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By July 1993 Charlotte Mahlum, then a 44-year-old housewife living in Elko, Nev., could no longer ignore her pain. For years she had been suffering from muscle tremors, skin rashes and bouts of incontinence. Eight years earlier, Mahlum had received silicone breast implants as part of reconstructive surgery following a double mastectomy. Though the implants had hardened and seemed malformed, Mahlum didn’t associate any of her medical problems with them. So she was surprised when an MRI by her doctor showed what appeared to be splotches of silicone under her arms and around her ribs. During surgery to remove the implants, doctors confirmed that one had ruptured, leaving deposits of gel throughout her upper chest. Surgeons could not remove about 10 percent of the silicone because it had become too embedded in her tissues. To this day Mahlum says small slivers of the substance periodically push through the skin on her arms, chest and face. A few months after her implants were removed, Mahlum sued Dow Corning Corp., maker of her implants, as well as The Dow Chemical Co., one of its parent corporations, alleging that leaking silicone had caused a severe autoimmune disorder. In May 1995, as Mahlum’s suit neared trial, Dow Corning, faltering under a blizzard of similar suits, filed for bankruptcy in its home state of Michigan. A Nevada state judge allowed Mahlum to sever her claim against Dow Corning and go to trial solely against Dow Chemical. Though Dow Chemical protested that it had nothing to do with making or selling the implants, a jury found the company liable and awarded Mahlum and her husband $14.1 million in compensatory and punitive damages. On appeal, the Nevada Supreme Court struck the $10 million punitive award, but let stand the $4.1 million in compensatory damages. Though a big win, Mahlum’s case doesn’t seem that different from thousands of others, just another battle in the pitched 20-year war between the trial bar and makers of implants. But now the case is at the center of a long-running dispute that features Dow Corning’s defense team and a superstar lineup of plaintiffs lawyers on one side, and two lawyers from Reno on the other. At stake is $2.35 billion that Dow Corning — and its insurers — have agreed to pay into a fund to compensate tens of thousands of women claiming injuries. The plan was negotiated over four years by counsel for Dow Corning, led by David Bernick, a partner in the Chicago office of Kirkland & Ellis, and a team of trial lawyers from the bankruptcy’s Tort Claimants Committee (TCC), led by Ralph Knowles Jr. of Atlanta’s Doffermyre, Shields, Canfield, Knowles & Devine. The TCC includes such heavy hitters as Cincinnati’s Stanley Chesley, Houston’s John O’Quinn and San Francisco’s Elizabeth Cabraser. The plan was approved in 1999 by the Michigan bankruptcy court, and all the plaintiffs with claims resulting from Dow Corning implants have signed off on it — save for a lone group of 48 holdouts in Nevada represented by Geoffrey White, one of Charlotte Mahlum’s lawyers, and his brother John. Until the Whites’ appeals are resolved, says Dow Corning, the plan will not go into effect. The Whites’ holdout isn’t winning them many friends among their fellow trial lawyers. “I have been doing what I can in my capacity to prevail upon Geoff and John and their clients to act for the good of the entire group, many of whom are dying and others who desperately need money for health care,” says Knowles, who adds, “I am not and have never criticized the Whites” for opposing the plan. Knowles’s counterpart at Dow Corning is less diplomatic. “What the Whites have done stretches the bounds of believability,” says Bernick. “They’ve been prepared to hold up the payment of millions to tens of thousands of claimants just as impacted as their clients are, with an enormous loss in the time value of money.” Geoff White bristles at the suggestion that he and his brother are to blame for the delay: “They say we are blackmailing the rest of the country. That’s nonsense. They could make the plan active tomorrow if they wanted to.” But Dow appears in no hurry. The Reno lawyers have pushed their chips into the center of the table, and Dow is content to call their bet. For more than four years the Whites have pursued federal appeals of the plan, so far without success. Now, with the case before the 6th U.S. Circuit Court of Appeals for the second time, the Whites have signaled they might be willing to toss in their hand and drop the appeal, provided that someone — Dow, the plaintiffs lawyers, the settlement plan — pay them $400,000 to cover their time and expenses. Dow and the TCC have responded by essentially drumming their fingers on the card table. “I’d like to say it will settle, but I’m not real optimistic,” says Ernest Hornsby, an Alabama lawyer who has served as a kind of go-between among the Whites, other plaintiffs lawyers, and Dow Corning. What started as a fight for women injured by leaking silicone has devolved into a game of lawyers’ poker. To better understand the roots of the Nevadans’ holdout, it’s helpful to briefly review the history of breast implant litigation, a saga that began two