Case No. 95-20512, Chapter 11 (Bankr. E.D. Mich. Dec. 1, 1999)

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In re Dow Corning Corp.

United States Bankruptcy Court, E.D. Michigan, Northern Division

Dec 1, 1999

Case No. 95-20512, Chapter 11 (Bankr. E.D. Mich. Dec. 1, 1999)

Opinion

Case No. 95-20512, Chapter 11

Dated: December 1, 1999.

BARBARA J. HOUSER, GEORGE TARPLEY, CRAIG J. LITHERLAND, DAVID BERNICK, DAVID ELLERBE, Sheinfeld, Maley Kay, P.C., Attorneys for Debtor.

MARK PHILLIPS, OGDEN N. LEWIS, MICHAEL S. FLYNN, Davis Polk Wardwell, SHERYL L. TOBY, Honigman, Miller, Schwartz Cohn, Attorneys for the Official Committee, of Unsecured Creditors.

RALPH R. MABEY, LeBoeuf, Lamb, Greene MacRae, L.L.P. STEPHEN H. WEINER, ROBERT S. HERTZBERG, Hertz, Schram Saretsky, P.C., Attorneys for Halcyon, Attorney for Certain Claimants from, CHARLES WOLFSON, Attorney for Certain New Zealand Claimants.

DAVID J. HUTCHINSON, FERNANDO VERGUEIRO, Attorneys for Brazilian Claimants.

JOHN WHITE, JR. PETER CASHMAN, GEOFFREY WHITE, Attorneys for Class 5 Nevada Claimants.

LESLIE K. BERG, Office of the U.S. Trustee.

KENNETH H. ECKSTEIN, JEFFREY S. TRACHTMAN, Kramer Levin Naftalis Frankel LLP, Attorney for the Official Committee of Tort Claimants.

H. JEFFREY SCHWARTZ, Attorneys for Official Committee of Physicians Claimants.

GLENN GILLETTE, Attorney for the United States Government.

SYBIL SHAINWALD, Attorneys for Foreign Claimants.

JOHN T. JOHNSON, P.C., The Netherlands.

DAVID GOROFF, Attorneys for Australian Claimants.

AMENDED OPINION ON GOOD FAITH

ARTHUR J. SPECTOR, U.S. Bankruptcy Judge

The Debtor and the Official Committee of Tort Claimants negotiated and on November 9, 1998 filed a Joint Plan of Reorganization. The plan (hereafter referred to simply as the "Plan") was subsequently amended on February 4, 1999 and modified various times. The hearing on confirmation of the Plan commenced on June 28, 1999 and closing arguments were heard on July 30, 1999. Several post-hearing briefs and other submissions were received and the Court took the matter under advisement.

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. This opinion is one of several which will serve to supplement and explicate some of the findings and conclusions. At least one opinion will follow later. A general overview of the Plan's terms is contained in the opinion on classification and treatment issues. When necessary, additional Plan terms are explained here. Except when otherwise stated, all statutory references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq. A number of parties objected to confirmation of the Plan on the ground that the Proponents failed to satisfy the requirements of § 1129(a)(3). For the reasons which follow, the Court finds that the Plan was filed in good faith and not by any means forbidden by law. The Bankruptcy Code does not define the term "good faith." Courts have taken a variety of approaches when applying it. See Tenn-Fla Partners v. First Union National Bank of Florida, 229 B.R. 720, 734 (W.D.Tenn. 1999) (explaining three different approaches). This is not surprising, however, for it is difficult to place precise boundaries around such a fuzzy concept. Laguna Assoc. Ltd. Partnership v. Aetna Cas. Surety Co. (In re Laguna Assoc. Ltd. Partnership), 30 F.3d 734, 738 (6th Cir. 1994) ("[G]ood faith is an amorphous notion, largely defined by factual inquiry." (quoting In re Okoreeh-Baah, 836 F.2d 1030, 1033 (6th Cir. 1988)). Several courts borrow the concept of good faith from jurisprudence under §§ 362(d)(1) and 1112(b) of the Bankruptcy Code. Those sections focus primarily on the debtor's pre-petition conduct. By the time a case reaches the plan confirmation stage, pre-petition behavior is largely irrelevant. Instead, when considering whether a plan satisfies the § 1129(a)(3) requirement, the focus of the court must be on the plan itself. In re Madison Hotel Assoc., 749 F.2d 410, 425 (7th Cir. 1984). This issue is whether the plan "will fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code." Id. See also Hanson v. First Bank of South Dakota, 828 F.2d 1310, 1315 (8th Cir. 1987) (quoting In re Toy Sports Warehouse, Inc., 37 B.R. 141, 149 (Bankr.S.D.N.Y. 1984)); In re Resorts Int'l, Inc., 145 B.R. 412, 469 (Bankr. D. N.J. 1990); In re Apex Oil Co., 118 B.R. 683, 703 (Bankr.E.D.Mo. 1990); In re White, 41 B.R. 227, 229 (Bankr.M.D.Tenn. 1984); In re Nikron, Inc., 27 B.R. 773, 778 (Bankr.E.D.Mich. 1983) (Brody, J.) ("A plan is proposed in good faith `when there is a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code.'") (citation omitted).

One court explained the rationale for this standard this way: [§ 1129(a)(3)] reads as follows: "The court shall confirm a plan only if all of the following requirements are met: (3) The plan has been proposed in good faith and not by any means forbidden by law." 11 U.S.C. § 1129(a)(3) (emphasis added). Thus, it is the plan's proposal which must be (a) in good faith and (b) not by a means forbidden by law.

[T]he purpose of 1129(a)(3) was to insure that the proposal of a plan of reorganization was to be done in good faith and not in a way that was forbidden by law. Indeed one commentator, in comparing Section 1129(a)(3) with its predecessor sections under the Bankruptcy Act, has indicated that the focus of 1129(a)(3) is upon the conduct manifested in obtaining the confirmation votes of a plan of reorganization and not necessarily on the substantive nature of the plan.

In re Sovereign Group, 1984-21 Ltd., 88 B.R. 325, 328 (Bankr.D.Colo. 1988) (citing 5 Collier on Bankruptcy 6 1129.02 (15th ed. 1984)).

In re Food City, Inc., 110 B.R. 808, 811-12 (Bankr.W.D.Tex. 1990). We believe that the Sixth Circuit concurs in this analysis. See In re Okoreeh-Baah, 836 F.2d at 1033 ("The bankruptcy court must ultimately determine whether the debtor's plan, given his or her individual circumstances, satisfies the purposes undergirding Chapter 13: a sincerely-intended repayment of pre-petition debt consistent with the debtor's available resources. The decision should be left simply to the bankruptcy court's common sense and judgment.").

