In re Dow Corning Corp.
| Decision Date | 14 September 1995 |
| Docket Number | No. 95-CV-72397-DT.,95-CV-72397-DT. |
| Citation | 187 BR 919 |
| Parties | In re DOW CORNING CORPORATION, Debtor. |
| Court | U.S. District Court — Western District of Michigan |
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This matter is before the Court on the Debtor Dow Corning Corporation's motion to transfer certain breast implant cases to the United States District Court, Eastern District of Michigan pursuant to 28 U.S.C. § 157(b)(5). Responses were filed and a hearing was held on the matter.
At the onset, the Court is very cognizant of the rights of the claimants involved in this matter under our judicial system as well as the protections afforded to the Debtor Dow Corning under our bankruptcy laws. With these sometime competing interests in mind, the Court has attempted to balance the rights of both the Debtor and the claimants in its decision.
On May 15, 1995, the Debtor, Dow Corning Corporation, sought a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court of the United States District Court, Eastern District of Michigan, Northern Division in Bay City, before the Honorable Arthur J. Spector. On June 12, 1995, the Debtor filed a motion to transfer certain breast implant cases before the Bankruptcy Court. Judge Spector entered a Determination and Report and Recommendation Regarding the Debtor's Motion to Transfer on June 13, 1995 indicating that the District Court had jurisdiction over this motion. On July 5, 1995, this Court entered an order provisionally transferring the opt-out breast implant cases involving the Debtor only to the Eastern District of Michigan pending a hearing scheduled for the motion on July 31, 1995.
Debtor is a leading producer of silicone products. Dow Corning was formed in 1943 as a corporation owned by Corning Incorporated and Dow Chemical Company (each has a 50% ownership interest) to develop and produce silicones and silicone products during World War II. In 1994, the Debtor Dow Corning's total sales were nearly $2 billion. The Debtor manufactured breast implants for commercial use from approximately 1964 until 1992. During a part of this time, the Debtor also supplied certain raw materials to other breast implant manufacturers. According to the Debtor, in the year of its highest sales in 1991, breast implants only accounted for less than 1% of the Debtor's sales.
Silicone gel breast implants consist of a silicone elastomer "envelope" filled with silicone gel. The implants are surgically implanted for purposes of breast reconstruction in breast cancer patients and for cosmetic reasons. These implants have the same chemical make up as silicone materials used to make catheters, shunts, pacemaker leads and other medical devices.
In the early 1980s, silicone breast implants were subject to occasional product liability lawsuits. By 1987, 50 such lawsuits had been filed. In 1990 and 1992, over 100 lawsuits were filed against the Debtor. However, beginning in 1992, the implant litigation drastically increased. Over 3,000 suits were filed against the Debtor in 1992, over 8,000 in 1993 and over 7,000 in 1994. The litigation included both individual claims and actions on behalf of putative classes. By early 1995, the Debtor was a Defendant in 45 putative class action lawsuits (31 in various federal district courts, 12 in state courts and 2 in Canada) and over 19,000 individual lawsuits. All the suits combined involved more than 36,000 claimants. The Debtor was sued both as the manufacturer of breast implants and supplier of silicone raw materials to other breast implant manufacturers.
According to the Debtor, these claims uniformally allege that breast implants cause diseases, including autoimmune disease, scleroderma, systemic disorders, joint swelling and chronic fatigue. The damages sought in these cases are substantial, ranging from hundreds of thousands to tens of millions of dollars in compensatory and punitive damages. Claims involving mechanical defects, including rupture of the implants, are also alleged by the claimants.
In June 1992, pursuant to 28 U.S.C. § 1407, the Judicial Panel on Multi District Litigation ("MDL") ordered that federal actions involving breast implants be transferred to the Honorable Sam C. Pointer in the Northern District of Alabama for coordinated or consolidated pretrial proceedings ("MDL No. 926"). In re Silicone Gel Breast Implants Products Liability Litigation, MDL No. 926, 793 F.Supp. 1098 (J.P.M.L. 1992).
