Dow Corning Joins List Of Sound Firms Seeking Protection Women May Have To Wait Years To Receive Share Of Breast-Implant Settlement
Dow Corning Inc.’s move to seek protection from creditors in the face of rising claims over breast implants could sharpen a debate over whether financially sound companies are abusing the bankruptcy process.
Dow Corning filed for Chapter 11 protection Monday. The filing gives the company a reprieve from its bills and time to reorganize. The move could keep thousands of women waiting years to collect so much as a dime from a $4.25 billion breast-implant settlement.
“We decided to take this action while we are in a position of financial strength, with the cash to continue operating our business without disruption,” said Dow Corning Chairman Richard A. Hazelton.
Legal experts said the move reflects the extraordinary scope of the American bankruptcy process, which has in recent years been used to ensure the survival of companies that face large settlements in product liability cases.
Previously, bankruptcy courts concentrated on selling off companies or dividing up their assets among creditors. The Bankruptcy Reform Act of 1978 changed that to emphasize ways to keep a company operating.
At least 17 companies have used the bankruptcy process in product liability cases since 1982, said Michael Bradley, professor of law and finance at the University of Michigan.
The company now known as Manville Corp., sought Chapter 11 under a deluge of complaints about its asbestos building materials. The same route was taken by A.H. Robins Co., which made the Dalkon Shield, an intrauterine birth control device.
In those cases, the administration of claims was eventually assigned to an independent trust, using money contributed by the companies. But many claimants had to wait years for payment.
Liability expert Heidi Feldman of the University of Michigan called Dow Corning’s action “tactically clever but ethically unattractive.” She said she doubted the move was necessary to keep Dow Corning afloat.
“There’s really a very strong need now - for the sake of protecting people who are injured by mass- market products - to rethink the role that bankruptcy is playing in these litigations,” Feldman said.
“The fact that the corporation will not be responsible for its mess is outrageous,” said Joan Rice of Potomac, Md., who had her Dow Corning implants taken out.
Dow Corning is not a povertystricken business. It earned $49.5 million on sales of $611.8 million in the first quarter of 1995. It lost $6.8 million on sales of $2.04 billion in 1994, but that reflected accounting adjustments to reflect the estimated cost of the breast implant suits.
Dow Corning is a 50-50 joint venture of Dow Chemical Co. of Midland and Corning Inc. of Corning, N.Y. Both parent companies are financially strong.
Dow Chemical said Monday that it will take a $1.25-per-share charge in the second quarter to establish a reserve of $374 million to cover potential losses resulting from the Dow Corning bankruptcy.
Corning said it was considering a similar move. Dow Corning generally contributes about 20 percent of Corning’s earnings and about 6 percent of Dow Chemical’s.
Thousands of women who received the breast implants have sued their manufacturers, saying the devices have caused them a variety of ailments, including lupus and hardening of the breasts.
A leader of an advocacy group for implant recipients said she was flooded with scores of calls from women distressed at the thought of lengthy bankruptcy proceedings and more delays in payments for surgery to have implants removed.
“There are women threatening suicide about this,” said Gail Armstrong of the National Breast Implant Coalition in Dallas.
A $4.2 billion worldwide settlement of about 400,000 implant cases was approved last year by a U.S. District Judge Sam Pointer in Birmingham, Ala., but about 10,000 women have chosen not to accept its terms.
In addition, Pointer recently reopened the global settlement after evidence that $4.2 billion might not be enough money.
For that reason, the bankruptcy filing was not a surprise, said analyst J. Jeffrey Cianci of Bear Stearns & Co. in New York.
“It’s obvious it was coming based on the global settlement getting renegotiated,” Cianci said.