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The Dalkon Shield Claims Resolution Process

GUERRY R. THORNTON, JR.

Evolutions in the American legal system have created the Chapter 11 bankruptcy alternative as an effective method to deal with the devastating impact of mass tort litigation.Ý Our civil justice system has witnessed in this area of practice since the widely publicized 1982 bankruptcy petition filed by John-Manville seeking protection from its asbestos liability.Ý Because our federal court have given conflicting mass tort treatment in the context of class actions, collateral estoppels, and punitive damages, a product manufacturer may seek to financially reorganize its affairs in order to halt the impact of impending cases and to organize a consensual settlement fund to pay personal injury claimants.

ÝÝÝÝÝÝÝÝÝÝÝ The success that can result from the Chapter 11 bankruptcy proceedings is shown by the experience of tort claimants in the A.H. Robins/Dalkon Shield proceedings.Ý Although approximately $520 million was paid over ten years to reserve Dalkon Shield private litigation, studies have demonstrated that less than 50 percent of the total amounts paid out in this type litigation actually reaches the injured party ñ with the bulk going to pay legal fees and litigation costs¹.Ý On July 26, 1998, 131,000 Dalkon Shield claimants overwhelmingly approved a plan that could provide a maximum consensual fund exceeding $2.6 billion.

ÝÝÝÝÝÝÝÝÝÝÝ ÝCompanies guilty of worldwide negligence in the distribution of a defective product will continue to seek Chapter 11 protection to organize a settlement plan to pay tort claimants.Ý A number of asbestos and formaldehyde manufacturers have filed for bankruptcy protection to deal with the crippling aspects of defending separate mass tort suits.Ý The Dalkon Shield manufacturer, A.H. Robins Company, filed a petition to reorganize its affairs in August 1985, and it obtained approval of its Plan of Reorganization in July 1988.²ÝÝ The Plan was affirmed on appeal on June 16, 1989.Ý Robins will be given economic immunity from its Dalkon Shield liability, and all tort claims will be channeled into the $2.3 billion Claimantsí Trust.ÝÝ The settlement trust will become the sole avenue of redress for more than 100,000 women who assert personal injury claims as a consequence of using the contraceptive device.

Ý The Dalkon Shield Claimantsí Trust is part of A.H. Robins Plan of Reorganization, and it will be funded through a cash payment made available from the merger of Robins into American Home Products Company.Ý While Robins withdrew the IUD from the market in 1974, more than 190,000 claimants have filed claims in the bankruptcy court for injuries caused by the device, some of which were not manifest until after Robins filed for financial protection.³ÝÝ The settlement trust is the cornerstone of the plan to fairly and efficiently compensate Dalkon Shield victims.

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RESOLUTION STAGES

Under the plan, Robins and its successor corporation will pay approximately $2.3 billion into the Claimantsí Trust to be allocated to persons injured by the IUD.Ý Claimants will be able to process cases against the trust through four different levels made up of resolution alternatives set forth in Options 1,2,3 and 4 of the Claims Resolution Facility (CFR).Ý The resolution stages begin with special $100 million fund to pay non-serious and undocumented cases and to proceed to tailored settlement offers for different type injuries, and then to settlement negotiations, arbitration, and the final right to a jury trial.Ý The trust fund will be controlled by five trustees whose mission is ìto fully and fairly satisfy its contemplates beneficiaries,î or those Dalkon Shield claimants with valid claims.⁵ ÝÝThe trustees are charged with implementing the rules and regulations for the payment of meritorious claims.

ÝÝÝÝÝÝÝÝÝÝÝ The Dalkon Shield Claimantsí Trust is unique and demands special experience and knowledge in order for claimantsí counsel to prosecute a case to a fair award level.Ý The trust represents the larges lump sum personal injury settlement trust ever established.Ý Unlike an insurance company, the trust will have a negotiation-based settlement procedure.Ý IUD victims with valid claims cannot have to sue or threaten to sue.Ý The system will permit a claimant to file certain claim forms and questionnaires in an effort to reach an equitable settlement.Ý If settlement cannot be reached, a claimant can proceed with either binding arbitration or a jury trial to receive the highest award available under applicable.Ý The central theme of the trustís work will be to settle claims to avoid the expense and added exposure of private litigation.