Moreover, in our view, placing the amorphous concept of good faith outside the confines of all of the other elements for confirmation of the plan, even outside § 1129(b)'s cramdown requirements, is intended to allow courts to utilize their gut feeling about a plan's effects: We have always been reluctant to seize upon "good faith" as an easy way out of confirming a difficult or questionable plan. We believe that a finding of lack of good faith in proposing a plan ought to be extraordinary and should not substitute for careful analysis of other elements necessary for confirmation. Haines, Good Faith: An Idea Whose Time Has Come and Gone, Norton Bankruptcy Law Adviser (April 1988). However, we also believe that a court of equity must use all of its senses to determine whether a proposed course is fair and equitable. A bankruptcy judge is more than a pair of ears to hear the argument and a pair of eyes to read the law. Furthermore, the mind, which may tell us intellectually that there is nothing technically "illegal" in a particular course of action, is not always the final arbiter. Sometimes a bankruptcy judge's nose tells him/her that something doesn't smell right and further inquiry is warranted. (Others may call this "common sense.") As a human being, a bankruptcy judge may allow the heart to influence a decision even though, as a judge, he/she should beware not to let emotions stand in the way of justice. Sometimes, a bankruptcy judge's stomach may turn, when he/she is preparing to sign a particular judgment or order. This queasiness is reflective of the judge's sense that for some, perhaps inarticulable, reason, it just isn't right to grant the relief requested. In the context of plan confirmation in bankruptcy cases, when this is the way the judge feels, it may be because the plan has not "been proposed in good faith." In short, the reading of the law should be tempered by the judge's sense of equity — what is just in the circumstances of the case. If there are objective facts to support this feeling, perhaps the plan should not be confirmed.

In re John P. Timko et al., No. 87-09318 (unpublished) (Bankr.E.D.Mich. July 22, 1988). For a plan where this test is put to use see In re Barr, 38 B.R. 323, 325 (Bankr.E.D.Mich. 1984) (Bernstein, J.) ("At this stage the maxim `be just before being generous' is called to mind. Mr. E. Barr's generosity to his family members would, if approved by this Court, result in a discharge of close to one million dollars of unsecured debts. That is simply unacceptable when for all practical purposes the Debtors continue to manage their same business. No amount of refined (or strained) analysis can still the moral outrage that the Debtors' plan triggers. At some point, a court of equity has to say, no, this cannot be. . . . If `good faith' is to have any moral significance, the Debtors' plan cannot be found to be deserving of that appellation."). Thus, courts frequently do and ought to reject sloppy reliance on good faith to cover all sorts of more specific objections covered by specific confirmation standards.

Applying this standard to facts of the instant case after carefully reviewing the Plan and the entire record, the Court finds that the Proponents of the Plan have met their burden of showing that the Plan was proposed and formulated in "good faith" under § 1129(a)(3). The Plan was proposed in a legitimate effort to rehabilitate a solvent but financially-distressed corporation, besieged by massive pending and potential future product liability litigation against it — an articulated policy objective of chapter 11. A plan proposed as a means to resolve tort liability claims does not violate the § 1129(a)(3) "good faith" confirmation requirement. See, e.g., In re Johns-Manville Corp., 68 B.R. 618, 632 (Bankr.S.D.N.Y. 1986). The evidence is clear that the legal costs and logistics of defending the worldwide product liability lawsuits against the Debtor threatened its vitality by depleting its financial resources and preventing its management from focusing on core business matters. See In re Dow Corning Corp., 211 B.R. 545, 552-553 (Bankr.E.D.Mich. 1997). The Debtor "is a real company with real debt, real creditors and a compelling need to reorganize in order to meet these obligations" and is therefore, exactly the type of debtor for which chapter 11 was enacted. See In re Johns-Manville Corp., 36 B.R. 727, 730 (Bankr.S.D.N.Y. 1984). As testified by Tommy Jacks, Arthur B. Newman, Scott Gilbert and Ralph Knowles, the Plan was the result of intense arm's-length negotiations between parties represented by competent counsel who were guided by an experienced Court-appointed mediator and the findings and recommendations of highly qualified experts. The Plan incorporates procedures to effectively resolve the multitude of tort claims that drove the Debtor into bankruptcy and will allow the Debtor to emerge from bankruptcy as a viable corporation with the ability to pay its creditors the full amount to which they are entitled, to continue providing a return for its stockholders, to pay taxes to the federal government and to innumerable state and local governments, and to provide jobs for its employees. This is exactly the result envisioned by the drafters of chapter 11.

The Official Committee of Unsecured Creditors ("U/S CC") was among the parties who objected on good-faith grounds. Its arguments are basically no more than attempts to revisit and reargue objections it made to the Plan under other provisions. Its claim that the Plan unjustly enriches the Debtor's shareholders at the expense of the unsecured commercial creditors by not paying them according to their legal entitlements is just another way of arguing that the commercial creditors are entitled to postpetition interest at their contract rate. This issue has already been disposed of in two other opinions by this Court.

Moreover, § 726(a)(6), which is implicated under § 1129(a)(7)(ii), expressly permits a distribution to the debtor where all allowed claims have been paid in full with interest at the legal rate. A plan that distributes property to a solvent debtor's shareholders in compliance with the Bankruptcy Code's distribution scheme cannot be said to unjustly enrich them. See In re Sound Radio, Inc., 93 B.R. 849, 854 (Bankr.D.N.J. 1988), aff'd in part remanded in part on other grounds, 103 B.R. 521 (D.N.J. 1989), aff'd 907 F.2d 964 (3d Cir. 1990) (citation omitted) (favorably citing a case which "held that a plan which proposes to pay all creditors in full [is], on its face, submitted in good faith").

Similarly, the U/S CC's § 1129(a)(3) objection, based on the allegedly improper so-called "third-party releases" is and will be more appropriately addressed and disposed of in another separate opinion of the Court.

Likewise, the U/S CC's § 1129(a)(3) objection based on the Plan's payment of allegedly invalid and unenforceable claims merely reiterated the arguments it made under its § 502(b) objection. That objection was overruled in yet another separate opinion. Like the other objections, the U/S CC's fourth and fifth objections, arguing that the process by which the Plan was formulated and proposed was "inequitable, unconscionable and impermissible" and that the Plan "contains inequitable, unconscionable and impermissible terms and conditions" rely on arguments made in support of objections under §§ 1129(a)(1), (2), and (7), as well as other arguments that were separately decided by the Court, and will be discussed in greater detail in an opinion to be released in the future. In essence, the U/S CC argues that the Plan as formulated and proposed is inequitable because it treats the unsecured commercial creditors less favorably than a previous plan by not paying them postpetition interest at their contract rate. This objection was sustained in this Court's opinion on cramdown of Class 4 and is rendered moot by the Plan's self-correcting mechanism. Moreover, the "good-faith" determination under § 1129(a)(3) is to be made with regard only to the plan proposed to be confirmed and without regard to any prior plans. See In re Sound Radio, Inc., 93 B.R. 849, 854 (Bankr.D.N.J. 1988), aff'd in part and remanded in part on other grounds, 103 B.R. 521 (D.N.J. 1989), aff'd 907 F.2d 964 (3rd Cir. 1990) ("The plain meaning of § 1129(a)(3) has nothing to do with prior plans, but rather with the plan which is presently before the court."). Therefore, because the Court has disposed of all the U/S CC's objections on which its § 1129(a)(3) objection is based, and because the Plan advances the policy objectives of chapter 11, § 1129(a)(3) is satisfied.

