DOW CORNING CASE
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EXCERPTS from "MILKING THE DOW"
Date: Sat, 16 Sep 2000 09:56:36 -0600
"MILKING THE DOW": COMPENSATING THE VICTIMS OF SILICONE GEL BREAST IMPLANTS AT THE EXPENSE OF THE PARENT CORPORATION [n.*]
Background
In 1942, Corning and Dow Chemical ("the parent companies") entered into an agreement to create a subsidiary corporation, Dow Corning, of which each parent would be a 50% shareholder. [n.7] Corning provided the silicone technology, while Dow Chemical supplied "chemical processing and manufacturing know-how." [n.8] Since the February 1943 incorporation of Dow Corning, Dow Chemical and Corning have each remained 50% shareholders. [n.9]
The initial testing of silicone matter was performed in 1948, and the results were published in a report later that same year. [n.10] The report proclaimed the relatively harmless nature of the silicone chemical itself. [n.11] The 1948 article addressed some potential dangers posed by various silicone compounds. [n.12] Over the next 40 years, both Dow Chemical and Dow Corning continued to perform further toxicological tests on silicone. [n.13] On many separate occasions, the potential hazards of silicone were revealed in studies commissioned by Dow Corning and/or Dow Chemical, or co-operated by Dow Chemical and/or Dow Corning. [n.14]
In 1964, Dow Corning established its Medical Products Division for the purpose of marketing silicone breast implant products. [n.15] Tests conducted before and after the introduction of breast implants in 1964 by both Dow Chemical and Dow Corning revealed that some of the silicones used in the breast implants "had some biologically active properties" and "could affect the immune system." [n.16] In 1975, Dow Chemical and Dow Corning entered into a trademark agreement whereby Dow Corning was given permission to continue using Dow Chemical's corporate name as part of its own name. [n.17]
Litigation in the area of silicone breast implants began slowly. In 1977, Dow Corning lost its first suit, with a verdict against the company for $170,000. [n.18] Until 1989, only six breast implant cases had gone to trial. [n.19] During this time, consumer safety groups began to demand investigation of the safety of silicone implants. [n.20] This prompted the Food and Drug Administration (FDA) to convene an outside panel of experts in November 1991 to investigate the issue of breast implant safety. [n.21] The panel opined that there was "an appalling lack of information" about the safety of the implants, but recommended that they nevertheless remain on the market. [n.22]
Two events in the early 1990's caused a dramatic increase in the volume of mass tort litigation in silicone breast implant cases. [n.23] First, in December 1991, a California federal jury awarded a $7.34 million verdict against Dow Corning to a woman who claimed that her breast implants had ruptured and caused an immune system disease. [n.24] Then, in December 1992, the FDA imposed a moratorium on the use of silicone breast implants, expressing concerns about their safety. [n.25] Immediately after the moratorium was issued, the number of breast implant cases escalated. [n.26] By the spring of 1993, more than 1,000 breast implant cases had been filed in federal court alone. [n.27]
In an effort to determine an appropriate forum and procedure for consolidating [n.28] the cases, the federal Judicial Panel on Multidistrict Litigation held that the actions would be transferred to the Northern District of Alabama where they would be presided over by Judge Sam Pointer, Jr., an experienced class action judge. [n.29] In April of 1994, Judge Pointer approved a global settlement proposal negotiated by the class action plaintiffs and Dow Corning in Lindsey v. Dow Corning Corp. [n.30]
Overwhelmed by the thousands of personal injury cases pending against it, Dow Corning filed for Chapter 11 bankruptcy protection in a federal court on May 15, 1995. [n.31] The practical effect of Chapter 11 protection is a stay of all creditors claims pending against the petitioner/debtor. [n.32] In Dow Corning's case, a by-product of the bankruptcy petition was the destruction of the global settlement agreement established in Lindsey v. Dow Corning Corp. [n.33] Another result was that plaintiffs who could no longer bring suit against Dow Corning "ha[d] settled on a new target--Dow Chemical." [n.34]
Piercing the Corporate Veil: Dow Chemical's Liability for the Alleged Negligence of Dow Corning.