The Debtor asserts that as that litigation progressed, so did efforts to achieve a global resolution of this controversy. Although the Debtor contends that its products were safe and did not cause the diseases being claimed, it was compelled to recognize that its resources were not unlimited and that the litigation was diverting management's attention from the company's core businesses and that the costs of continued litigation would be substantial. According to the Debtor, in 1994, its litigation costs exceeded $200 million.
After months of negotiations with co-defendants and claimants, a court-approved "Steering Committee" representing breast implant claimants, the Debtor and other implant manufacturers entered into a "global settlement" of breast implant claims on March 23, 1994. The Debtor agreed to contribute up to $2.02 billion (out of a total settlement of $4.25 billion) of the funding required by the settlement. Judge Pointer approved the settlement as fair and reasonable in a September 9, 1994 Order after certifying one of the consolidated federal actions as a class action for purposes of settlement under Fed.R.Civ.P. 23(b)(3).
It appears that the global settlement did not resolve the controversy and the future of that agreement, at this time, is in question. First, the Agreement is oversubscribed in that the claims being made against the established funds exceed the Defendants' funding commitments. Second, numerous claimants have opted not to participate in the settlement, electing instead to pursue individual suits. As of May 1995, over 6,000 claimants had opted out of the global settlement and are pursuing individual actions ("opt-out" claimants). The Debtor asserts that it cannot both fund the settlement and continue to incur substantial litigation costs in connection with the opt-out claimants. These opt-out claims which led to costly proceedings in state courts, are a major reason for the Debtor's decision to seek bankruptcy protection, according to the Debtor.
In early 1992, the Food and Drug Administration ("FDA"), asked for a voluntary moratorium on the production of breast implants. Since that time, the Debtor has tried to verdict six breast implant cases involving nine claimants. The jury returned a verdict in favor of the Debtor in three of the cases; in favor of the plaintiffs in two of the cases; and in the sixth case, involving two plaintiffs, the jury found in favor of one plaintiff and against the other. According to the Debtor, none of the juries have awarded punitive damages in the post-moratorium trials.
The Debtor asserts that breast implant trials are time-consuming. Complex scientific evidence is involved in various scientific fields. The above trials ranged in length from two to eleven weeks, excluding months of preparation that preceded each trial. According to the Debtor, the central issue was the same: whether silicone gel breast implants cause disease. The Debtor asserts that the complexity of the cases placed at a substantial disadvantage its efforts to deal with the opt-out claims which were being pursued in state courts. The state proceedings were uncoordinated and trial dates were overlapping. When it filed for bankruptcy protection, the Debtor faced approximately ninety trials over the next six months, including seven trials with twenty-eight plaintiffs in Texas during the month of June 1995. From the Debtor's perspective, these conflicting trial settings created frantic conditions that made it impossible to fairly, rationally, and efficiently resolve the central scientific issue of whether implants cause the diseases that are alleged. The Debtor states that it could not succumb to exorbitant settlement demands nor could it go to trial knowing that it could not muster the resources necessary to mount an effective defense on so many fronts simultaneously. The Debtor claims it was forced to seek bankruptcy protection under Chapter 11 of the Bankruptcy Code. However, despite the Chapter 11 proceedings and the automatic stay provisions of 11 U.S.C. § 362, the breast implant litigations are still ongoing. Plaintiffs throughout the United States have filed notices of nonsuit against, dismissals of and motions to sever the Debtor in order to proceed to trial against Dow Chemical Co. and/or Corning, Inc. In June and July 1995, suits against Dow Chemical and/or Corning were set for trial in numerous counties throughout Texas.
The Debtor has envisioned essentially a four-step process in its reorganization proceedings. The Debtor's proposal claims to have taken into account the substantive and procedural rights of the opt-out claimants and also ensures the integrity of the bankruptcy proceeding. The first step is the removal to local federal district courts of state opt-out claims involving the Debtor's implants pursuant to 28 U.S.C. § 1452(a). The second step is the instant motion to transfer, which seeks to have all of the opt-out actions then transferred to the Eastern District of Michigan. Should the second step be granted, the third step is a motion to consolidate the transferred claims and an early trial on the threshold issue of whether implants cause the diseases being claimed pursuant to Fed.R.Civ.P. 42. The Court would oversee a consolidated, adversary trial that would focus on the scientific...
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