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 18

I. Facts

The manufacturers and/or distributors of LTCI products, American Home Products Corporation ("AHP") and Leiras Oy entered into indemnity contracts and related guaranty agreements with the Debtor under which they agreed to indemnify the Debtor against all LTCI claims asserted against it. See Confirmation Hearing Final Pre-Trial Order ("Final Pre-Trial Order"), Part IV, Uncontested Fact 5, p. 12. The broad definition of "LTCI claims" in these contracts clearly encompasses the LTCI personal injury claims in Class 18. See Plan, § 1.93. The Plan provides that the Debtor, with the consent of AHP and Leiras Oy, will assign its rights under the indemnity and guaranty contracts to the Litigation Facility. See Final Pre-Trial Order, Part IV, Uncontested Fact 6, p. 12; Transcript, July 30, 1999 (statement of Barbara Houser, counsel for Dow Corning Corp.), p. 80. The Plan provides further that all Class 18 "LTCI [p]ersonal injury [c]laims will be channeled to [the] Litigation Facility and treated through enforcement of indemnity agreements assigned by the Debtor to the Litigation Facility." Amended Joint Disclosure Statement with Respect to Amended Joint Plan of Reorganization of Dow Corning Corporation, p. 19; see also Plan, § 5.14 ("The sole remedy available to Class 18 and 19 Claimants shall be the Litigation Facility's enforcement of the LTCI Indemnities."). Class 18 voted to reject the Plan because although the majority of the class voted to accept the Plan, its votes did not equal the "two-thirds in [dollar] amount . . . of the allowed claims of [that] class" required under § 1126(c) for the Plan to be accepted. No member of Class 18 filed any written objections to the Plan or appeared or voiced any objections at the confirmation hearing.

Section 1126(c) provides:

(c) A class of claims has accepted a plan if such plan has been accepted by creditors, other than any entity designated under subsection (e) of this section, that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan.

11 U.S.C. § 1126(c). Out of the 4,827 total ballots cast by Class 18 members, 2,583 ballots (representing 53.5% of the total) were cast in favor of accepting the Plan, while 2,244 ballots (representing 46.5% of the total) were in favor of rejecting the Plan.

II. Discussion

If all of the requirements of § 1129(a) are met except subsection (a)(8), the Bankruptcy Code allows confirmation of a debtor's plan, even though an impaired class of unsecured claims has rejected it, upon a finding that it does not "discriminate unfairly" against the dissenting classes of creditors and is "fair and equitable." 11 U.S.C. § 1129(b)(1); In re Crosscreek Apartments, Ltd., 213 B.R. 521, 531-32 (Bankr.E.D.Tenn. 1997). Section 1129(b)(1) provides:

Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan. 11 U.S.C. § 1129(b)(1). The Proponents have the burden of proving all of the elements of § 1129(b)(1) by a preponderance of the evidence. In re Trevarrow Lanes, Inc., 183 B.R. 475, 479 (Bankr.E.D.Mich. 1995). The Proponents have satisfied this burden.

In a series of separate opinions, the Court decided that the Plan satisfies the relevant § 1129(a) requirements.

A. Unfair Discrimination Prong

Under § 1129(b)(1), the Plan can permissibly discriminate against a non-accepting impaired class in distributing the reorganization surplus as long as the discrimination is fair. See Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy, 6 1129.04[3], at 1129-70 (15th ed. rev. 1999). The Bankruptcy Code lacks any criteria or standards for determining whether a plan unfairly discriminates. For this reason, courts have formulated various tests to decide this issue. Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy, 6 1129.04[3][a], at 1129-70-72.

1. Unfair Discrimination Tests

In In re Aztec Co., 107 B.R. 585, 590 (Bankr.M.D.Tenn. 1989), the court employed a four-part analysis, borrowed from case law interpreting the unfair discrimination prohibition of § 1322(b)(1), to determine whether the purported discrimination in the debtor's plan was fair under § 1129(b)(1). The factors considered in Aztec, in light of the facts and circumstances presented, were:

(1) whether the discrimination is supported by a reasonable basis;

(2) whether the debtor can confirm and consummate a plan without the discrimination;

(3) whether the discrimination is proposed in good faith; and

(4) the treatment of the classes discriminated against.

Prior to Aztec, cases applying this four-part test in deciding the § 1322(b)(1) unfair discrimination issue included: In re Blackwell, 5 B.R. 748, 751 (Bankr.W.D.Mich. 1980); In re Kovich, 4 B.R. 403, 407 (Bankr.W.D.Mich. 1980); In re Hosler, 12 B.R. 395, 396 (Bankr.S.D.Ohio 1981); In re Dziedzic, 9 B.R. 424, 427 (Bankr.S.D.Tex. 1981); In re Wolff, 22 B.R. 510, 512 (9th Cir. B.A.P. 1982); Worthen Bank Trust Company, N.A. v. Cook (In re Cook), 26 B.R. 187, 190 (D.N.M. 1982). In re Perkins, 55 B.R. 422, 426 (Bankr.N.D.Okla. 1985); In re Bowles, 48 B.R. 502, 506 (Bankr.E.D.Va. 1985); and In re Harris, 62 B.R. 391, 393-94 (Bankr.E.D.Mich. 1986) (citing these cases).

Id. Although many courts have applied the four-factor test in chapter 11 cases to decide the unfair discrimination issue, some courts, finding its elements redundant, have pared it down to one or two factors. Other courts have preferred a flexible analysis not tied to any indispensable elements but based on the facts and circumstances in a particular case. See Crosscreek, 213 B.R. at 537 (discussing various approaches courts have used in deciding the § 1129(b)(1) unfair discrimination issue); see also Denise R. Polivy, Unfair Discrimination In Chapter 11: A Comprehensive Compilation of Current Case Law ("Unfair Discrimination in Chapter 11"), 72 Am. Bankr. L.J. 191, 225 n. 102 (1998), supra note 4, at 5 (compiling and analyzing cases discussing the § 1129(b)(1) unfair discrimination issue). However, regardless of the test, the prevailing view is that the minimum requirements for finding a chapter 11 plan does not unfairly discriminate are that it has "a rational or legitimate basis for discrimination and the discrimination must be necessary for the reorganization." Id.; see also 7 Collier on Bankruptcy, 6 1129.04[3][a], at 1129-72; In re 203 North LaSalle St. L.P., 190 B.R. 567,585-86 (Bankr. N.D. Ill. 1995), aff'd sub nom. Bank of America, Illinois v. 203 North LaSalle St. Partnership, 195 B.R. 692 (N.D.Ill. 1996), aff'd sub nom. In re 203 North LaSalle St. Partnership, 126 F.3d 955 (7th Cir. 1997), rev'd on other grounds sub nom. Bank of America National Trust Savings Ass'n v. 203 North LaSalle St. Partnership, ___ U.S. ___, 119 S.Ct. 1411 (1999).

See Denise R. Polivy, Unfair Discrimination In Chapter 11: A Comprehensive Compilation of Current Case Law, 72 Am. Bankr. L.J. 191, 225 n. 102 (1998) compiling the following cases which have applied the four-part test to determine the § 1129(b)(1) unfair discrimination issue: In re Graphic Communications, Inc., 200 B.R. 143, 148 (Bankr.E.D.Mich. 1996); In re Saleha, 1995 WL 128495, *4 (Bankr.D.Idaho Mar. 10, 1995); In re Stratford Assocs. L.P., 145 B.R. 689, 700 (Bankr.D.Kan. 1992); In re Creekside Landing, Ltd., 140 B.R. 713, 715-16 (Bankr.M.D.Tenn. 1992); In re Arn Ltd. L.P., 140 B.R. 5, 13 (Bankr.D.D.C. 1992); In re Kemp, 134 B.R. 413, 417 (Bankr.E.D.Cal. 1991); In re Mortgage Investment Co., 111 B.R. 604, 614-15 (Bankr.W.D.Tex. 1990); Creekstone Apts. Assocs., L.P. v. Resolution Trust Corp. (In re Creekstone Apts. Assocs., L.P.), 168 B.R. 639, 644-45 (Bankr.M.D.Tenn. 1994); In re Apex Oil Co., 118 B.R. 683, 711 (Bankr.E.D.Mo. 1990); In re Buttonwood Partners, Ltd., 111 B.R. 57, 62 (Bankr.S.D.N.Y. 1990); In re Rochem, Ltd., 58 B.R. 641, 643 (Bankr.D.N.J. 1985). See also National Enters. v. Ambanc La Mesa L.P. (In re Ambanc La Mesa L.P.), 115 F.3d 650, 656-57 (9th Cir. 1997); Ownby v. Jim Beck, Inc. (In re Jim Beck Inc.), 214 B.R. 305, 307 (W.D.Va. 1997), aff'd, 162 F.3d 1155 (4th Cir. 1998).

