Fw: Hot off the Press ... Dow Appeals Decisions

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Subject: Hot off the Press ... Dow Appeals Decisions

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In re: Dow Corning Corporation

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

In re: Dow Corning Corporation,

Debtor.

_______________________

Class Five Nevada Claimants (00-2516); Janet S. Lacy, individually and on

behalf of her minor child, Lane Atherton; Jama Nmi Russano,

individually and as guardian for Todd Russano; Nmi Russano;

Lane Atherton, Claimant, a minor; Todd Russano, a minor

(00-2517); 1,300 Australian Tort Claimants (00-2518); Martha S. s

(00-2520); Helen D. Schroeder (00-2521); Beatrix Shishido (00-2522);

Pennsylvania Coordinated Silicone Breast Implant Litigation (00-2523);

L. Hustead (00-2524); Certain Foreign Claimants

(00-2525); Hartford Accident and Indemnity Company; Hartford Fire Insurance

Company; Nutmeg Insurance Company; First State Underwriters Agency of New

England Reinsurance Corporation; Twin City Fire Insurance Company; Excess

Insurance Company; First State Insurance Company

(01-1001); United States of America (01-1102); New Zealand Claimants

(01-1349),

Plaintiffs-Appellants,

Nos. 00-2516/

2517/2518/2520/

2521/2522/2523/

2524/2525; 01-1001/1102/1349

v.

Dow Corning Corporation, Debtor; Official Committee of Tort Claimants; The

Dow Chemical Company; Corning, Incorporated; Official Committee of

Physician Creditors; Hartford Accident and Indemnity Company; Hartford Fire

Insurance Company; Nutmeg Insurance Company; First State Underwriters

Agency of New England Reinsurance Corporation; Twin City Fire Insurance

Company; Excess Insurance Company; First State Insurance Company; Certain

Lloyds of London Underwriters; Certain London Market Insurance Companies,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

Nos. 99-75799; 99-75923; 99-75924; 99-75925; 99-75927; 99-75929; 99-75958;

99-75960; 99-76007;

99-76008; 99-76063; 00-70176-- Page Hood, District Judge.

Argued: October 23, 2001

Decided and Filed: January 29, 2002

Before: MARTIN, Chief Circuit Judge; DAUGHTREY and MOORE, Circuit Judges.

_________________

COUNSEL

ARGUED: A. White, Jr., WHITE LAW CHARTERED, Reno, Nevada, B.

Goroff, FOLEY & LARDNER, Chicago, Illinois, H. Weiner, LAW OFFICES

OF SYBIL SHAINWALD, New York, New York, Clair, UNITED STATES

DEPARTMENT OF JUSTICE, CIVIL DIVISION, APPELLATE SECTION, Washington, D.C.,

for Appellants. H. Tarpley, NELIGAN, TARPLEY, STRICKLIN, ANDREWS &

FOLEY, Dallas, Texas, for Appellees. ON BRIEF: A. White, Jr., WHITE

LAW CHARTERED, Reno, Nevada, K. Flynn, STRAUSS & TROY, Cincinnati,

Ohio, Ralph E. Brubaker, Conyers, Georgia, B. Goroff, FOLEY &

LARDNER, Chicago, Illinois, P. Kopesky, SHELLER, LUDWIG & BADEY,

Philadelphia, Pennsylvania, H. Weiner, Sybil Shainwald, LAW OFFICES

OF SYBIL SHAINWALD, New York, New York, Clair, UNITED STATES

DEPARTMENT OF JUSTICE, CIVIL DIVISION, APPELLATE SECTION, Washington, D.C.,

J. Saul, LEWIS SAUL & ASSOCIATES, Washington, D.C., Alan S. Levin,

Incline Village, Nevada, for Appellants. H. Tarpley, L.