Plaintiffs have alleged that Dow Chemical should be found liable for Dow Corning's alleged torts based on two broad theories. First, plaintiffs allege that the parent company should be liable because of its 50 percent stock ownership in Dow Corning. [n.35] Second, plaintiffs claim that the parent company should be liable "by virtue of alleged "direct participation" by the Company or its agents in Dow Corning's breast implant business." [n.36]
A. Case Law Adhering to the Traditional Approach: Disposal of Claims of Direct and Vicarious Liability Against the Parent Company.
With several key exceptions, [n.37] most courts have followed the "traditional view," granting summary judgment in favor of the parent companies on the issues of direct and vicarious liability. [n.38] In doing so, these courts have generally acknowledged the corporate identities of the parent companies by refusing to allow plaintiffs to pierce Dow Corning's corporate veil. [n.39] These courts have cited a tenuous relationship between the parent companies and the subsidiary, and an even more tenuous relationship between Dow Chemical and the alleged breast implant victims. [n.40]
True to this form is the case of In re Silicone Gel Breast Implants Products Liability Litigation (Silicone Gel I). [n.41] In Silicone Gel I, plaintiffs advanced three corporate control claims against Dow Chemical and Corning: piercing the corporate veil, joint venture, and negligent or otherwise improper supervision. [n.42] On the first issue, piercing the corporate veil, the court noted that in order for plaintiffs to succeed, they must offer "evidence of undue control, manipulation, or other improper action by [the parent companies] that could justify piercing the corporate veil." [n.43] Having failed to meet their burden, the court correctly found that the evidence presented was insufficient to pierce Dow Corning's corporate veil. [n.44]
Plaintiffs next argued that Dow Corning was a joint venture of the parent corporations. [n.45] On this issue, plaintiffs emphasized the parent companies" ownership and control of Dow Corning, as well as their intention to share in the profits of the subsidiary. [n.46] In rejecting the plaintiffs" joint venture theory, the court held that the parent companies "ha[d] not agreed to share, or indeed even to be individually liable for Dow Corning's debts and losses." [n.47]
Lastly, plaintiffs claimed that the parent companies were liable to them for inadequate supervision of Dow Corning. [n.48] Plaintiffs attempted to expand the Restatement (Second) of Torts §315 to impose a duty on corporate shareholders to supervise activities of the subsidiary company that are foreseeably injurious to third parties. [n.49] On this issue, the court held that the Restatement has never been expanded to include such a duty either in Alabama, or in any other jurisdiction. [n.50]
In addition to the corporate control claims, plaintiffs in Silicone Gel I, also asserted direct liability claims against the parent companies. The crux of the claims was that the parent companies were allegedly liable under theories of fraud, conspiracy, concert of action, aiding and abetting, or collective liability for their part in the testing, production, and distribution of the silicone implants. [n.51] The court correctly recognized that the parent company owes no duty of disclosure to buyers of a subsidiary's products. [n.52] More importantly, the court conceded that there was a lack of evidence to form a solid link between the parent companies and Dow Corning during any stages of the silicone research, production, or marketing process. [n.53]
In In re New York State Silicone Breast Implant Litigation (hereinafter "New York State"), the New York court disposed of plaintiffs" negligent undertaking claim against Dow Chemical. [n.54] The court properly recognized that Dow Chemical was very detached from the overall beginning-to-end process of breast implant production and sale. [n.55] Yet, plaintiffs attempted to establish that Dow Chemical should nevertheless be found directly liable for negligent testing and research concerning the toxicity, biological activity, and safety of the implants. [n.56] In dismissing plaintiffs" claims, the court reasoned that, although there was a possibility that Dow Chemical had a duty to the consumers of its research product (Dow Corning), "that liability does not extend ad infinitum to any potential ultimate user of a product which contains a silicone component." [n.57]
One of the factors employed by the court in New York State, in determining the scope of Dow Chemical's duty to plaintiffs, was the degree of control that Dow Chemical had over the ultimate injuries allegedly incurred by the plaintiffs. [n.58] The court concluded:
Dow Chemical has no control over the usage that silicone has or will be put to in the future based on its initial testing and studies of silicone. To impose liability on Dow Chemical for injuries incurred by ultimate consumers of all products that contain silicone, when Dow Chemical has no control over who manufactures silicone or who purchases silicone, flies in the face of well established tort principles. It would also impose virtually limitless liability on Dow Chemical for actions and activities which are not in its control. [n.59]