See, e.g., In re 203 North LaSalle St. L.P., 190 B.R. 567, 585-86 (Bankr.N.D.Ill. 1995), aff'd sub nom. Bank of America, Illinois v. 203 North LaSalle St. Partnership, 195 B.R. 692 (N.D.Ill. 1996), aff'd sub nom. In re 203 North LaSalle St. Partnership, 126 F.3d 955 (7th Cir. 1997), rev'd on other grounds sub nom. Bank of America Nat'l Trust and Savings Ass'n v. 203 North LaSalle St. Partnership, ___ U.S. ___, 119 S.Ct. 1411 (1999) (reducing the four-part test to two elements: (1) whether the discrimination is "supported by a legally acceptable rationale"; and (2) whether the discrimination is "necessary in light of the rationale").

2. A New Approach

In his article, A New Perspective on Unfair Discrimination in Chapter 11, 72 Am. Bankr. L.J. 227 (1998), Professor Bruce A. Markell, who also authored Chapter 1129 in 7 Collier on Bankruptcy (discussing, in part, unfair discrimination under § 1129(b)(1)), rejects these tests "as being both untrue to the historical origins of [§ 1129(b)(1)] and duplicative of other confirmation requirements." In particular, Markell "consciously rejects the prevailing view that tests the plan to see if it could be confirmed without the proposed discrimination — that is, whether the discrimination is necessary to confirm the plan." Id. at 228. He argues that tests incorporating the necessity element are "fatally flawed" and "meaningless" because "discrimination is never necessary" in a plan. Id. at 254. He explains that

[a]ny nonindividual Chapter 11 case theoretically is capable of confirmation through plans which do not discriminate. For example, a court could confirm a liquidation plan, or it could confirm a plan that extinguished all claims and interests, created one class of new equity interests, and then distributed those interests pro rata to creditors and equity holders. With such a plan, which could be confirmed in any case, discrimination is wholly absent. Id.

Markell also rejects the notion that cases discussing unfair discrimination under § 1322(b)(1) can be instructive to courts determining whether a plan unfairly discriminates under § 1129(b)(1) because these unfair discrimination provisions play different procedural roles and serve different purposes in their respective chapters. The chapter 13 unfair discrimination provision must protect all creditors because they do not have voting rights. Under § 1322(b)(1), a plan cannot be confirmed if it is found to unfairly discriminate. On the other hand, under chapter 11, a plan that unfairly discriminates can be confirmed if all classes vote to accept it. The unfair discrimination provision of § 1129(b)(1) protects only dissenting classes of creditors. Id. at 244-45. Because the function served by these provisions in the respective chapters differs, the standard should likewise be different according to Markell. Id.

Markell states that the purpose to be served by the unfair discrimination provision of § 1129(b)(1) is to set "a horizontal limit on nonconsensual confirmation" or to provide for equal treatment for all creditors holding the same priority level, as opposed to the vertical limit provided by the absolute priority rule under the "fair and equitable" standard, which assures fair treatment between creditors of different priority levels. Id. at 227-228. To achieve this end, Markell proposes a new analysis in which a rebuttable presumption of unfair discrimination would arise where:

Markell argues that "a holder of an unsecured claim [should start] out with the assumption that he or she will get what every other unsecured creditor gets." Id. at 252. He explains that "[t]his notion is protected by the general equality principle in bankruptcy as given effect by the strong-arm powers, preferences, and the requirement that each creditor be paid pro rata along with all other creditors." Id. (citing 11 U.S.C. § 544(a), 547, and 726(b)).

there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan's treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution.

Id. at 228. The plan proponent could rebut the presumption of unfairness established by a significant recovery differential by showing that, outside of bankruptcy, the dissenting class would similarly receive less than the class receiving a greater recovery, or that the alleged preferred class had infused new value into the reorganization which offset its gain. The plan proponent could overcome the presumption of unfair treatment based on different risk allocation by showing that such allocation was consistent with the risk assumed by parties before the bankruptcy. Id.

Markell's criticism of the prevailing approach to deciding the § 1129(b)(1) unfair discrimination issue is well-founded and his reasoning in formulating the new analysis is sound. The presumption-based analysis he proposes, unlike the four-part test or modifications of it, effectively targets the kind of discrimination or disparate treatment that is commonly understood as being "unfair," namely that which causes injury or that unjustly favors one creditor over another. It also provides more concrete limits on the plan proponent's ability to discriminate among classes than the four-part test, thereby offering a greater assurance that all classes of the same priority level will be treated equally. This test so realistically focuses on and balances those factors that directly impact the equality of treatment between similarly situated creditors that a plan which does not give rise to a presumption under this test must necessarily be fair.

"Unfair" means "marked by injustice, [or] partiality. . . ." Webster's New Collegiate Dictionary 1268 (1979). "Injustice" in turn is synonymous with "injury," "wrong," or "an act that inflicts undeserved hurt." Id. at 589. "Partiality" is "the quality or state of being partial" which, in turn, is defined as "inclined to favor one party more than the other." Id. at 828-29.

It also does not duplicate other confirmation requirements. Having thus reconsidered the propriety of employing Aztec's four-part test or some modification of it, in light of experience and emerging case law, the Court rejects Aztec and instead adopts the test proposed by Professor Markell. However, we hasten to note that the Court's holding in this case would be the same regardless of the test employed.

3. Application of the Presumption-Based Standard

Applying the presumption-based standard to the facts of this case, the Proponents have carried their burden that the Plan does not unfairly discriminate against Class 18. Although it is clear that Class 18 is a dissenting class (Markell's Factor 1), and that there are other classes of unsecured creditors of the same priority level (Markell's Factor 2), because no member of Class 18 objected to confirmation, the Court has no way of knowing to which other class or classes of unsecured creditors Class 18 would compare itself for the purpose of the unfair discrimination analysis required under the third factor of the Markell test. The Court can only assume that Class 18 would compare itself to classes containing other types of personal injury tort claims, as these classes share not only the same priority status but also the fact that the constituent claims arose in a similar fashion. However, this comparison would be strained in that Class18 is not similarly situated with any other class of tort claimants or any other class of unsecured creditors because it alone has recourse to funds derived from enforcing the Debtor's rights under indemnity agreements with AHP and Leiras Oy. The inability to designate with certainty a comparable class is however, not necessary to disposition of the case because any alleged difference in treatment between Class 18 and another class or classes of the same priority would give rise to a presumption of unfairness under the test only if the Plan provided for either a materially lower recovery or a greater allocation of risk for Class 18. This is not the case here as there is no evidence that any other class is receiving more favorable treatment than Class 18 under the Plan.

