Elizabeth Warren & the Dow Corning Bankruptcy: Nothing to See

The Washington Post has a story about Senator Elizabeth Warren’s involvement in the Dow Corning bankruptcy that implies that Senator Warren was somehow working against the interests of personal injury victims. That’s rubbish, and it’s frankly irresponsible reporting that fundamentally fails to understand the bankruptcy process. 

Bankruptcies are complicated, so let me relate the Dow Corning story and then what we know of Senator Warren’s minimal involvement.  Bottom line is that this is a complete nothing burger, much like the previous Washington Post story with the shocking headline (much mocked, and now amended) that then-Professor Warren had billed [a below-market] rate of $675/hr for her legal work. 

Here's the properly related story in a nutshell:  Senator Warren did some minimal work in support of a deal to ensure compensation for tort victims that was supported by the overwhelming majority of those tort victims and that was approved by a federal court. That’s a good thing that deserves praise, not some implicit shade.     

I regularly teach a decision in the Dow Corning bankruptcy, so I know the background pretty well.  Below the break is the story as it is relevant to Senator Warren's involvement: 

Dow Corning was a 50/50 joint venture between Dow Chemical and Corning, Inc. that manufactured silicone implants of various sorts (mainly breast implants, but not exclusively).  There may have been a link between silicone implants (particularly ruptured ones) and auto-immune problems, and by the early 1990s, lawsuits were piling up against manufacturers of silicone implants, including Dow Corning, Baxter, and Bristol-Myers Squibb.  The FDA suspended the marketing and sales of implants and by 1994, there were over 18,000 personal injury lawsuits. The three manufacturers attempted to negotiate a global class action settlement in 1994, which would have had Dow Corning paying $2 billion into a $4.25 billion fund, but far more claims were filed than expected, so the settlement fell apart, and in 1995 Dow Corning filed for bankruptcy.  When it filed, there were over 19,000 personal injury suits and 45 class actions pending.

Upon Dow Corning’s filing for bankruptcy, the United States Trustee (the Department of Justice official in charge of ensuring fair play in the bankruptcy process and with some other statutory duties), appointed a committee to represent tort claimants (the Tort Committee).  Resolving the mass tort claims was the major issue in the bankruptcy; without a deal, it would not be possible for Dow Corning to come up with a workable plan that would provide money to women and allow the company to move forward. Therefore, Dow-Corning negotiated with the Tort Committee and made a couple settlement offers that were rejected, after which the court appointed a mediator.

By 1998, Dow Corning and the Tort Committee had reached a deal that they took to the court for approval as part of a Chapter 11 plan. The deal created a $2.35 billion trust to pay out claims, funded by contributions from Dow Corning, Dow Chemical, and Corning, Inc.  The Dow Corning trust was structured such that tort claimants could choose among a few options: they could accept a payment to have the implant removed, accept a standardized payment based on their injury and treatment, or litigate their claims against the trust if they didn’t want to settle.  94.1% of the tort claimants who voted chose to approve the plan (including the settlement), and the plan and settlement were ultimately approved by the federal bankruptcy court and upheld on appeal.

So, what does this have to do with Senator Warren?  Senator Warren worked briefly as a consultant for Dow Chemical, one of the shareholders of the debtor.  I understand that her involvement began well after Dow Corning had filed for bankruptcy, and most of her work was done after the settlement had been worked out.  We don’t know the precise details of her work from over twenty years ago (does anyone remember all the details of expert work they did 20 years ago?), but given her expertise in mass tort bankruptcies, particularly in setting up and defending settlement trusts, it would stand to reason that Dow Chemical wanted her assistance in getting court approval of the deal. 

What are we to make of all this?  Frankly, very little. The Washington Post story has some interviews with tort lawyers who were not happy with the settlement.  But the nature of bankruptcy is that it isn’t possible to compensate everyone in full. Indeed, if the settlement had not been approved, the tort victims would likely have ended up worse off—Dow Corning would have lingered in bankruptcy, which would have made it harder for money to go to women (and men) who needed medical treatment. Moreover, the settlement preserved individual tort claimants’ ability to litigate if they did not like the standardized payment schedule. 

More importantly, no one can credibly claim that the settlement was the result of an unfair process.  It was the product of lengthy, mediated negotiations and was supported by 94.1% of the personal injury claimants who voted on it, and ultimately approved by the bankruptcy court and upheld by the 6th Circuit Court of Appeals.

The Washington Post piece also attempts to make hay out of one anonymous source who says that Senator Warren’s work was for a company that “had containing the company’s liability as a goal.”  Well, sure—of course that was the company’s goal.  Is that supposed to be bad?  The whole point of bankruptcy is to find the fairest deal possible for everyone involved, and then limit liability going forward to the extent possible.  This is because preserving companies as going-concerns is often better than selling them off for parts.  In this case, the parties arrived at an agreement that limited Dow Chemical’s future liability in exchange for capitalizing a multi-billion dollar trust to pay out victims well into the future.  That was good enough for the overwhelming majority of the people with personal injury claims who voted on the plan. 

Bankruptcy is a process that tries to make the best of a bad situation, and that’s what Senator Warren’s work was doing.  The deal that Senator Warren helped with was as good as there was to be had, and it was a deal that helped maximize value while ensuring fair treatment to tort victims. The whole purpose of settlement trusts like the one used in Dow Corning is to do just that.  Senator Warren was one the nation’s experts in setting up and defending settlement trusts. The whole body of Senator Warren’s bankruptcy work is all about making the system fairer for all involved. To suggest otherwise is ridiculous.