ÝÝÝÝÝÝÝÝÝÝÝ The Dalkon Shield resolution process is made up of four parts. Option 1 is a small, nuisance value offer intended to pay non-serious claims and those without medical documentation.Ý This process is part of the $100 million start-up provision in the plan, which began operation in October 1988.Ý On December 6, 1988, the trustees mailed the Option 1 offer of $725 for Dalkon Shield users, and less for non-users, to all claimants with pending cases.Ý As of March 27, 1989, approximately 70,000 persons had accepted this low offer in full settlement of all Dalkon Shield-related claims with an expenditure to the trust of approximately $46 million.⁶ This resolution rate has been cited by experts as strong evidence that the plan will work under the evidentiary proof submitted at the 1987 estimation hearing, which resulted in the court setting the value of all tort claims at $2.475 billion.Ý The estimation ruling marked the first time any court has ever established the worldwide value of mass tort claims.

ÝÝÝÝÝÝÝÝÝÝÝ Options 2 and 3 of the plan will be published within 90 days after the plan is affirmed on appeal.Ý Under the general terms of the plan, Option 2 will have a schedule of offers tailored to the severity of injury, which can be accepted after claimants fill out a complex legal/medical form and submit medical proof of IUD use and documentation of injuries.Ý It is anticipated that awards at this level will be high enough to resolve moderate injury cases and those with medical complications.Ý At this stage, a claimant is required to Dalkon Shield use either through her medical records or by filing a sworn statement from a health care provider.Ý The principal purpose of this stage is to provide settlement alternatives to those claimants with mid-range medical proof and to efficiently pay cases without having to incur significant liability for legal fees and litigation costs.

ÝÝÝÝÝÝÝÝÝÝÝ If Option 2 is selected, the claimant can go to Option 3 only on the condition the she has been denied compensation under Option 2.Ý For the benefit of claimants, the trust waives all traditional product liability defenses to the claim and can object only to duplicate payments, late filings, or the invalidity of information submitted in support of the claim. A claimant electing this option will also benefit from the requirement that she be paid the amount listed on the schedule for the most serious injury category in which her claim falls.

ÝÝÝÝÝÝÝÝÝÝÝ Under Option 3 of the CRF, claimants will participate in a settlement review process with claims adjusters for the trust in order to explore settlement prospects.Ý To attempt to reach a negotiated settlement, claimants will be required to submit a detailed Claimant Information Form, all medical records of any injuries that are claimed to be IUD-related, and medical records or medical evidence showing Dalkon Shield use, or an affidavit from the claimant stating that she used the Dalkon Shield.Ý Based on this documentation, the claims will then be studied and compared to the historical values paid in the same type cases.Ý In evaluating claims, the trustees will take into account the quality of medical evidence, personal factors related to the claimant, any facts that can be discovered by the trust, and issues such as the statute of limitations.Ý The trust will be obligated to make an early evaluation offer to the claimant in an effort to reach an expedited resolution.

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ÝÝ ÝGuerry R. Thornton, Jr. is a litigation lawyer in Atlanta and served as counsel to the Dalkon Shield Victimsí Association, Inc.Ý He is a member of the Union of International Advocates and serves as Special Advisor to Henning Global ADR related to ADR solutions in mass disaster cases.

ÝÝÝÝ He has written articles for legal periodicals including ìProsecuting Tort Claims in Bankruptcy Courtî in Personal Injury Review, published by Matthew Bender & Co., in 1988 and ìMass Tort Litigationî in the National Law Journal, January 1989.

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In the event the claim is not resolved at the early evaluation level of Option 3, the claimant proceeds to the in-depth review stage.Ý This will involve the submission of other medical evidence, an expertís opinion, and completing written questions if called for by representatives of the trust.Ý This will be undertaken by inviting the claimant to a voluntary settlement conference or any other available dispute resolution process selected by the parties.Ý Within sixty days after this conference, the parties are obligated to submit a written settlement proposal that will remain in effect until ninety days after the conference. If neither party accepts the otherís offer, the claimant will then elect to proceed to either binding arbitration or a jury trial.