The Plan calls for payment in full of Class 18 claims through enforcement of the indemnity contracts the Debtor entered into with AHP and Leiras Oy. It is undisputed that AHP and Leiras Oy are solvent and capable of paying all LTCI claims, and intend to honor the indemnity agreements. See Final Pre-Trial Order, Part IV, Uncontested Facts 7 and 8, p. 12 (stating that "AHP's assets are worth approximately $20 billion . . . [and] AHP's shareholders' equity is approximately $8 billion."); Transcript, July 30, 1999 (statement of Barbara Houser, counsel for Dow Corning Corp.), p. 80 ("AHP has consented to the assignment of the indemnity issue [sic] found that they have substantial equity value and therefore will honor the indemnities that they have agreed to do and therefore [the LTCI claims] if ever allowed against Dow Corning will be paid in full through enforcement of the indemnities."). No other class of unsecured creditors will receive more than full payment of its claims under the Plan, and therefore, it is impossible for Class 18 to seriously argue that it will recover a materially lower dollar amount on account of its claim than another class of the same priority level. Class 18's recovery is, in essence, identical to that proposed for other classes of unsecured personal injury creditors. A dollar derived from enforcement of the indemnity contracts is certainly equivalent to a dollar paid out of the Debtor's other assets.

Furthermore, the Plan does not require Class 18 to assume a materially greater risk in receiving its proposed payment. Although the Plan requires Class 18 to receive its payments from the proceeds of the indemnity and guarantee contracts, which are not available to other classes of unsecured creditors, this requirement in no way prejudices Class 18 and, at least on its face, favors Class 18. Under the Plan, Class 18 will be paid from sources with in excess of $20 billion dollars worth of assets while the other unsecured personal injury claimants will receive payments from a capped fund of $400 million. Under either the presumption-based test, the four-part test or a modification of it, or the prevailing case law, the Court cannot find that the Plan, which treats a dissenting class equally with other classes of the same priority level or favors it, discriminates unfairly against the dissenting class in violation of § 1129(b)(1). In In re Sacred Heart Hospital of Norristown, 182 B.R. 413 (Bankr.E.D.Pa. 1995) the court faced an analogous fact pattern. There, a creditor objected to confirmation of the debtor's chapter 11 plan because it classified together "the claims of general unsecured creditors which may be covered by `applicable insurance polic[ies]' . . . owned by the Debtor," and required claimants holding these claims to seek payment first through the insurance proceeds, and then, only to the extent of a deficiency, pursue payment from the debtor on a pro rata basis along with other separately classified general unsecured creditors. Id. at 415-16. The objecting creditor calculated a $100,000 potential loss in recovery on its claim if allowed only to receive its percentage of payment to the general unsecured creditors class based on its deficiency amount, rather than on the entire amount of its claim. Id. at 416. It was undisputed that the objecting creditor's claim would not be paid in full in either case. Id. The objecting creditor argued that the insurance proceeds were not "property of the estate" and that the debtor could not require any creditor to look to a third party for payment. It also argued that the plan violated the § 1129(b)(1) unfair discrimination provision. Id. at 417.

The Sacred Heart court rejected these arguments and held that the insurance proceeds were "property of the estate." The court pointed out that when

[f]aced with the typical situation in which a debtor corporation's liability policies provide the debtor and thus the estate with direct coverage against third party claims, virtually every court to have considered the issue has concluded that the policies and clearly the proceeds of those policies are part of the debtor's bankruptcy estate. . . .

Id. at 420 (quoting In re Vitek, 51 F.3d 530, 534 n. 17 (5th Cir. 1995)). The court, therefore, concluded that the debtor, through its plan, could control and allocate its interest in insurance proceeds just as it did other estate assets to satisfy claims. Sacred Heart, 182 B.R. at 421. Responding more specifically to the unfair discrimination issue raised, the Sacred Heart court opined "that the unsecured claims with access to insurance coverage [were] in fact significantly different from the general unsecured claims," and thus, it was permissible for the plan to treat these claims differently because "[d]issimilar treatment for dissimilar claims does not run afoul of the unfair discrimination provision [of § 1129(b)(1)]"). Id. at 422 n. 8. Noting that, under the proposed plan, the objecting class would recover more than the class of general unsecured creditors, in spite of the requirement that it look to insurance proceeds for payment of a portion of its claim, the Sacred Heart court held that discrimination which favors a class cannot serve as a ground for an unfair discrimination claim. Id. This holding is consistent with the presumption-based analysis that presumes a plan unfairly discriminates only where different treatment between classes of equal priority leads to either a materially lower recovery (Markell's Factor 3a) or greater allocation of risk for the dissenting class (Factor 3b). Here, Class 18, just as the dissenting class in Sacred Heart, has access to an estate asset (proceeds from the indemnity and guarantee contracts) which is not available to other classes of unsecured personal injury claimants. As explained in Sacred Heart, this distinction allows the Plan to require Class 18 to look to the other source for payment of its claim without violating § 1129(b)(1) provided that it does not prejudice the class by causing it to receive less or assume more risk than other classes of an equal priority standing. Therefore, because any difference in treatment under the Plan between Class 18 and the other classes of unsecured creditors is not detrimental but most likely is advantageous to Class 18, the Plan does not unfairly discriminate against this class and comports with the requirements of § 1129(b)(1).

B. Fair and Equitable Prong

The Plan also satisfies the fair and equitable prong of § 1129(b)(1). Section 1129(b)(2) sets forth the standard for determining whether a plan is fair and equitable to a class of unsecured creditor claims. It provides:

For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements: . . .

(B) With respect to a class of unsecured claims

(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or

(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

11 U.S.C. § 1129(b)(2)(B). Under this provision, a plan will be deemed "fair and equitable" if either subsection is satisfied. Here, the Plan provides for payment in full of all Class 18 claims once their respective values are established at the Litigation Facility, thereby satisfying § 1129(b)(2)(B)(i). Therefore, the Plan is, by definition, "fair and equitable."

Conclusion

The Plan, having met the requirements of cramdown under § 1129(b)(1) with respect to Class 18, may be confirmed in spite of the dissenting vote of this class.

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 15

I. Overview of Class 15

Class 15 consists of claims filed by governments seeking to recover the costs of medical treatment that they either paid for or provided as a result of injuries allegedly caused by products, including breast implants, manufactured by, or containing materials supplied by, the Debtor. There are three claimants in this class, the Canadian Province of Alberta, the Canadian Province of Manitoba and the United States of America. Alberta and Manitoba each filed one claim and both voted to accept the Plan. Class 15 was a rejecting class, however, because the United States, which holds four claims, voted to reject the Plan. With respect to Class 15 claims, the Plan provides:

The United States limited its proofs of claim to reimbursement for medical expenses involving only breast implants. Hereafter, this opinion generally refers to breast-implant claims to the exclusion of all other personal injury claims which are part of Class 15. However, the discussion over this portion of the Government's claims that have been disallowed pertains to all the personal injury claims which comprise its claims.

The United States filed proofs of claims on behalf of: Department of Defense ("DoD"); Department of Veteran's Affairs ("VA"); Indian Health Services division of Department of Health and Human Services ("IHS"); and Health Care Financing Administration ("HCFA").

