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by George Gunset
Tuesday, May 16, 1995
Hundreds of thousands of women claiming damage from silicone breast implants may be forced to accept far less in liability payoffs than they had expected after a decision Monday by Dow Corning Corp. to seek bankruptcy protection.
In filing for Chapter 11 bankruptcy, Dow Corning is following a path well-traveled by other big companies-in cases involving everything from asbestos to birth control-when faced with funding billions of dollars in damages.
Their argument is that huge liabilities will force them out of business, eliminating future earnings from any settlement for plaintiffs.
Often, such cases greatly reduce payoffs to individual plaintiffs and can delay them for years.
The Dow Corning filing, in U.S. Bankruptcy Court in Bay City, Mich., near the company's headquarters in Midland, froze 19,000 implant suits, including 200 set for trial in the next six months.
It also jeopardized an already-shaky $4.25 billion settlement of implant claims, the largest product-liability agreement in U.S. history. Dow Corning, the largest producer of the devices, is supposed to contribute nearly half the settlement money, $2 billion.
"The fact that the corporation will not be responsible for its mess is outrageous," said Joan Rice of Potomac, Md., who has had her Dow Corning implants taken out.
"We will be Dow Corning's worst nightmare," warned Stanley Chesley, a Cincinnati lawyer who is co-chairman of the plaintiffs' steering committee and co-chairman of the negotiating settlement committee.
"You can't get the benefits of Chapter 11 without disclosing everything," he said. "We'll know what they're paying their lawyers and what they are spending on full-page ads" saying there's no evidence of damage from silicone breast implants.
Still, "the federal courts are likely to rule that society is better off with Dow Corning continuing as a going concern providing medical technology and employment," said Tom Prince, professor of accounting and health-care service at the J.L. Kellogg Graduate School of Management at Northwestern University.
Prince, who has studied and been a consultant in corporate bankruptcy cases for more than 30 years, pointed to the LTV Corp. case as a guide.
"LTV couldn't meet its pension obligations and filed for bankruptcy protection," he said. "The government pension guarantee agency didn't want the huge liability. In the end, the court decided the company had to pay 19 percent of its liability, or less than 20 cents on the dollar. That hurt the pensioners, but the company kept going."
And, if he had to bet, Prince said the odds are "20-to-1 that Dow Corning will survive."
Dow Corning joins a number of manufacturers who have sought protection under Chapter 11 of the bankruptcy code from thousands of lawsuits over allegedly hazardous products. They include Manville Corp., once the country's lead ing asbestos producer, and A.H. Robins Inc., driven into bankruptcy over its Dalkon Shield birth control device.
Some asbestos claims brought 10 years ago are only now getting paid, and at a rate of 10 cents on the dollar. Dalkon claimants also had to wait years, but more than 96 percent of the claims have been paid.
Women who filed claims against the silicone breast implant manufacturers argued that the implants caused illnesses such as scleroderma-a condition where the skin thickens and hardens- rheumatoid arthritis and autoimmune disease.
Dow Corning has asserted that the gel implants were not a health risk. It released summaries of studies indicating no link between health risks and the implants. The studies were conducted by Harvard Medical School, Mayo Clinic, the University of Michigan School of Public Health and the Johns Hopkins Medical Institutions.
The $4.25 billion implant settlement, crafted by a federal judge in Birmingham, Ala., last September, was meant to resolve thousands of the lawsuits.
Women with implants initially were promised net payments ranging from $105,000 to $1.4 million through the settlement. But a recent analysis showed there was not enough money to compensate all the women seeking payments in the initial phase of the deal.
Faced with those numbers, Judge Sam Pointer instructed women's lawyers and implant manufacturers to renegotiate in a bid to save the agreement. Those talks began earlier this month.
"We still are negotiating as a group of defendants on revising the settlement," said Jill Carter, a spokeswoman for Deerfield-based Baxter International Inc. "We're confident that we will be able to get that worked out."
Baxter never made the devices but acquired liability when it purchased American Hospital Supply Corp. in 1985. American previously had sold the manufacturing division, American Heyer-Schulte. Baxter has committed to pay $556 million into the global settlement, of which $426 million is expected to be covered by insurance, Carter said.
While estimates on the number of women with implants vary widely, more than 400,000 women have registered to participate in the settlement. Court officials say between 9,000 and 10,000 have rejected the deal.
Dow Corning is a joint venture of Dow Chemical Co. and Corning Inc. that was formed in 1943. Dow Chemical said it would take a second- quarter charge of $1.25 a share to reflect a writedown of its $374 million investment and loss of future earnings. Corning said it is considering writing off its $364 million investment in Dow Corning.
The plaintiffs could come out with more, however. Jack Hersch, an analyst who specializes in the debt of bankrupt companies for Donaldson, Lufkin & Jenrette, said Dow Corning's business could be worth as much as $5 billion, including insurance proceeds of more than $1 billion, assuming a multiple of eight times cash flow.
Bankruptcy also could help Dow Chemical, which is itself a defendant in thousands of implant lawsuits and last month was reinstated as a defendant in the federal litigation. Dow Chemical produces annual sales of $20 billion and lists assets of more than $25 billion. Under U.S. bankruptcy law, Dow Corning can seek a stay of litigation against related parties, including insurers and its corporate parent.
"I look at this bankruptcy as just a continuation of Dow's manipulation of the legal system to avoid responsibility for implant claims," said Rick Laminack, a Houston lawyer with more than 2,500 pending lawsuits outside the global settlement.
"We have been operating under the assumption that if our clients are to be reasonably compensated, it will have to come from Dow Chemical," he said.
Dan Fellner, a Dow Chemical spokesman, said the company believes there is no reason for it to be held liable for products it never manufactured. Michael Jackson, a spokesman for Dow Corning, declined to say whether the company will seek to stay litigation against its corporate parent.
At the same time, Dow Corning will be able to rely on the bankruptcy
court to force recalcitrant insurers to negotiate payments for
implant costs. So far, Dow Corning has obtained less than $100
million of the $1.5 billion it is seeking from insurers, and is suing
some 100 carriers for more money.
By George Gunset, Tribune Staff Writer. Tribune reporters Steven Morris and Marianne Taylor and Tribune wires contributed to this report. Copyright Chicago Tribune
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