ARBITRATION OR JURY TRIAL

ÝÝÝÝ The selection of arbitration or a jury trial is a critical choice for claimants with serious and well-documented injuries.Ý This may be the only avenue of recovery for Dalkon Shield victims who desire compensation above the historical averages paid in private litigation.Ý Dalkon Shield litigants received approximately $48,000 per case as a historical average, and certain serious injury cases received substantial compensation.Ý For example, the following average awards were paid before Robins filed for bankruptcy: $122,000 to women who died from the IUD, $182,000 in birth injury cases, $76,000 in cases that involved reproductive surgery and infertility, $56,000 for septic abortions, and $41,000 in ectopic pregnancy cases.⁸ The Option 3 arbitration or jury trial choice will be a high stakes risk for claimants who desire full compensation.

ÝÝÝÝ Binding arbitration presents many restrictions, and potential benefits, to the Dalkon Shield victim seeking fair compensation.Ý Under the plan, an independent arbitrator will be selected from a panel of arbitrators chosen by a neutral third party.Ý The hearings will be at a location that minimizes the travel burden upon the claimant.Ý The only issue to be resolved is the amount, if any, at which the claim should be resolved.Ý At the hearing the arbitrator will consider all the evidence in the developed file, decisions and offers between the parties, expert testimony concerning medical causation, evidence regarding any medical examinations of the claimant or ordered by the trust, and all arguments from counsel.Ý The arbitrator may obtain an independent medical report from a list of experts maintained by the trust.Ý Under this provision, all available defenses may be asserted by the trust, other than the absence of a product defect.

ÝÝÝÝ After considering all issues, the arbitrator will issue a written award or deny the claim.Ý The plan provides that awards are for compensatory damages only because punitive damages have been excluded from the resolution process.Ý If both sides agree, the arbitrator may select either the amount demanded by the claimant or the amount offered by the trust in the final Option 3 proposal, and no other amount shall be selected.Ý This election will give the claimant the benefit of not risking settlement offers from the in-depth review stage of Option 3.

ÝÝÝÝ The arbitratorís award shall be binding upon the claimant and the trust.Ý All arbitration awards shall be enforceable under the Federal Arbitration Act.Ý In an important provision, the trustees are empowered to develop such further rules about arbitration as may be needed.Ý This power could gives the trustees the ability to enact limitations on compensation at the arbitration level for the purpose of preserving adequate funds to pay all claimants.

ÝÝÝÝ The Section 157 Bankruptcy Code protects the right to a jury trial, and this is preserved under Section E of the Claims Resolution Facility.Ý If a claimant proceeds to trial, a traditional lawsuit is filed in either state or federal court against the Dalkon Shield Claimantsí Trust, as Robins and the successor corporation are released from Liability under the plan.Ý If a complaint was

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Ý ìThe trust will become the sole avenue of redress for over 100,000 women.î

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pending before Robins filed for bankruptcy, the action can be reactivated from the point at which it was frozen after the claimant completes the claims resolution process.Ý In cases in which the first action was filed in the bankruptcy court, the claimantís suit cannot be filed until after she has completed the claims process.

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ÝFor the purpose of minimizing litigation costs, the trustees can give consideration to and seek a court order incorporating the following:Ý (1)Ý the availability of all legal defenses, including the absence of legal defects;Ý (2)Ý a concession by the trustees that the product was defective and that certain defects caused the IUD injury, thereby precluding the claimant from introducing any evidence with respect to product defect; andÝ (3)Ý a provision that the last offer of settlement by the CRF to the claimant shall be considered an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.Ý As for the progress of discovery, the trustees can seek to have pretrial matters handled through multi-district litigation panel under 28 United States Code Sections 157 and 1334.

ÝÝÝÝ Section F of the Claims Resolution Facility allows a claimant to defer consideration of her claim without waiving any procedural or legal rights.Ý This option would apply to Dalkon Shield victims who are not informed about the full extent of their injuries, such as the need for a hysterectomy or the degree of infertility.Ý Under this provision, the trustees are duty bound to preserve adequate funds to pay future claimants and fair compensation to those who defer consideration of their cases.Ý If this option is selected, the trust will periodically notify the claimant about the amount remaining in the trust and the procedure to reactivate the claims.