Unless a different treatment is agreed to by the Proponents and the affected Claimants, the Proponents shall seek to have the Claims in Class 15 . . . estimated for distribution on or before the Confirmation Date. The Estimated Amount of any such Claim will be paid . . . by the Claims Administrator on, or as soon as practicable after, the Effective Date. If not estimated for distribution on or before the Confirmation Date, such Claims will be channeled to the Litigation Facility for purposes of Claim liquidation and paid (subject to the terms of the Settlement Facility Agreement and the Funding Payment Agreement) when Allowed.

Plan § 5.13.5.

Alberta, Manitoba and the Proponents have effectively agreed to different treatment than the channeling of their claims to the Litigation Facility. Alberta and Manitoba will forgo pursuit of their direct claims against the Debtor, at least for the present, in favor of certain treatment that their claims will be afforded pursuant to the British Columbia Class Action Settlement Agreement ("B.C. Agreement"). The B.C. Agreement, which stems from a class action lawsuit brought against the Debtor and its Canadian subsidiary by breast-implant claimants residing in certain Canadian provinces, is implicitly incorporated into the Plan at § 5.7. The United States, however, has not reached agreement with the Proponents on treatment that is different from that provided under the Plan. And it is apparent that the Proponents will not seek to estimate the United States' claims prior to the Confirmation Date. Consequently, upon confirmation, the Government's claims are channeled to the Litigation Facility for resolution. Any Government claim subsequently allowed through the Litigation Facility will be paid in full, with interest, by the Settlement Facility in cash. Amended Joint Disclosure Statement With Respect to Amended Joint Plan of Reorganization ("Disclosure Statement") § 6.6(G)(4); Settlement Facility Agreement § 3.02(a)(ii).

II. Discussion

A plan of reorganization can be crammed down on a rejecting class if all of the requirements of § 1129(a), save for (a)(8), are satisfied and "the plan does not discriminate unfairly, and is fair and equitable" to the rejecting class. 11 U.S.C. § 1129(b)(1); see also In re Crosscreek Apartments Ltd., 213 B.R. 521, 532-32 (Bankr.E.D.Tenn. 1997). The Proponents have the burden of showing by a preponderance of the evidence that all of the requirements of § 1129(b)(1) have been satisfied with respect to Class 15. In re Trevarrow Lanes, Inc., 183 B.R. 475, 479 (Bankr.E.D.Mich. 1995). For the reasons stated below, the Proponents have satisfied this burden.

A. Unfair Discrimination Test

Section 1129(b)(1) prohibits discrimination against a non-accepting class only when that discrimination is "unfair." See 11 U.S.C. § 1129(b)(1); Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy 6 1129.04[3] (15th ed. rev. 1999). The Bankruptcy Code does not define what constitutes "unfair discrimination." As a result, courts have developed a number of tests designed to answer this question. See, e.g., In re Aztec Co., 107 B.R. 585, 590 (Bankr. M.D. Tenn. 1989); 7 Collier on Bankruptcy 6 1129.04[3][a]. In its basic form, however, the prevailing view is that a plan will not unfairly discriminate if there is "a rational or legitimate basis for discrimination and [if] the discrimination [is] . . . necessary for the reorganization." Crosscreek, 213 B.R. at 537; 7 Collier on Bankruptcy 6 1129.04[3][a].

In a sister opinion pertaining to the Proponents' request to cram down Class 18, the Court thoroughly analyzed the various formulations and concluded that the most succinct and logical formulation is stated in an article by Bruce A. Markell, A New Perspective on Unfair Discrimination in Chapter 11 ("A New Perspective"), 72 Am. Bankr. L.J. 227 (1998). Using this approach, a rebuttable presumption that a plan is unfairly discriminatory will arise when there is: (1) a dissenting class; (2) another class of the same priority; and (3) a difference in the plan's treatment of the two classes that results in either (a) a materially lower percentage recovery for the dissenting class (measured in terms of the net present value of all payments), or (b) regardless of percentage recovery, an allocation under the plan of materially greater risk to the dissenting class in connection with its proposed distribution. See Markell, A New Perspective, 72 Am. Bankr. L.J. at 228.

The first Markell factor is, of course, established by the fact that Class 15 rejected the proposed Plan. With respect to the second factor, the United States points to Class 14 as providing the proper basis of comparison. Memorandum of Law in Support of the United States' Objection to Joint Plan of Reorganization ("U.S. Memorandum of Law") at 12. Class 14 is composed of domestic health insurers that seek reimbursement for costs incurred as a result of treatment provided to individuals allegedly injured by breast implants either manufactured by the Debtor or containing materials supplied by the Debtor. Plan §§ 1.55 5.13.3. The treatment extended to Class 14 and Class 15 claimants under the Plan is identical with one exception. Negotiations between the Proponents and certain Class 14 claimants resulted in a lump sum settlement offer from the Debtor. All Class 14 members will be able to choose the settlement option. Id. § 5.13.3. Those who do will then share in the lump sum settlement fund pro rata. Id.

The United States also argued that its claims are unfairly discriminated against as compared to the other Class 15 claims held by Alberta and Manitoba. The unfair discrimination test compares the treatment of the rejecting class as a whole with the treatment provided to other classes. Questions of within-class treatment are irrelevant to this analysis. Rather, such objections are addressed under § 1123(a)(4), which requires all claims within a class to be "provide[d] the same treatment." The United States' § 1123(a)(4) objections are addressed in a separate opinion along with other within-class treatment objections and § 1122(a) claim-classification objections.

Even assuming Class 14 forms the proper basis of comparison, Class 15 claimants will neither receive a materially lower percentage recovery under the Plan than Class 14 claimants, nor will they suffer a greater risk of non-payment under the Plan than Class 14 claimants. To begin with, Class 15 claimants and Class 14 claimants who opt for litigation will receive identical percentage recoveries under the Plan. And that percentage recovery will be 100% of the allowed amounts of their claims. In contrast, Class 14 claimants who elect to settle will be accepting a payment that is something less than what they believe to be the full value of their claim in order to avoid the risks associated with litigation. The upshot is that Class 15 claimants actually stand to obtain a much higher percentage of recovery than settling Class 14 claimants. In addition, Class 14 and Class 15 claimants share identical risks with respect to the non-payment of their claims. Fortuitously, that risk is effectively zero, for all claimants in both classes will be paid the full amount of their allowed claims in cash from the Settlement Facility. For these reasons, a presumption that the Plan unfairly discriminates against Class 15 does not arise.

Were the Court to apply the more commonly-accepted test of what constitutes unfair discrimination, we would reach the same conclusion. One of the goals of the chapter 11 process is to consensually resolve claims pending against the debtor. Thus, the Proponents have a perfectly legitimate reason for attempting to resolve Class 14 claims through settlement. The fact that the Proponents have tried but failed to reach a settlement with the United States does not change this fact. Thus, there is a rational, legitimate basis for the different treatment extended to Class 14 claimants than Class 15 claimants. Moreover, a plan of reorganization must provide mechanisms for resolving all claims against the debtor. When those claims are disputed, the two possible avenues of resolution are settlement or formal adjudication. Accordingly, the treatment extended to both Class 14 and 15 claimants is necessary for the Debtor's reorganization. For these reasons, the Proponents have satisfied their burden of showing that the Plan does not unfairly discriminate against Class 15.