Ellerbe, NELIGAN, TARPLEY, STRICKLIN, ANDREWS & FOLEY, Dallas, Texas,

C. Schroeder, MAYER, BROWN & PLATT, Chicago, Illinois, H. Schwartz,

Mark A. , BENESCH, FRIEDLANDER, COPLAN & ARONOFF, Cleveland, Ohio,

Mark D. Tucker, BENESCH, FRIEDLANDER, COPLAN & ARONOFF, Columbus, Ohio,

Jill K. Schultz, NIXON PEABODY, Rochester, New York, McDermott,

Leisa J. Hamm, Margaret M. , LORD, BISSELL & BROOK, Chicago,

Illlinois, Jeff H. Galloway, HUGHES, HUBBARD & REED, New York, New York,

H. Eckstein, Trachtman, KRAMER, LEVIN, NAFTALIS & FRANKEL,

New York, New York, for Appellees. Martha S. s, Tempe, Arizona, Helene

D. Schroeder, andria, Virginia, Beatrix Shishido, Mililani, Hawaii,

L. Hustead, Hesperia, California, pro se.

_________________

OPINION

_________________

BOYCE F. MARTIN, JR., Chief Circuit Judge. Years after Dow Corning

Corporation filed a petition for reorganization under Chapter 11 of the

Bankruptcy Code, and following extensive and vigorous negotiations, the

third proposed plan of reorganization for Dow was submitted to the

bankruptcy court. The bankruptcy court confirmed the Amended Joint Plan of

Reorganization for Dow and the district court affirmed the bankruptcy

court's Confirmation Order. Certain claimants who voted against the Plan

appealed. The first principal issue presented here is whether a bankruptcy

court may enjoin a non-consenting creditor's claims against a non-debtor to

facilitate a reorganization plan under Chapter 11 of the Bankruptcy Code.

For the following reasons, we AFFIRM the district court's conclusion that,

under certain circumstances, a bankruptcy court may enjoin a non-consenting

creditor's claim against a non-debtor to facilitate a Chapter 11 plan of

reorganization. However, the factual findings of the bankruptcy court do

not demonstrate that such an injunction is appropriate in this case.

Therefore, we REMAND to the district court. The second issue presented is

whether the Plan's classification of foreign claimants complies with the

Bankruptcy Code's classification requirements. For the following reasons we

AFFIRM the bankruptcy court's determination regarding the Plan's

classification.

I.

For nearly thirty years, Dow was the predominant producer of silicone gel

breast implants, accounting for almost fifty percent of the entire market.

In addition, Dow supplied silicone raw materials to other manufacturers of

silicone gel breast implants.

In the 1980s, certain medical studies suggested that silicone gel may cause

auto-immune tissue diseases such as lupus, Scleroderma and rheumatoid

arthritis. In 1992, the Food and Drug Administration ordered that silicone

gel implants be taken off the market and Dow ceased manufacturing and

marketing its silicone implants. Soon thereafter, tens of thousands of

implant recipients sued Dow and its two shareholders, the Dow Chemical

Company and Corning, Incorporated, claiming to have been injured by

auto-immune reactions to the silicone in their implants. Other

manufacturers and suppliers of silicone gel implants were named as

co-defendants with Dow and its shareholders.

The Judicial Panel on Multidistrict Litigation consolidated the breast

implant litigation for administration of pre-trial matters. See In re

Silicone Gel Breast Implants Prods. Liab. Litig., 793 F. Supp. 1098

(J.P.M.L. 1992). The consolidated litigation led to a proposed $4.225

billion global settlement, which the multidistrict litigation court

approved in 1994. See Lindsey v. Dow Corning Corp. (In re Silicone Gel

Breast Implant Prods. Liab. Litig.), No. CV 92-P-10000-S, Civ. A. No.

CV94-P-11558-S, 1994 WL 578353, at *1 (N. D. Ala. Sept. 1, 1994). However,

hundreds of thousands more women than anticipated filed claims with the

global settlement fund and the settlement collapsed in 1995.

Later that year, Dow filed a petition for reorganization under Chapter 11

of the Bankruptcy Code. In order to reduce its exposure to claims,

immediately after it filed for bankruptcy, Dow sought to transfer all of

the breast implant actions, including actions against it shareholders, to

the Eastern District of Michigan. Likewise, other breast implant

manufacturers also requested that the cases against them be transferred to

the Eastern District of Michigan. Because of Dow's bankruptcy, the court

granted Dow's request as to the claims against Dow, but denied the transfer

of the claims against Dow's shareholders and the other breast implant

manufacturers. See In re Dow Corning Corp., 187 B.R. 919, 931-32 (E.D.

Mich. 1995). We reversed the district court, holding that the district

court had jurisdiction over Dow's shareholders and the other breast implant

manufacturers, and remanded the requested transfers for analysis under

abstention principles. See In re Dow Corning, 86 F.3d 482, 493-94 (6th Cir.

1996). On remand, the district court declined to exercise jurisdiction over

Dow's shareholders and the other breast implant manufacturers based on its

interpretation of abstention principles. See In re Dow Corning Corp., No.

95-CV- 72397-DT, 1996 WL 511646, at *3 (E.D. Mich. July 30, 1996). On a

motion for a Writ of Mandamus, we reversed the district court's ruling with

respect to Dow's shareholders. See In re Dow Corning Corp., 113 F.3d 565,

571-572 (6th Cir. 1997). The district court then transferred all breast

implant claims against Dow's shareholders to the Eastern District of

Michigan.