ÝÝÝÝ The Claims Resolution Facility will consider cases under a list of claims that will be given priority under the plan.Ý Suits pending at the time Robins filed for bankruptcy and those that participated in the special evaluation program will be considered under Option 3 before all other Option 3 cases.Ý All other claimants will be fully evaluated bsed upon the chronological time they are presented in final status for review.Ý The time for payment depends upon the date on which the trust has received all documentation necessary to process claims.Ý If a claimant is able to show hardship, necessity, or major efficiency, the trustees may consider and pay early claims based on good cause.

COMPENSABLE CLAIMS

Scheduled compensable claims are listed in Exhibit A of the CRF agreement.Ý On these itemized injuries, the trustees will apply a presumption of medical causation when documents demonstrate that the injuries occurred with the IUD in place.Ý Beyond these listed complications caused by the Dalkon Shield, the trustees will consider on a case-by-case basis whether any other type injury is eligible for compensation.⁹

ÝÝÝÝ The parties with standing to assert claims and the type injury categories include user claims for pelvic infections, uncontrolled bleeding, endometritis, and salpingitis, with or without infertility, tubal pregnancy, surgery, and loss of organs.Ý In each of these categories, the claimant may recover for all elements of damage, including emotional injury, pain and suffering, wrongful death, disability, and all economic consequences of each complication.Ý The Dalkon Shield user can also recover for the birth of a child with a birth or congenital defect from a pregnancy that occurred with the IUD in place.

ÝÝÝÝ In addition to claims by Dalkon Shield users, a child can recover for any birth injury resulting from a premature delivery or abnormal birth when the mother had the IUD in place during pregnancy or at the time of conception.Ý In this category of claimant, the recovery is limited to economic injury in the nature of medical expenses and wage losses consistent with the prevailing view for the recovery of damages in a wrongful life case.Ý When a father has suffered economic losses from an injury to the child caused by the IUD, he can process a claim in addition to claims for loss of consortium under applicable substantive law.Ý Should claims involve a wrongful death action or be in behalf of an incapacitated person, the CRF will recognize estate claims and those brought by a legal representative.

METHODS OF PAYMENT

Counsel representing Dalkon Shield claimants should closely follow methods of payment under the plan.Ý The trustees are obligated to pay claims under rules that ensure that all claims are paid in the same proportion.Ý To preserve adequate funding for all claimants, the CRF can structure payments under Option 3. The trustees can also award compensatory damages under Option 1 or Option 2 by making payment in full immediately upon liquidation.

ÝÝÝ ÝThe problem with respect to the value of foreign claims deserves special consideration.Ý The trust will consider approximately 40,000 cases from more than eighty nations, some of which have a low cost of living and gross national product.Ý Clearly, claimants from Bangladesh would receive a windfall if they are given awards consistent with American claimants.Ý On claims from foreign nations, the trustees can take into account, but are not bound by, the laws as well as the recovery treatment that would normally be accorded claimants in the originating country.Ý This is consistent with traditional choice of law concepts that normally require the application of foreign laws when jurisdiction attaches in the United States.¹⁰ At the confirmation hearing, foreign claimants unsuccessfully challenged the plan on the basis of unfair discrimination because of unequal application of laws controlling recovery rights.

ÝÝÝÝ One issue under the plan that could result in contests involves priority of payment between claimants.Ý The trust will be considering more than 100,000 valid timely filed claims and may review another 40,000 or more actions that fall in the late filed category.Ý Under the plan, claimants who have meritorious actions and are not time-barred will have first call upon the $2.3 billion trust.Ý In the event funds remain after all these claims are paid, valid compensatory damage claims that are time-barred will be administered and paid.Ý Should any funds remain after all timely and late claims are paid, the trustees are obligated to make pro rata distributions to claimants in lieu of punitive damages, except these payments shall not include any of the Aetna excess insurance money.