On appeal, the court affirmed the holding, adding that the mere fact that Dow Chemical gave advice to the manufacturer of consumer goods (Dow Corning), does not suggest that Dow Chemical owes a duty to then-unknown subsequent purchasers of Dow Corning's goods. [n.60]
In another case adhering to the "traditional view," In re TMJ Implants Products Liability Litigation, plaintiffs sought recovery against Dow Corning for damages which were allegedly caused by temporomandibular joint (TMJ) implants. [n.61] Although plaintiffs did not assert that the parent companies ever actually sold the TMJ implants, they did allege liability against the parent companies on claims of corporate control and direct liability. [n.62] In disposing of plaintiffs" corporate control claims, the court held that plaintiffs could not, under the facts, pierce the corporate veil to reach the parent companies. [n.63] The court next considered plaintiffs" claims of direct liability against the parent companies. [n.64] On the theory of fraudulent concealment and misrepresentation, the plaintiffs attempted to show that Dow Chemical had a duty to disclose its alleged knowledge of the dangers of using silicone in the human body. [n.65] The court rejected this assertion, once again citing the tenuous link between Dow Chemical and the ultimate consumer. [n.66]
For their aiding and abetting claim, plaintiffs relied upon section 876(b) of the Restatement (Second) of Torts. [n.67] However, Dow Chemical did not "knowingly provide substantial assistance to Dow Corning" and therefore the plaintiffs" aiding and abetting claim was rejected. [n.68] As to plaintiffs" co-conspiracy charge, the court remarked that "there are no facts indicating that Dow Chemical knew which silicones were used in the implants, much less that Dow Chemical agreed with Dow Corning on any aspects of its TMJ business." [n.69] Ultimately, Chief Judge Magnuson, speaking for the court added: "the court is convinced that fundamental flaws in Plaintiff's claims would prevent liability in every state." [n.70]
In a 1994 Connecticut breast implant "Master File" [n.71] of 160 individual cases filed against Corning, plaintiffs proceeded primarily on a "joint venture" theory, alleging "that Dow Corning is "a joint venture of and wholly owned by" Dow Chemical and Corning." [n.72] While the Court acknowledged that several key facts on the record reflected that the corporate histories of Corning and Dow Corning were closely intertwined, [n.73] it nevertheless held that those facts did not create liability on Corning's part for the actions of Dow Corning, "a separately incorporated entity." [n.74] Yet, plaintiffs contended that Dow Corning is a joint venture of Corning and Dow Chemical despite the fact that Dow Corning is separately incorporated. [n.75] In rejecting this assertion, the court held that, although Dow Chemical and Corning may be viewed as sharing a partnership relation with each other, in their dealings with third parties, their "corporate form is to be respected." [n.76]
B. Center of the Controversy: Piercing the Corporate Veil.
In 1995, several landmark decisions changed the face of the silicone breast implant litigation field. First, in April of 1995, Chief Judge Pointer handed down the decision of In re Silicone Gel Breast Implants Products Liability Litigation (Silicone Gel II), [n.77] which, for the first time, allowed for actions to be brought directly against Dow Chemical. [n.78] Then, in October 1995, a Nevada jury handed down a $14 million verdict against Dow Chemical in favor of a woman who claimed her health problems were a result of leaky silicone gel breast implants. [n.79] Each decision deviated substantially from the "traditional view" previously discussed, which rejected theories of direct and vicarious liability against the parent companies. Each decision will be considered in turn.
1. Judge Pointer
Following Silicone Gel II, plaintiffs moved to vacate the interlocutory order granting summary judgment in favor of Dow Chemical and Corning before Judge Pointer two years earlier. [n.80] Judge Pointer affirmed the motion for summary judgment as to Corning; however, the interlocutory order granting summary judgment for Dow Chemical was affirmed as to all causes of action against Dow Chemical except plaintiff's direct liability claims. [n.81] As to the viability of these claims, Judge Pointer cited new evidence which plaintiffs had unearthed in 1994 (subsequent to the 1993 In re Silicone Gel case), that tended to show that Dow Chemical "was significantly involved with Dow Corning's breast implants." [n.82] Judge Pointer noted that, in other jurisdictions, only one court considering the new evidence granted summary judgment for Dow Chemical on each of plaintiffs" direct liability theories. [n.83]