decades ago when the first documents emerged in a case against Dow Corning in California suggesting that silicone might cause an immune reaction. Slowly, lawsuits against the makers of breast implants began to sprout and multiply, taking off when the Food and Drug Administration pulled silicone implants off the market in January of 1992 (an action that the FDA refused to rescind earlier this year, despite a divided advisory panel’s recommendation that it do so). The cases chiefly alleged causation of autoimmune tissue disorders such as lupus, scleroderma and rheumatoid arthritis. Though danger posed by silicone implants has been hotly disputed within the scientific community (many recent studies have not found any connection to serious illness), juries weren’t so fussy and began awarding plaintiffs big judgments. Dow Corning, based in Midland, Mich., was the largest maker of both silicone breast implants and the gel used in other companies’ implants. Formed in 1943 when the military asked Dow Chemical and Corning Inc. to jointly develop silicone insulation for aircraft, the two parent corporations each own 50 percent of Dow Corning, but Dow Chemical has always had much closer ties. (The Michigan headquarters of the two companies are only a few miles apart.) After the war Dow Corning began exploring alternate uses for the miraculous substance, eventually developing some 8,700 silicone-based products. When the implant litigation storm hit, Dow Corning originally joined in a comprehensive $4.3 billion global settlement agreement worked out between manufacturers of implants and plaintiffs in 1994 under the auspices of federal judge Sam Pointer Jr. That plan fell apart in 1995, when thousands of plaintiffs around the country indicated they would opt out and sue in state court. Dow Corning then declared bankruptcy. (Other major manufacturers, including Bristol-Myers Squibb Co., Baxter International Inc. and 3M Co., struck a revised settlement with plaintiffs in December of 1995.That plan began making payments in 1996.) A key issue in the failed global settlement was the potential liability of Dow Corning’s parent, Dow Chemical, a Fortune 100 company with a current market capitalization of almost $38 billion. By the early 1990s, when the original global settlement was being negotiated, Dow Chemical had been named as a co-defendant in about 13,000 implant cases, though it always maintained that it had no involvement in the development or testing of the implants. Since Dow Corning was an independent corporation, the reasoning continued, its parents should have no pass-through liability for injuries caused by implants. By and large, the courts agreed, and in 1993 Judge Pointer, before whom the Judicial Panel on Multidistrict Litigation had consolidated pretrial matters in federal breast implant cases, dismissed Dow Chemical and Corning from all silicone implant suits. Fredric Ellis, a Boston plaintiffs attorney who worked extensively on liability issues in the MDL litigation, says the original strategy for getting to the parents centered on piercing the corporate veil between them and Dow Corning. When Judge Pointer knocked out that claim on summary judgment, the plaintiffs changed tacks. With Knowles and Hornsby, Ellis investigated the early testing of liquid silicone. Over time he uncovered studies, some dating to the late 1940s, that showed Dow Chemical had done such testing and had shared data and research personnel with Dow Corning. In April 1995 the plaintiffs in the MDL litigation asked Pointer to reconsider his dismissal of Dow Chemical, on the basis of the new evidence. Pointer agreed, finding that, in some states at least, plaintiffs might have an independent right of action against Dow Chemical, based on the company’s involvement in the testing. Mahlum’s case in Nevada was one of the first to test this theory of liability against Dow Chemical. Geoff White, who was representing her, was aware of Ellis and Hornsby’s research and asked them be co-counsel. Dow Chemical petitioned a federal court to stay Mahlum’s state action, arguing that her claims were identical to those involved in Dow Corning’s pending Michigan bankruptcy. But the federal court declined to intervene, and a contentious four-week trial followed in October 1995. The jury found that Dow Chemical had aided Dow Corning in concealing and misrepresenting the dangers posed by the implants. Significantly, the jury also found Dow Chemical was independently liable for its negligence in the testing and development of silicone products. On appeal, the Nevada Supreme Court dismissed all Mahlum’s fraud claims based on the marketing and sale of the implants, but let stand the jury’s finding that Dow Chemical was independently liable for “negligent performance of an undertaking” due to its testing. The company protested that it had never tested silicone for use in the breast implants and so could not have violated duty of care. The court disagreed: “The record before us reveals substantial evidence from which the jury could determine that Dow Chemical undertook to render services to test the safety of the liquid silicone later used in Dow Corning’s breast implants and that Dow Chemical should have