ÝÝÝÝÝ Because of the number of late claims and the pendency of future cases, the CRF has a special provision under which the trustees will make determinations regarding whether such claimants should be given full standing and participate in the Claimantsí Trust on an equal basis with timely filed cases.¹¹Ý For the purpose of this section,Ý a ìlate claimî is defined as a Dalkon Shield claimant who missed the bar date and who has not been previously disallowed by the court.Ý After the plan has been consummated, the trustees will begin determining whether late claims should be treated on par with timely filed claims under a standard that relates to excusable neglect or other valid legal cause for the claimantís failure to assert a timely claim.Ý The trustees will consider the following factors in making this determination: whether the claim relates to injuries that first became manifest after Robins filed for bankruptcy; whether the claimant had actual knowledge of the bar date; whether the claimant had actual knowledge of Dalkon Shield use prior to the bar date; whether the holder of the claim acted with due diligence to protect the right of action.Ý In the event a claimant can show a first manifestation of injury after the bar date or lack of knowledge of Dalkon Shield use, it will be presumed that the claimant has established excusable neglect.

ÝÝÝÝ To protect claimants who cannot qualify under the excusable neglect standard, the Robins Plan of Reorganization has tie-in provisions with a second settlement plan that results from the Aetna class action.Ý Under this plan, Aetna has agreed to provide a special $100 million fund to pay late claimants who file their notice of intent to participate by July 31, 1989.Ý In addition, Aetna has agreed to extend excess insurance in the amount of $250 million that can be used in the event the $2.3 billion fund is insufficient to pay all claims.Ý All timely filed claimants are mandatory members of the class of plaintiffs who will benefit from the added insurance provided by Aetna.Ý This fold-in provision between a debtorís settlement plan and a non-bankrupt party is a novel approach toward achieving the global peace objective that underlies a Chapter 11 proceeding.

CONCLUSION

The Chapter 11 claims resolution process presents new horizons for the trial lawyer. Although a debtor company usually seeks financial protection to limit its product liability exposure, a bankruptcy case can be an opportunity to organize a massive settlement fund that exceeds recovery capabilities in our private litigation system.Ý If the Dalkon Shield and Johns-Manville cases stand as historical examples, tort claimants can achieve substantial success in the bankruptcy court arena through the organization of a claimantsí trust that may be able to pay fairer and quicker compensation to a wider range of personal injury victims.

ÝÝÝÝÝ Our federal courts have been debating for many years the fairest treatment that can be accorded mass tort litigation.Ý When faced with a major American corporation on the brink of financial disaster and the suffering of thousand of individuals, a federal court sitting in bankruptcy can fairly and effectively establish a settlement trust as a way to bring justice to a human level.Ý These type plans can provide a means for a court to effectively deal with cases that otherwise overwhelm our traditional civil system.Ý A claimantsí trust will be managed to benefit victims with trustees who will place in operation pro-claimant policies.Ý This should end much of the litigation waste and self-serving tactics normally controlling the typical defense of product liability cases.Ý The Dalkon Shield and Johns-Manville plans open up a new challenge to the trial bar and give life to the long-awaited hope that all mass tort victims will have equal access to fair compensation.

Notes

1. See Rand Corp., Asbestos in the Court (1984).

2. See In re A.H. Robins Co., Inc., Case No. 85-01307-R (ED VA).

3. See Grady v. Robins, 63 Bankr. 986 (ED VA 1986).

4. See Sixth Amended & Restated Disclosure Statement Submitted Pursuant to ß 1125 of the Bankruptcy Code, Plan Exhibit C ñ Claims Resolution Facility (March 28, 1988).

5. See Memorandum on Order To Remove Trustees, In re A.H. Robins Co., supra, November 28, 1988, at 22.

6. See OB/GYN Litigation Reporter, March 27, 1989, at 11,372.

7. See Claims Resolution Facility ß D.

8. See Affidavit of Timothy Wyant, filed November 12, 1987, at the Dalkon Shield Estimation Hearing.

9. CRF-5 ß G, paragraph 2.

10. See Hodson v. A.H. Robins Co., 528 F. Supp. 809 (ED VA 1981) (British women allowed to pursue claims in the United States with application of English substantive law).

11. CRF ß G-15.

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