The trustee in bankruptcy appointed several committees to represent the

differing interests of Dow's claimants during the development of Dow's plan

of reorganization. The Tort Claimants' Committee vigorously opposed Dow's

first two proposed reorganization plans. Dow then entered into mediation

with the committees, and on February 4, 1999, Dow and the Tort Claimants'

Committee submitted the Amended Joint Plan of Reorganization to the

bankruptcy court. On November 30, the bankruptcy court confirmed the Plan.

In the following weeks, it issued seven separate opinions relating to its

Confirmation Order.(1) The district court affirmed the bankruptcy court's

Confirmation Order on November 13, 2000. In re Dow Corning Corp, 255 B.R.

445 (E.D. Mich. 2000). A timely appeal to this Court followed.

Because the bankruptcy court's opinions and the district court's opinion

provide a detailed examination of the Plan, we discuss only the portions of

the Plan that bear upon our decision.

Under the Plan, a $2.35 billion fund is established for the payment of

claims asserted by (1) personal injury claimants, (2) government health

care payers, and (3) other creditors asserting claims related to

silicone-implant products liability claims. The $2.35 billion fund is

established with funds contributed by Dow's products liability insurers,

Dow's shareholders and Dow's operating cash reserves. As a quid pro quo for

making proceeds available for the $2.35 billion fund, section 8.3 of the

Plan releases Dow's insurers and shareholders from all further liability on

claims arising out of settled personal injury claims, and section 8.4

permanently enjoins any party holding a claim released against Dow from

bringing an action related to that claim against Dow's insurers or

shareholders. Plan §§ 8.3, 8.4.

Under the Plan, claimants who choose to settle are channeled to the

Settlement Facility, a legal entity created by the Plan and authorized to

negotiate payments out of funds set aside for that purpose. Claimants who

choose to litigate are channeled to the Litigation Facility, a legal entity

created by the Plan that is essentially substituted for Dow as a defendant

in the claimant's lawsuit.

The Plan divides claims and interests into thirty-three classes and

subclasses. Classes 6.1 and 6.2 are composed of foreign breast-implant

claimants who are given the opportunity to either settle or litigate their

claims. Settlement payments to foreign breast implant claimants are between

35% and 60% of the amounts to be paid to domestic breast-implant claimants.

Class 15 is composed of all " Government Payer Claimants, " namely, the

United States and the governments of the Canadian provinces of Alberta and

Manitoba. Class 15 voted against the Plan. The United States filed claims

under the Medicare Secondary Payer Program, 42 U.S.C. § 1395y ( (2), and

the Federal Medical Care Recovery Act, 42 U.S.C. §§ 2651-2653, which grant

the United States the right to recover from insurers and other third

parties, the cost of medical care that, though the legal responsibility of

another party, has been paid for or provided through a federal health

benefit program.

Class 15 claims not resolved before the Plan's Confirmation Date are

liquidated through the Litigation Facility. Canada Claimants recovering

through either the Settlement Facility or the Litigation Facility are

required to notify the claims administrator of any unresolved subrogation

claims or liens held by the Canadian provinces. The claims administrator is

under a duty to determine whether one of the Canadian provinces has a claim

with respect to an impending Canada Claimant's payment, and to notify the

province of its potential claim. The claims administrator must hold the

claimant's payment in a trust until he receives instructions from the

claimant and the Canadian province that they have reached an agreement as

to the appropriate allocation of a settlement payment. If no agreement is

reached, the dispute is referred to a court for resolution.

The United States's claims are not accorded similar protection. The Plan

does not specifically permit the United States to interfere with payment to

a claimant. Once a specific claimant has been paid, the United States's

claims against Dow, and all other entities created by the Plan, are cut off

for costs related to that claimant.

The bankruptcy court confirmed the Plan, but construed the non-debtor

release and injunction provisions to apply only to consenting creditors. In

re Dow Corning Corp., 244 B.R at 745. Although the bankruptcy court

determined that it has authority under the Bankruptcy Code to enjoin a

non-consenting creditor's claims against non-debtors, it decided, based on

non-bankruptcy law, that such injunctions are inappropriate as applied to

non-consenting creditors, and construed the Plan accordingly. Id. The

district court affirmed the bankruptcy court's Confirmation Order but

reversed the bankruptcy court's interpretation of the release and

injunction provisions of the Plan. The district court interpreted the

non-debtor release and injunction provisions of the Plan to apply to all

creditors, consenting and non-consenting.

II.