recognized those services as necessary for the protection of third persons.” The Mahlum case is something of a fly in amber. It was the first, and only, time that Dow Chemical has been held independently liable for the implants. All of the other pending cases against it were — and remain — stayed by the bankruptcy judge, and those would be discharged by the pending Dow Corning bankruptcy plan. For plaintiffs who had been fighting the implant wars, the Mahlum verdict was a major breakthrough. “Dow Chemical has tried throughout to pretend that they were not going to be a player in this litigation,” Knowles told The New York Times in 1995. “But that appears to be over.” There is little doubt that the verdict gave the TCC additional leverage. “Clearly [Mahlum] had an effect on settlement negotiations in the bankruptcy,” says Ellis, who is a member of the TCC. “That exposure for Dow Chemical was an important factor.” In general, the Dow Corning plan’s $2.35 billion (net present value) is meant to satisfy claims by three categories: personal injury claimants; government health care payers; and all other creditors asserting claims related to implants. The money for the plan will come from Dow Corning’s cash reserves and operating revenues, as well as contributions from insurers, including insurance maintained by Dow Chemical. Kirkland’s Bernick confirms that Dow Chemical won’t put any of its own cash into the plan, but asserts that the chemical giant is adding key value. “The plan requires a dedication of cash from Dow Corning for 16 years,” says Bernick. “That’s a significant impact on the value of the shareholders’ [Dow Chemical and Corning] equity in the ongoing enterprise.” Claimants are enjoined from suing Dow Corning and other third parties — including Dow Chemical. The Michigan bankruptcy court approved the plan in November 1999, and all but a small percentage of claimants chose to join. In Nevada, Geoff White, who had not been consulted, was livid when he heard about the deal — especially the provision enjoining claimants from suing Dow Chemical. “I thought, ‘They just overruled the Nevada Supreme Court!’” White sees Dow Chemical as getting a free ride on Dow Corning’s coattails, at the expense of his clients. “They [Dow Chemical] aren’t even in bankruptcy or putting money in the plan,” he fumes. “Why exactly are they getting protection from suit?” Given the precedent established in Nevada by Mahlum, White concluded he couldn’t give up his clients’ right to sue Dow Chemical unless they got additional compensation. “White wants it both ways,” says one lawyer close to the claimants committee. “He wants to get money from Dow Corning in the plan, then to turn around and sue Dow Chemical in Nevada.” Initially White’s clients were just one of several groups of holdouts that had to be brought into the plan. Claimants are divided into 33 subclasses. Each can choose to settle with plan administrators or litigate against a special litigation entity that will stand in the shoes of Dow Corning. Many subclasses are subject to special rules, and several initially objected. For example, many foreign claimants objected because they were only eligible to receive between 35 percent and 60 percent of what American claimants got. The U.S. government, which sued Dow Corning to recoup its medical expenses under the Federal Medical Care Recovery Act, also objected because the plan didn’t require administrators to determine if a person’s claim was subject to a lien or right subrogation by the government. In light of such objections, bankruptcy court Judge Arthur Spector held that Dow Chemical and other third-party defendants would not be shielded from suits by plaintiffs who did not consent to the plan. On appeal the federal district court (serving as a court of appeal) reversed that part of Spector’s ruling, holding that all plaintiffs, consenting or not, were enjoined from suing Dow Chemical and other participating third parties. That ruling in turn was appealed to the 6th Circuit in early 2001. But while the 6th Circuit considered the appeal, the TCC made steady progress in dealing with most objectors’ problems. The foreign claimants ultimately buckled and agreed to accept less than their American counterparts, and the U.S. government agreed to a modest payment to offset costs from claimed medical benefits. By the fall of 2003 the Whites and their 48 Nevadans were the last plaintiffs standing. Now both Dow Corning and the TCC steadfastly maintain that the plan cannot “go effective” until the issue of Dow Chemical’s release is resolved by the courts or the Whites drop their appeal. After the other holdouts settled, the pressure on the Whites grew intense. Starting in early 2003, Geoff White says, he began to receive regular calls from distraught women — not his clients — asking why he was holding up their settlement. “It’s gotten very tough,” says White, who concedes he began to waver. One person who urged him to stay the course was his brother and co-counsel John. “We had a gentleman’s disagreement about whether we should really go on after everyone else settled,” says White. Despite his brother’s advice, in September 2003 Geoff White flew to Dallas to meet with a group that