B. Fair and Equitable Test

Section 1129(b)(2) list criteria for determining whether a plan is fair and equitable to a rejecting class of unsecured creditors. That section provides:

(2) For purposes of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:

(B) With respect to a class of unsecured claims

(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or

(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

11 U.S.C. § 1129(b)(2)(B).

Generally, a plan is fair and equitable if either subsection is satisfied. As previously indicated, unless different treatment is otherwise agreed to, all Class 15 claims are channeled to the Litigation Facility for resolution. Plan § 5.13.5. If a Class 15 claimant prevails at trial, its claim will be allowed for the amount of the judgment. The allowed Class 15 claim will then be paid in full with interest by the Settlement Facility in cash. See Disclosure Statement § 6.6(G)(4); Settlement Facility Agreement 6 3.02(a)(ii). Since Class 15 claimants who obtain judgments against the Litigation Facility will be paid in full, the Plan clearly, or so it would seem, satisfies the requirements of the first subsection, § 1129(b)(2)(B)(i).

The United States, however, argues otherwise. It contends that it has numerous and valuable claims against the Settlement Facility that are being eliminated under the Plan for no consideration. The Plan gives women with breast-implant claims against the Debtor the opportunity to either settle or litigate their claims. Those choosing to settle will have their claims channeled to the Settlement Facility. The United States reasons that every time a settling breast-implant claimant for whom it has a potential right of subrogation sits down at the negotiating table with the Settlement Facility, it should have a right to sit down with them. And every time the Settlement Facility reaches a settlement with such a breast-implant claimant, the United States asserts that it should be able to take its cut off the top. The Plan, however, does not overtly grant the United States the ability to do this, and because of this fact the United States argues that its claims against the Debtor are not being paid in full.

There are several significant problems with the United States' theory. Its claims are founded upon two non-bankruptcy federal statutes. The Federal Medical Care Recovery Act ("FMCRA"), 42 U.S.C. § 2651-2653, forms the basis of the IHS, VA and DoD claims. Forming the basis of the HCFA claim is the Medicare Secondary Payer Act ("MSP"), 42 U.S.C. § 1395y. These statutes give the United States the right to enforce its subrogation claims either through direct action against the responsible third party or by joining an "action or proceeding" commenced by the federal beneficiary against the third party. 42 U.S.C. § 2651(b) (To enforce its right of recovery the United States may "(1) intervene or join in any action or proceeding brought by the injured or diseased person . . . against the third person who is liable. . . .; or (2) . . . institute and prosecute legal proceedings against the third person who is liable [on its own]. . . .") (emphasis added); 42 U.S.C. § 1395y(b)(2)(B)(ii) ("[T]o recover payment . . ., the United States may bring an action against any entity which is required or responsible . . . to make payment with respect to [the] item or service . . ., and may join or intervene in any action related to the events that gave rise to the need for the item or service.") (emphasis added). A settlement discussion, however, is not an action or proceeding. Nothing in either statute entitles the United States to barge its way into private settlement negotiations. Of course, both the MSP and the FMCRA put the plaintiffs and defendants on notice that, if they resolve their dispute through settlement without making appropriate arrangements to pay the United States for its subrogation claim, potential liability to the United States will continue post-settlement. But this potential for future liability is an entirely different matter from whether the United States can force its way into the negotiations. The fact is, it can do no such thing.

A second problem with the United States' theory stems from the fact that it does not possess claims against the Settlement Facility. The Plan channels all unsettled and unestimated Class 15 claims to the Litigation Facility. And once this channeling occurs, the Litigation Facility will assume complete liability for these claims. Litigation Facility Agreement § 2.03(a) ("The Litigation Facility hereby assumes and shall be directly and exclusively liable for any and all liabilities . . . arising in connection with, constituting or relating to . . . any Claim in Class . . . 15 . . . that was not Allowed or estimated for distribution on or before the Confirmation Date. . . .").

The United States' theory would improperly lead to the revival of claims against the Debtor that have already been disallowed. As noted, the United States filed four proofs of claim. By the United States' own admission, its original proofs of claims were insufficient. See Transcript, July 16, 1998 at 85. Both Proponents objected to the United States' claims. This began a long and complex discovery process that lasted approximately two and one-half years. And it merits noting that during this period, the Court urged the United States to supplement its proofs of claim on more than one occasion. See, e.g., id. at 84-86. The United States thus had ample opportunity to correct the omissions in its proofs of claims. When it failed to do so, the Proponents, on May 28, 1999, filed a motion for summary judgment seeking the disallowance of the Government's claims. The United States finally amended its proofs of claim in April, May and June of 1999. These amendments named 15,048 federal beneficiaries that, according to the United States, provide the basis for its claims against the Debtor. At the same time, the United States maintained its position that it also had claims against the Debtor for an unspecified number of federal beneficiaries that it had not yet identified. The FMCRA and the MSP entitle the United States to recover, under certain circumstances, the costs of medical treatment that it provided to an individual. 42 U.S.C. § 2651(a) (Under the FMCRA, when the United States provides medical treatment to a federal beneficiary for injuries that arose under circumstances creating a tort liability upon a third party, it is entitled to recover from that third party the reasonable costs of the treatment.); 42 U.S.C. § 1395y(b)(2)(B)(ii) (The MSP similarly entitles the Government to recover, from the "required or responsible" entity, the costs of medical treatment that it provided to a federal beneficiary). At a minimum, then, the United States' proofs of claim must identify each of the individuals underlying its claim for damages. If the United States is unable to provide even this basic threshold information, it cannot possibly provide the additional information necessary to prove its claim, such as: the type of medical treatment provided, why the treatment was necessary, the costs of the treatment, etc.

It is black-letter law that a proof of claim that is properly executed and filed constitutes prima facie evidence of the claim's validity and amount. 11 U.S.C. § 502(a); F.R.Bankr.P. 3001(f); see also In re Durastone Co., 223 B.R. 396, 397 (Bankr.D.R.I. 1998); In re Premo, 116 B.R. 515, 518 (Bankr.E.D.Mich. 1990). As noted, and after years of inexcusable delay, the Government finally perfected its proofs of claim with respect to the 15,048 identified federal beneficiaries. But to the extent that the United States' proofs of claim failed to identify federal beneficiaries to whom it in fact provided treatment as a result of injuries allegedly caused by the Debtor, they were incomplete. As the Government's proofs of claim were not properly executed with respect to the unnamed beneficiaries, the Rule 3001(f) presumption of validity never arose. The United States had more than ample opportunity to correct this defect, but did not do so. Therefore, by order entered on October 27, 1999, this Court disallowed this portion of the Government's claims. Order on Motion to Compel at 2.

The United States also asserted that it has claims stemming from treatment that it might provide to eligible federal beneficiaries at some point post-confirmation. See, e.g., Declaration of Lisa Vriezen U.S. Department of Health and Human Services, Health Care Financing Administration in Support of Proof of Claim at 10 ("The [HCFA] claim includes payments already made, as well as payments for care to be provided in the future."). The portion of the Government's claims based upon the furnishing of treatment post-confirmation are subject to disallowance under § 502(e). This section provides:

(e)(1) Notwithstanding subsections (a), (b), and (c) of this section and paragraph (2) of this subsection, the court shall disallow any claim for reimbursement or contribution of an entity that is liable with the debtor on or has secured, the claim of a creditor, to the extent that (A) such creditor's claim against the estate is disallowed; (B) such claim for reimbursement or contribution is contingent as of the time of allowance or disallowance of such claim for reimbursement or contribution; or (C) such entity asserts a right of subrogation to the rights of such creditor under section 509 of this title. (2) A claim for reimbursement or contribution of such an entity that becomes fixed after the commencement of the case shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) of this section, the same as if such claim had become fixed before the date of the filing of the petition.