In a bankruptcy proceeding, the bankruptcy court is the finder of fact. In

re Caldwell, 851 F.2d 852, 857 (6th Cir. 1988). When a district court acts

as an appellate court as it does in a bankruptcy proceeding, it reviews the

bankruptcy court's factual findings under the clearly erroneous standard,

and its conclusions of law de novo. Id. " In appeals from the decision of a

district court on appeal from the bankruptcy court, the court of appeals

independently reviews the bankruptcy court's decision, applying the clearly

erroneous standard to findings of fact and de novo review to conclusions of

law. " In re Madaj, 149 F.3d 467, 468 (6th Cir. 1998) (quoting In re Century

Boat Co., 986 F.2d 154, 156 (6th Cir. 1993)). We review the district

court's legal conclusions de novo. In re Downs, 103 F.3d 472, 477 (6th Cir.

1996).

The first issue we are asked to decide is whether a bankruptcy court has

the authority to enjoin a non-consenting creditor's claims against a

non-debtor to facilitate a reorganization plan under Chapter 11 of the

Bankruptcy Code. This is a question of first impression in this Circuit.

The Bankruptcy Code does not explicitly prohibit or authorize a bankruptcy

court to enjoin a non-consenting creditor's claims against a non-debtor to

facilitate a reorganization plan. In re Continental Airlines, 203 F.3d 203,

211 (3d Cir. 2000). However, bankruptcy courts, " as courts of equity, have

broad authority to modify creditor-debtor relationships. " United States v.

Energy Resources Co., 495 U.S. 545, 549 (1990). For example, section 105

(a) of the Bankruptcy Code grants a bankruptcy court the broad authority to

issue " any order, process, or judgment that is necessary or appropriate to

carry out the provisions of this title. " 11 U.S.C. § 105(a). This section

grants the bankruptcy court the power to take appropriate equitable

measures needed to implement other sections of the Code. See In re Granger

Garage, Inc., 921 F.2d 74, 77 (6th Cir. 1990).

Consistent with section 105(a)'s broad grant of authority, the Code allows

bankruptcy courts considerable discretion to approve plans of

reorganization. Energy Resources Co., 495 U.S. at 549. Section 1123((6)

permits a reorganization plan to " include any. . . appropriate provision

not inconsistent with the applicable provisions of this title. " 11 U.S.C. §

1123((6). Thus, the bankruptcy court, as a forum for resolving large and

complex mass litigations, has substantial power to reorder creditor-debtor

relations needed to achieve a successful reorganization. For example, under

the doctrine of marshaling of assets, " [t]he bankruptcy court has the power

to order a creditor who has two funds to satisfy his debt to resort to the

fund that will not defeat other creditors. " In re A.H. Robins Co., 880 F.2d

694, 701 (4th Cir. 1989). Moreover, it is an " ancient but very much alive

doctrine . . . [that]. . . a creditor has no right to choose which of two

funds will pay his claim. " Id. Likewise, when a plan provides for the full

payment of all claims, enjoining claims against a non-debtor so as not to

defeat reorganization is consistent with the bankruptcy court's primary

function. See id. For the foregoing reasons, such an injunction is " not

inconsistent " with the Code, and is authorized by section 1123((6).

Nevertheless, some courts have found that the Bankruptcy Code does not

permit enjoining a non-consenting creditor's claims against a non-debtor.

See In re Lowenschuss, 67 F.3d 1394, 1401 (9th Cir. 1995); In re Western

Real Estate Fund, Inc., 922 F.2d 592, 600 (10th Cir. 1990). These courts

primarily rely on section 524(e) of the Code, which provides that " the

discharge of the debt of the debtor does not affect the liability of any

other entity on, or the property of any other entity for, such debt. " 11

U.S.C. § 524(e). However, this language explains the effect of a debtor's

discharge. It does not prohibit the release of a non-debtor. See In re

Specialty Equip. Co., 3 F.3d 1043, 1047 (7th Cir. 1993) (AThis language

does not purport to limit or restrict the power of the bankruptcy court to

otherwise grant a release to a third party.); Republic Supply Co. v. Shoaf,

815 F.2d 1046, 1050 (5th Cir. 1987); In re A.H. Robins Co., 880 F.2d at

702.

The bankruptcy court concluded that non-debtor releases were authorized by

section 1123((6), but were precluded by a non-bankruptcy law limitation

on the bankruptcy court's equity power. In re Dow Corning Corp., 244 B.R at

744. We disagree. The bankruptcy court cited Grupo Mexicano de Desarrollo

v. Alliance Bond Fund, Inc., 527 U.S. 308, 322 (1999), for the proposition

that a court's use of its general equity powers Ais confined within the

broad boundaries of traditional equitable relief. " The Grupo Mexicano Court

explained that, " the equity jurisdiction of the federal courts is the

jurisdiction in equity exercised by the High Court of Chancery in England

at the time of the adoption of the Constitution and the enactment of the

original Judiciary Act, 1789. " Id. at 318 (quoting A. Dobie, Handbook of

Federal Jurisdiction and Procedure 660 (1928)). Based upon this principle,

the Grupo Mexicano Court vacated an injunction preventing a toll road

operator from dissipating, transferring, or encumbering its only assets to

the prejudice of an unsecured note holder because traditional equity

jurisprudence did not allow such remedies until a debt had been

established. Id. at 319. The bankruptcy court, applying the Grupo Mexicano

analysis, concluded that non-debtor releases were also unprecedented in

traditional equity jurisprudence, and therefore exceeded the bankruptcy

court's equitable powers. In re Dow Corning Corp., 244 B.R. at 744.