included Knowles, Hornsby and others to discuss ending the holdout. Though participants declined to go into detail about the discussions, Geoff White says that after several hours he agreed to drop his appeal, pending the assent of his clients. But he also demanded that he and his brother be reimbursed for $400,000 in fees and expenses associated with the appeal. At the time it seemed a minor point, at least to White, but it soon emerged as a deal breaker. White says there were basically four options: The money could come out of the Dow Corning estate, from the TCC or fellow trial lawyers, or from money paid to the Nevada claimants — or the Whites could simply eat the costs as the price of doing business. One option very quickly nixed was for the money to come out of Dow Corning’s estate. “That was never going to happen,” says Bernick. Also a nonstarter, from the Whites’ perspective, was that either they or their clients should absorb the costs. That left the Whites’ fellow trial lawyers. On Nov. 12, Geoff White sent an “Open Letter” to about a dozen lawyers with large inventories of implant cases, including Cabraser and Chesley. “Regardless of how you feel about the merits of our appeal or about my clients,” White wrote them, “there is a time to make peace.” White noted that with the settlement of a group of Australian claimants, his clients were the “last women standing,” and that, after consulting with them, they were willing to drop their appeal for the greater good of all the claimants. But, White argued, since most of his clients would be getting only $10,000 to $20,000 from the plan, they would in effect be getting less than other claimants if their recoveries were reduced by their pro rata share of his and his brothers’ $400,000 in appeal and bankruptcy expenses. “We won’t ask for a penny more,” White wrote, “and won’t take a penny less.” White went on to outline scenarios to come up with the $400,000, including a trust fund funded by TCC members with multiple cases. But to date, none of the other lawyers seem inclined to pony up for the Whites and their clients. Ken Suggs, a plaintiffs attorney based in Columbia, S.C., was one of the targets of White’s letter. Suggs estimates that he has about 1,000 clients who will be making claims under the Dow Corning plan, and he’s anxious to see them paid. Still, White’s letter left Suggs nonplussed. Suggs says he has no plans to dig into his own pocket to pay the Whites, and tithing his clients for the money would involve getting their common consent. “I’m not even sure how the logistics would work on that,” says Suggs. The reaction to the letter by Sybil Shainwald, a New York attorney who represents claimants from multiple foreign countries, was similar. Shainwald said she spent “into six figures” appealing the lesser payments to her clients, but is absorbing those costs. “I don’t think they [the Whites] are going to get paid,” says Shainwald. And, in fact, Geoff White seems similarly pessimistic, doubting that a settlement will be reached soon. White says he only decided to even offer to settle because it might be two years or more before the claimants receive anything if he pursues his appeal. But asked if he feels responsible for holding up payments to sick claimants, he flares: “Nobody ever consulted me on the plan. Their attitude all along was, ‘Since it’s 48 people in Nevada, who could give a shit? We’ll just sacrifice their rights in order to get this done.’” White says it’s “the Dows” who are to blame for the holdup. If so, it’s clear that “the Dows” aren’t going to budge. “Under the terms of the plan, the plan cannot go effective until the issue is resolved,” says George Tarpley, a lawyer with Negligan, Tarpley, Andrews & Foley in Dallas, which represents Dow Corning in the bankruptcy. “It’s a question of having the bankruptcy comprehensively resolve the tort claims through use of a third party. The two shareholders [Dow Chemical and Corning] are making significant contributions to the plan.” White says that if no settlement offer is forthcoming, he and his brother are “ready to push this thing, you bet. Push it all the way.” There does remain the possibility that the Whites will prevail in court (John White in particular feels they have a strong case). The issue of a bankruptcy court releasing claims against a nondebtor to facilitate a reorganization plan remains controversial in bankruptcy law, and the TCC itself initially opposed Dow Chemical’s release. On the Whites’ first appeal to the 6th Circuit, the court found that nothing in the bankruptcy code either explicitly authorizes or forbids a bankruptcy judge from enjoining a nonconsenting creditor’s claims against a nondebtor third party. However, the court noted that bankruptcy judges enjoy broad authority to modify creditor-debtor relationships if necessary to carry out provisions of the code. Some circuits have expressly extended this authority to include enjoining suits against nondebtor third parties in unusual circumstances. The 2nd Circuit has done so in a couple of high-profile bankruptcies, including in the reorganization of Drexel Burnham Lambert after the Michael Milken junk bond scandal. The 4th Circuit has expressly authorized