the plan, one of which is that a plan of reorganization must "comply with all applicable provisions of the Bankruptcy Code." 11 U.S.C. § 1129(a)(1). Two of those applicable provisions are §§ 1122(a) and 1123(a)(4). Section 1122(a) governs claim classification and § 1123(a)(4) provides general requirements for within-class treatment of claims.

The Plan divides claims and interests into 33 classes and subclasses. The following classes are relevant to this opinion: Class 4 Unsecured Commercial Claims; Class 5 Domestic Breast Implant Claims; Class 6.1 Foreign Breast Implant Claims; Class 6.2 Foreign Breast Implant Claims; Class 7 Silicone Material Claims; Class 12 Physician Claims; and Class 15 Government Payor Claims.²

Class 4 is made up of all unsecured commercial claims against the Debtor. Amended Joint Disclosure Statement With Respect to the Amended Joint Plan (the "Disclosure Statement") § 6.1(C)(8). Claimants in this class will be paid in full with interest and will also be entitled to receive any fees, costs and expenses that are allowable under applicable law. On the Effective Date, or as soon as practicable thereafter, each Class 4 claimant will be paid in cash an amount equal to up to 24% of its allowed claim. Each Class 4 claimant will then receive a Senior Note for the balance of its claim. Plan § 5.1.

In general, Class 5 consists of breast-implant claims against the Debtor held by claimants who are either citizens of the United States or are resident aliens within the United States, Puerto Rico, the territories of the United States, or a United States military facility (hereafter these geographic areas are referred to as the "Greater U.S."). Disclosure Statement § 6.1(C)(4). Claims of those who do not meet the above citizenship or residency requirements, but who had their breast-implant procedures performed inside the Greater U.S. are also categorized in Class 5.

The Plan would provide domestic breast-implant claimants with the option to either settle or litigate their claims against the Debtor. The claims of those who opt to settle would be channeled to the Settlement Facility. Once there, claimants would be given the opportunity to qualify for a number of different settlement levels ranging from an expedited payment of $2,000 to a payment of $300,000 for the most severe injuries. Id. at 20. Class 5 claimants who choose to litigate would be channeled to the Litigation Facility.

Classes 6.1 and 6.2 are composed of breast-implant claims against the Debtor held by individuals who are neither citizens of the United States nor resident aliens of the Greater U.S., and who had their breast implant procedures performed outside the Greater U.S. Plan § 1.67. A foreign breast implant claim is in Class 6.1 if the claimant is a resident of a country that either: belongs to the European Union, has a common law tort system, or has a per capita gross domestic product ("GDP") that is greater than 60% of the United States' per capita GDP. The claims of foreign breast-implant claimants who are residents of countries that do not meet one of these requirements are placed in Class 6.2.³

Like domestic breast-implant claimants, all foreign claimants are given the opportunity to either settle or litigate their claims. The claims of those who elect to settle are channeled to the Settlement Facility where they are given the opportunity to qualify for the same settlement levels that are offered to domestic breast-implant claimants. It is at this point in the settlement process that treatment of domestic and foreign breast-implant claims diverge. Settlement payments to Class 6.1 claimants would be 60% of the amounts paid to domestic breast-implant claimants. Class 6.2 claimants would receive settlement payments that are 35% of the amounts paid to domestic breast-implant claimants.

Class 7, Silicone Material Claims, consists of claims held by both foreign and domestic claimants and which arise from the claimant's use or implantation of a breast-implant manufactured by a company other than the Debtor. The manufacturer in question must be an entity that is either domiciled or has its manufacturing facilities in the United States. In addition, the manufacturer must have purchased medical-grade gel systems from the Debtor. Id. § 1.166.

Class 7 claimants, like other breast-implant claimants, will be able to resolve their claims through litigation or settlement. Those choosing to settle will be paid from a fixed fund of $57.5 million and will have two settlement options, an expedited-release payment and a disease-option payment. Disclosure Statement at § 6.6(J)(2)(b). Claimants selecting the expedited-release payment will each receive the same amount, an amount which is to be determined by the Claims Administrator at a later date. Id. Claimants choosing the disease-option payment will be able to qualify for the same settlement grid levels as breast-implant claimants in Classes 5, 6.1 and 6.2. But payments under this option will be no more than 40% of the amount paid to a breast-implant claimant under the equivalent grid level. Id. All settlement payments to Class 7 claimants will be subject to a dollar-for-dollar reduction for any payment that the claimant has received or is eligible to receive from the actual manufacturer of the breast implant. This reduction will not apply, however, if the breast implant was manufactured by CUI, Mentor or Bioplasty, since those companies have been liquidated through bankruptcy proceedings. Id.

The Plan classifies all physician claims in Class 12. These claims arise out of the Debtor's manufacture and sale of siliconegel breast implants and other medical products and the marketing and provision of such products to physicians. Disclosure Statement at 12. Physician claims are of two types. Most physician claimants seek reimbursement or indemnification from the Debtor in the event that the physician claimant is found personally liable for the injuries allegedly caused by the implants to the implant recipients. These claims have been dubbed "Physician Derivative Claims." A few physician claimants also assert what are called "Physician Direct Claims." This type of claim alleges, for example, that in its marketing, sale and provision of breast implants to physician claimants, the Debtor fraudulently misrepresented the extent and results of testing on breast-implant safety and that, as a result of such misrepresentation, these physicians suffered direct injury such as loss of profit or damage to reputation. Id.

The Plan would provide physician claimants with the choice to either settle or litigate their claims against the Debtor. Regardless of the route taken by the physician claimant, however, her claims would be treated in an aggregated manner. That is, a physician claimant who chooses to settle would have to settle all of her claims against the Debtor, both derivative and direct. A physician claimant who chooses to litigate would have to litigate all of her claims against the Debtor. Id. The settlement offer extended to physician claimants is not in the form of cash. Instead, in return for releasing all Physician Derivative and Direct Claims that they have against the Debtor and all other parties to be released under the Plan, the settling physician...