The district court rejected this argument on the grounds that the releases

were authorized by " sufficient statutory authority under the Bankruptcy

Code. " In re Dow Corning Corp., 255 B.R. at 480. For the following reasons,

we agree with the district court. In Grupo Mexicano, the Supreme Court

distinguished its own holding from that in United States v. First National

City Bank, 379 U.S. 378 (1965). 527 U.S. at 326. First National approved an

injunction preventing a third-party bank from transferring any of a

taxpayer's assets. 379 U.S at 379-380. The Grupo Mexicano Court

distinguished that holding on the grounds that the First National case

" involved not the Court's general equitable powers under the Judiciary Act

of 1789, but its powers under the statute authorizing tax injunctions.

Grupo Mexicano, 527 U.S. at 326. Thus, because the district court had a

statutory basis for issuing such an injunction, it was not confined to

traditional equity jurisprudence available at the enactment of the

Judiciary Act of 1789. The statute in First National gave courts the power

to grant injunctions Anecessary or appropriate for the enforcement of the

internal revenue laws. 26 U.S.C.§ 7402(a) (1964). Similarly, the Bankruptcy

Code gives bankruptcy courts the power to grant injunctions " necessary or

appropriate to carry out the provisions of [the Bankruptcy Code]. " 11

U.S.C. § 105(a). We conclude that due to this statutory grant of power, the

bankruptcy court is not confined to traditional equity jurisprudence and

therefore, the bankruptcy court's Grupo Mexicano analysis was misplaced.

Because we determine that enjoining a non-consenting creditor's claim

against a non-debtor is " not inconsistent " with the Code and that Grupo

Mexicano does not preclude such an injunction, we turn to when such an

injunction is an " appropriate provision " of a reorganization plan pursuant

to section 1123((6). Because such an injunction is a dramatic measure to

be used cautiously, we follow those circuits that have held that enjoining

a non-consenting creditor's claim is only appropriate in " unusual

circumstances. " See In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285,

293 (2nd Cir. 1992); In Re A.H. Robins Co., 880 F.2d at 702; MacArthur v.

s-Manville, Corp., 837 F.2d 89, 93-94 (2nd Cir. 1988). In determining

whether there are " unusual circumstances, " our sister circuits have

considered a number of factors, which are summarized in our holding below.

We hold that when the following seven factors are present, the bankruptcy

court may enjoin a non-consenting creditor's claims against a non-debtor:

(1) There is an identity of interests between the debtor and the third

party, usually an indemnity relationship, such that a suit against the

non-debtor is, in essence, a suit against the debtor or will deplete the

assets of the estate; (2) The non-debtor has contributed substantial assets

to the reorganization; (3) The injunction is essential to reorganization,

namely, the reorganization hinges on the debtor being free from indirect

suits against parties who would have indemnity or contribution claims

against the debtor; (4) The impacted class, or classes, has overwhelmingly

voted to accept the plan; (5) The plan provides a mechanism to pay for all,

or substantially all, of the class or classes affected by the injunction;

(6) The plan provides an opportunity for those claimants who choose not to

settle to recover in full and; (7) The bankruptcy court made a record of

specific factual findings that support its conclusions. See In re A.H.

Robins, 880 F.2d at 701-702; s-Manville, 837 F.2d at 92-94; In re

Continental Airlines, 203 F.3d at 214.

For several reasons, the record produced by the bankruptcy court in this

case does not support a finding of " unusual circumstances " such that we can

endorse enjoining non-consenting creditors' claims against a non-debtor.

The bankruptcy court's findings of fact with regards to the " unusual

circumstances " test were no more than conclusory statements that restated

elements of the test in the form of factual conclusions. The bankruptcy

court provided no explanation or discussion of the evidence underlying

these findings. Moreover, the findings did not discuss the facts as they

related specifically to the various released parties, but merely made

sweeping statements as to all released parties collectively. Such factual

determinations are not sufficiently specific and explained to support a

finding of " unusual circumstances. " And, when " the bankruptcy court's

factual findings are silent or ambiguous as to. . . outcome determinative

factual question,. . . [we] must remand the case to the bankruptcy court

for the necessary factual determination. " In re Caldwell, 851 F.2d at

857.