it in a mass tort context, in the bankruptcy of A.H. Robins Co., in connection with Dalkon Shield litigation. The 9th and 10th Circuits have declined to grant such authority to bankruptcy judges. In the Whites’ case, the 6th Circuit found the Michigan bankruptcy judge did have the power to enjoin suits against Dow Chemical and other third parties, if it was deemed “essential” to the plan. To meet that test, the court found, seven factors must be present, including: that the third party is contributing substantial assets to the plan; that the injunction is essential to the reorganization; and that there is an identity of interests between the debtor and the third party such that a suit against the third party is essentially a suit against the debtor or will deplete the debtor’s estate. Finding insufficient evidence in the record to determine if the Dow Corning plan met these factors, the 6th Circuit remanded the case in January of 2002 for further findings. On remand the federal district court found the plan did meet the seven-part test, a decision the Whites have appealed back up to the 6th Circuit, where it currently awaits a hearing date. Kirkland’s Bernick says there is no question that the Dow Corning bankruptcy plan meets the 6th Circuit’s test. “Any lawsuit against Dow Chemical would just be derivative of Dow Corning’s liability,” says Bernick. He adds that if plaintiffs could pursue claims against Dow Chemical, they would just be getting at Dow Corning through their closely related parent and shareholder. Not so, says Ralph Brubaker, a professor of bankruptcy law at Emory University who consulted with the Whites. “In general the concept of the discharge of a nondebtor is suspect,” he says. “Dow Chemical is just piggybacking on the debtor, getting protection, the same benefits as the debtor without declaring bankruptcy.” Brubaker says the standard for discharge should be whether the debtor would be unable to continue as a viable business entity without the third-party discharge. Instead, Brubaker says, some courts are just vetting whether a release is necessary to get plan approval, something often in the control of third-party nondebtors, such as parent corporations or insurers. “A release is in [the third-party nondebtors'] vital interest, so they make it into a deal breaker,” Brubaker says. “The standard should be simply what is necessary to reorganize this debtor as an operating concern. If that was the standard, it would be very rare to grant a nondebtor release.” Brubaker says Dow’s is the leading case on discharging nondebtors and, given the circuit splits, is a strong candidate to be heard by the U.S. Supreme Court. But that would require a big investment of time and money by the Whites at a point when they have started looking for a way to get out of the case. Geoff White says he doesn’t regret his strategic calls. “I can proudly state we did everything we could for our clients,” he says. “I didn’t think it was fair or right to give away their rights without a fight, and I still don’t.” In short, having pushed the bet this far, White seems determined to make it pay off one way or another. The problem is that everyone else at the table thinks that either the Nevadans hold a losing hand or will just fold. So no one’s kicking anything else into the pot.
A SHORT HISTORY OF A LONG LITIGATION Early 1962 Dow Corning begins clinical testing of silicone breast implants. March 1964 Dow Corning forms its Medical Products division to market and sell silicone breast implants. It soon becomes the largest seller of silicone implants in the world. July 1985 In California, Maria Stern becomes the first woman to win a silicone breast implant case when a jury awards her $1.7 million for injuries from her Dow Corning implants. The case settles for less on appeal. December 1990 NBC’s Connie Chung broadcasts an influential report about the dangers of breast implants. December 1991 A panel of scientists gathered by the Food and Drug Administration hold hearings on the regulation of breast implants, but recommends that they be allowed to stay on the market. January 1992 The FDA reverses course and bans the sale of silicone breast implants for cosmetic purposes. Dow Corning ceases making silicone breast implants. April 1994 Federal Judge Sam Pointer approves a $4.3 billion global settlement between the makers of silicone breast implants and plaintiffs worldwide. April 1995 Dow Corning pulls out of the global settlement and declares bankruptcy. In October, Mahlum wins a verdict against Dow Chemical for injuries caused by silicone breast implants. November 1999 Michigan bankruptcy court approves a $2.35 billion settlement fund between Dow Corning and plaintiffs worldwide. December 2003 The Dow Corning plan remains inactive while a group of Nevada women pursue their appeal of the plan in federal court. A split panel recommends that the FDA allow silicone implants back on the market, but the agency defers action on the recommendation. [Editor's note: See a related Recorder story, "Long Road Back," about a California medical products company that wants to put silicone breast implants back on the U.S. market.]

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