First, the bankruptcy court's factual determination that the release and

injunction provisions of the Plan are " essential " to the reorganization is

ambiguous. In its November 30, 1999 Findings of Fact and Conclusions of

Law, the bankruptcy court concluded that the release and injunction

provisions were " essential to the reorganization pursuant to the Plan. "

However, the bankruptcy court subsequently interpreted the release and

injunction provisions to apply only to consenting creditors, implying that

enjoining non-consenting creditors is not essential to the reorganization.

It explained that it found the provisions " essential " in order to " obviate

the need for remand in the event [the bankruptcy court is] reversed on

appeal with regard to the scope and permissibility of the release and

injunction provisions. " In re Dow Corning Corp., 244 B.R. at 747. These are

inconsistent fact findings that the bankruptcy court must clarify in order

for us to endorse enjoining claims against non-debtors.

Second, the bankruptcy court did not make sufficiently particularized

factual findings that the Settling Insurers, Corning, Incorporated, the Dow

Chemical Company, and Dow's affiliates will make significant contributions

to the reorganization pursuant to the Plan. The bankruptcy court declared

the contributions important without explaining how or why it reached this

conclusion. To satisfy the " unusual circumstances " test, the bankruptcy

court must specify facts that support a conclusion that the released

parties will make significant contributions to the reorganization pursuant

to the Plan.

Third, in order for the Plan to be approved under the " unusual

circumstances " test, it must ensure an opportunity for those claimants who

choose not to settle to recover in full, and this determination must be

supported by particularized factual findings. The bankruptcy court

determined that Class 15 claimants, composed of the United States and the

Canadian provinces of Alberta and Manitoba, " who obtain judgments against

the Litigation Facility will be paid in full. " In re Dow Corning Corp., 244

B.R. at 712. We find the determination that Class 15 claimants will be paid

in full to be clearly erroneous with regards to the United States.

As an independent matter, the bankruptcy court had to determine whether

Class 15 claimants were paid in full because the " cram down " provision of

the Code required such a finding. 11 U.S.C. § 1129 ((2)(. The " cram

down " provision details special protections to classes of creditors who,

like the Class 15 claimants, vote against approval of a reorganization

plan. Under the " cram down " provision, if an objecting, unsecured

creditor's claims are not paid in full, junior claimants cannot receive or

retain property on account of their prior interest in the debtor. Id. Dow's

shareholders' equity interests are junior to the United States's and the

Canadian governmental health care payers' unsecured claims for medical

expenses, and, under the Plan, the shareholders maintain their full equity

interest in the reorganized debtor. Thus, to decide whether the Plan

complied with the " cram down " provision of the Code, the bankruptcy court

had to decide whether the Class 15 claimants would be fully paid. The

bankruptcy court determined that the full payment requirement was met for

all Class 15 members. Because the Plan does not provide the United States

adequate protection to meet the full payment requirement, we find this

determination clearly erroneous.

In addition, section 1123(a)(4) requires that claims of creditors that are

members of the same class be treated equally. 11 U.S.C. § 1123(a)(4). Under

the Plan, the Canadian governmental payers are accorded far more effective

recovery rights than the United States. This disparate treatment of members

of the same class violates section 1123(a)(4)'s equal treatment

requirement.

The Canadian governmental payers are adequately protected under the Plan.

They are protected because the Plan incorporates the British Columbia Class

Action Settlement Agreement, which requires that there be some joint

resolution of both the beneficiary's claim and the related Canadian

governmental claim before an individual beneficiary of a governmental

health care program is paid. Plan §§ 1.15, 1.16, 1.131, 5.7.1. Under the

Settlement Agreement, the British Columbia claims administrator must

determine whether a Canadian governmental payer has a claim with respect to

an impending beneficiary's payment and notify the Canadian payer promptly

of its potential claim. The claims administrator must then hold the

beneficiary's payment in trust until he receives instructions from both the

individual beneficiary and the government party that they have reached an

agreement as to the appropriate allocation of a settlement payment. British

Columbia Class Action Settlement Agreement § 6.3. If no agreement is

reached, the dispute is referred to the court for resolution. The court

then adjudicates an appropriate allocation of both claims, and issues

instructions to the administrator for an appropriate disbursement to both

parties. Id.

In contrast, no such protections are provided to the United States. The

Plan provides no practical mechanism by which the United States can prevent

payment to a beneficiary. To the contrary, the Plan expressly states that

the United States has no right to stop, delay, or interfere with payment to

a beneficiary. Plan § 1.131; Settlement Facility Agreement § 7.02 (f).

Furthermore, once a specific claimant has been paid, the United States's

claims against Dow, and all other entities created by the Plan, are cut off

for costs related to that claimant. Litigation Facility Agreement § 6.07

(a); Plan § 6.8. Moreover, the Plan fails to specify the amount of notice

that the United States must receive before payment is made to a health care

beneficiary.

Despite the Plan's lack of any adequate procedural protections for the

United States, the bankruptcy court and the district court, nonetheless,

determined that the United States claims would be paid in full. The

district court relied on two legal remedies that it deemed available.

First, it determined that the United States may seek an injunction barring

disbursements to an individual claimant. The Plan allows Class 15 claimants

to seek injunctive or equitable relief " to the extent such relief is

available under applicable law. " Plan § 6.8(. This is an illusory

protection. The United States has no express statutory right to prohibit a

third party from paying whomever it chooses, and the Plan does not confer

any new affirmative right to injunctive relief. By merely recognizing that

such injunctive relief is available to the extent it is already permitted

under existing law, the Plan leaves the United States with a highly

uncertain and contingent mechanism to protect its interests. Second, the

district court determined that the United States could sue a beneficiary

after he or she receives payment. This protection is also inadequate to

ensure full payment. The United States has no express statutory right under

the Federal Medical Care Recovery Act to recover from a beneficiary who

receives payment from a third party. 42 U.S.C. §§ 2651-2653. And, even

where the United States has a legal right to recover from an individual

beneficiary, there is no assurance of full repayment of the health care

expenditures.

In order to ensure full payment the Plan must delineate procedural

mechanisms for protecting the United States's claims. The full payment

requirement of the " unusual circumstances " test and the Code's " cram down "

provision would be met if the revised Plan (1) provides an adequate

mechanism by which the United States can prevent the claims administrator

from paying contested claims, such as providing the United States with the

same kind of automatic suspension of payment to government beneficiaries

that is afforded to the Canadian governmental payers under the British

Columbia Class Action Settlement Agreement, and (2) specifies the amount

and form of notice that must be given to the United States prior to the

payment of contested claims by the claims administrator. In addition, such

protections would provide the United States with recovery rights

sufficiently similar to the Canadian governmental payers to ensure equal

treatment of Class 15 claimants as required by section 1123(a)(4).

III.

The next issue we are asked to decide is whether the Plan's classification

of foreign claimants meets the Bankruptcy Code's classification

requirements. For the following reasons we hold that the Plan's

classification of foreign claimants meets the Code's requirements.

Under the Plan, a foreign claimant is defined as someone who (1) is not a

United States citizen, (2) is not a resident alien, or (3) did not have his

or her medical procedure performed in the United States. Plan § 1.67. The

Plan creates two classes for foreign claimants. Class 6.1 consists of

claimants who are from a country that either (1) belongs to the European

Union, (2) has a common law tort system, or (3) has a per capita Gross

Domestic Product of greater than 60% of the United States's per capita

Gross Domestic Product. Class 6.2 consists of claimants from all other

countries. Class 5 generally consists of domestic breast-implant claimants.

Class 6.1 claimants receive settlement offers of 60% of analogous domestic

claimants' settlements, and Class 6.2 receive settlements of 35% of the

domestic claimants' settlements. Members of both classes retain the option

to litigate against the Litigation Facility for the full value of the claim

should they deem the settlement offer inadequate.

The various groups of foreign claimants argue that their claims are not

worth less than those of the domestic tort claimants and, therefore, should

not be classified separately from domestic claims. The issue is whether the

Plan improperly classifies the foreign claimants separately from domestic

claimants. For the following reasons we hold that the separate

classification is not improper.

The Bankruptcy Code provides that " a plan may place a claim or an interest

in a particular class only if such claim or interest is substantially

similar to the other claims or interests of such class. " 11 U.S.C. §

1122(a). This circuit has recognized that section 1122(a), " by its express

language, only addresses the problem of dissimilar claims being included in

the same class. " In re U.S. Trucking, 800 F.2d 581, 585 (6th Cir. 1986).

Section 1122(a) does not demand that all similar claims be in the same

class. Id. To the contrary, the bankruptcy court has substantial discretion

to place similar claims in different classes. Id. We have observed that

" Congress incorporated into section 1122 . . . . broad discretion to

determine proper classification according to the factual circumstances of

each individual case. " Id. at 586.

In this case, the bankruptcy court determined that the evidence supported

the factual assumptions upon which the classifications are based, and that

given those facts, the Plan's classifications are proper. For example, the

bankruptcy court found the testimony of three widely recognized expert

witnesses helpful. These three expert witnesses had served on the panel for

developing the classification scheme used in Bowling v. Pfizer, Inc., (S.D.

Ohio 1995). Pfizer's classification scheme was the model used to develop

the scheme in this case. Id. These expert witnesses explained the Pfizer

methodology and its relevance to the current case. They offered

quantitative evidence demonstrating that the highest tort awards in various

other countries were significantly lower than in the United States. For

example, one expert witness testified that the highest non-pecuniary award

in injury cases in Australia is approximately $230,000. The bankruptcy

court found these witnesses credible, in contrast to the foreign claimants'

witnesses, who the court found to be " unhelpful. " In re Dow Corning Corp.

244 B.R. at 660. Based on such evidence, the bankruptcy court found that

" without question, the evidence on the record shows that tort recoveries in

the United States tend to be significantly higher than those in foreign

jurisdictions. " Id. at 661. Though the foreign claimants point to

countervailing considerations, their arguments, at best, show that there

was conflicting evidence on the factual assumptions underlying the

classification scheme. The foreign claimants have not shown that the facts

used to support the separate classifications for foreign and domestic

claimants were clearly erroneous.

Second, the various groups of foreign claimants contend that their claims

are more valuable than claims originating from other countries in their

respective classes. They argue that the various claims in their class are

not " substantially similar " as required by section 1122(a). They further

argue that by giving identical consideration to class members whose claims

are of different value, they are not being treated the same as other

members of their class in violation of the Code's requirement that

claimants within a class be treated equally. 11 U.S.C § 1123(a)(4). This

issue, therefore, turns on whether the Plan improperly places foreign

claims that are not " substantially similar " in the same class. For the

following reasons we find that the bankruptcy court's determination that

the claims within a given class are " substantially similar " is not clearly

erroneous.

The bankruptcy court relied on the testimony of a leading expert in

comparative law methodology, Basil Markenisis, who pointed to legal,

economic, and cultural factors supporting the bankruptcy court's conclusion

that the claims within each class are " substantially similar. " Markenisis

discussed (1) the availability of social safety nets in other countries,

(2) other countries' reliance on judges as opposed to juries, (3)

limitations on punitive damages, (4) unavailability of contingency fees,

(5) limitations on strict liability doctrines, (6) cultural factors, (7)

reluctance to use lawyers, especially in the Far East, and (8) reliance

upon semi-official medical reports in Europe. The bankruptcy court

concluded, based on such evidence, that the claims are " substantially

similar. " Though the foreign claimants offer countervailing considerations,

they have offered no evidence to indicate that the facts relied upon by the

bankruptcy court were clearly erroneous. Moreover, we note that all foreign

claimants retain the right to pursue full payment of their claims in the

Litigation Facility. The fact that foreign claimants maintain the

litigation option further supports the finding that the Plan does not treat

claims that are in the same class unequally.

IV.

For the reasons set forth above, we AFFIRM the bankruptcy court's

determination that the Plan's classification of foreign claimants meets the

Bankruptcy Code's requirements. In addition, we AFFIRM the district court's

determination that, when there are " unusual circumstances, " the bankruptcy

court may enjoin non-consenting creditors' claims against a non-debtor to

facilitate a Chapter 11 plan of reorganization. However, we REMAND this

case to the district court for those matters needing additional findings.

Footnotes

1 See In re Dow Corning Corp. (Amended Opinion on the Classification and

Treatment of Claims), 244 B.R. 634 (Bankr. E.D. Mich.1999); In re Dow

Corning Corp. (Amended Opinion on Good Faith), 244 B.R. 673 (Bankr. E.D.

Mich.1999); In re Dow Corning Corp. (Amended Opinion on Cram Down of Class

4: Is it Fair and Equitable to Cram Down Commercial Claims with Interest

Less than Contract Rate?), 244 B.R. 678 (Bankr. E.D. Mich.1999); In re Dow

Corning Corp. (Amended Opinion Regarding Cram Down on Class 18), 244 B.R.

696 (Bankr. E.D. Mich.1999); In re Dow Corning Corp. (Amended Opinion

Regarding Cram Down on Class 15), 244 B.R. 705 (Bankr. E.D. Mich.1999); In

re Dow Corning Corp. (Amended Opinion on 11 U.S.C. §§ 129(a)(9) Objections

of the I.R.S. and Texas Comptroller), 244 B.R. 718 (Bankr. E.D. Mich.1999);

and In re Dow Corning Corp. (Opinion on Best-Interests-of-Creditors Test,

Feasibility, and Whether Plan Proponents Comply with the Applicable

Provision of Title 11), 244 B.R. 721 (Bankr. E.D. Mich.1999).

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