11 U.S.C. § 502(e) (emphasis added).

The MSP and the FMCRA entitle the United States to "recover payment" from the responsible third party for the costs of medical care that it provided to a federal beneficiary. 42 U.S.C. § 1395y(b)(2)(B)(ii); 42 U.S.C. § 2651. The Government does not dispute that its claims against the Debtor are for reimbursement. Cf. United States Response to [Debtor's] First Set of Interrogatories . . ., Interrogatory #6 ("In the event, and to the extent, that 11 U.S.C. § 509 requires HCFA to elect whether its federal statutory rights are in the nature of subrogation or reimbursement as those terms are used in the Bankruptcy Code, HCFA states that its claim is for reimbursement."); see also Webster's Ninth Collegiate Dictionary 993 (1985) (defining reimbursement as the act of making restoration or payment); see also U.S. Opposition to Proponents' Motion for Summary Judgment at 51-58 ("U.S. Opposition to Summary Judgment") (apparently conceding that its claims are for reimbursement and arguing only that § 502(e) does not serve to disallow its claims because the United States is not co-liable with the Debtor and its claims are not contingent). Consequently, the applicability of § 502(e) to the United States' claims for medical care not yet provided depends upon whether the claims are contingent and whether the Government is "an entity that is liable with" the Debtor on the breast-implant claims that form the basis of its right of recovery.

The Court previously observed that cases and the relevant facts suggest that the Government is indeed co-liable with the Debtor. See Report and Recommendation on United States' Motion to Withdraw Reference Pursuant to § 157(d). The Government, however, is not prepared to concede the point. It expressly acknowledges that it is obligated to provide medical care to eligible breast-implant claimants. U.S. Opposition to Summary Judgment at 52; see also United States' Reply in Support of Motion to Withdraw Reference at 1 (stating that its "claims arise under federal statutes which mandate that [it] provide medical care and/or reimburse the cost of medical care incurred by eligible beneficiaries") (emphasis added). Yet, it argues that the federal Medicare programs which give rise to these obligations create a duty that is "different than the normal surety or guaranty relationship in that the United States does not share liability with the Debtor." U.S. Opposition to Summary Judgment at 53-54. And, according to the United States, these unusual obligations do not give rise to the "type of relationship contemplated by . . . § 502(e)." Id. at 52. Citing CCF, Inc. v. First Nat'l Bank Trust Co. (In re Slamans), 69 F.3d 468 (10th Cir. 1995), the Government argues that if Creditor #2's obligation to Creditor #1 on a certain sum arises from a different ("independent") source of law than the Debtor's obligation on this same sum, Creditor #2 is not "liable with the debtor" to Creditor #1. The United States argues that, like the issuer of a letter of credit in Slamans, its obligation to provide medical care to a federal beneficiary is independent of any obligation that a third party, such as the Debtor, might have to that same federal beneficiary. U.S. Opposition to Summary Judgment at 54. And as was the case with the issuer of the letter of credit in Slamans, the Government argues that it should not be deemed to be "an entity that is liable with" the Debtor.

For two reasons, the Government's argument is unconvincing. Slamans' rationale that a creditor is not "liable with the debtor" on an obligation to another creditor if the obligations arise from "independent" sources proves too much. In Slamans, Sun Company (Creditor #1) was owed a sum of money from the debtor. If it was unsuccessful in obtaining payment from the debtor, Sun Company had an absolute right to obtain payment on that same claim from First National (Creditor #2), the issuer of the letter of credit. This meant that the debtor and First National were both liable for the same sum to Sun Company. Nonetheless, the court held that the debtor and First National were not co-liable on this amount. The linchpin of the court's reasoning was that First National had an independent obligation to honor the letter of credit. However, this fact seems to be entirely irrelevant. Every form of guarantee agreement creates an independent obligation on the part of the guarantor. Yet it also makes the guarantor co-liable with the primary obligor on the same underlying debt, even though these obligations arise from different contracts.

More importantly though, Slamans is a Tenth Circuit decision and this Court is bound by the Sixth Circuit. And the Sixth Circuit has defined differently the phrase "an entity that is liable with the debtor." In the Sixth Circuit, co-liability exists when each party is obligated to pay the same person for the same benefits even if the obligations of each party arise from a different source. In re White Motor Corp., 731 F.2d 372, 374 (6th Cir. 1984); see also In re Baldwin-United Corp., 55 B.R. 885, 890 (Bankr.S.D.Ohio 1985) ("The phrase `an entity that is liable with the debtor' is broad enough to encompass any type of shared liability with the debtor, whatever its basis."); Collier on Bankruptcy 6 502.06[2][b] (15th ed. rev. 1999) ("Under section 502, codebtor status is broadly interpreted, and a claim for reimbursement has been held to presuppose a codebtor relationship.").

At one point in this case, the Government argued that whether or not its claims are "contingent" must be decided under the MSP and the FMCRA. But this term is not found in either of these two statutes. Rather, "contingent" is found only in the Bankruptcy Code. As a result, whether a claim is or is not contingent for purposes of allowance in a bankruptcy case is purely a question of bankruptcy law.

The Government acknowledges that, pursuant to a mandate in federal law, it is obligated to pay for or provide medical care to federal beneficiaries. As a result, it is ipso facto liable to these federal beneficiaries to pay for or provide such medical treatment. At the same time, if the Debtor is the party that caused the harm necessitating the medical treatment provided or paid for by the United States, it, too, is liable to the federal beneficiary for this same medical treatment. The Debtor and the Government are, therefore, both potentially liable to the federal beneficiaries for the same injuries. Hence, the Government is clearly "an entity that is liable with the [D]ebtor" with respect to the claims of breast-implant claimants.

The claims of the United States that are based on medical treatment not yet provided are plainly contingent. A claim will generally be considered contingent if the debtor's obligation to pay depends upon the occurrence of an extrinsic event which may or may not occur at some point in the future and that was within the fair contemplation of the parties at the time of the incident giving rise to the claim. See, e.g., In re Mazzeo, 131 F.3d 295, 300 (2d Cir. 1997) ("`Contingent' denotes a debt for which liability depends upon the occurrence of some future event or condition which may never be fulfilled.") (citations omitted); Subway Equipment Leasing Corp. v. Sims (In re Sims), 994 F.2d 210, 220 (5th Cir. 1993); In re Fostvedt, 823 F.2d 305, 306 (9th Cir. 1987); 2 Collier on Bankruptcy 6 303.03[2][a] (15th ed. rev. 1999).4 The obligation of the Debtor to reimburse the United States for its costs for medical treatment of federal beneficiaries that it has not yet provided will depend upon the happening of an extrinsic event — the actual furnishing of such benefits. That the Government might, at some point, provide or pay for medical treatment is certainly within the fair contemplation of the parties. But there is no way of knowing whether the Government will do so until it has actually happened. Therefore, the Government's claims for such treatment are contingent. Accordingly, these contingent claims must be, and on October 27, 1999, were disallowed pursuant to § 502(e)(1)(B). Order on Motion to Compel at 2.

The Court's order stated that it was disallowing all claims of the United States other than those arising from the benefits it provided to the 15,048 named beneficiaries. Order on Motion to Compel at 2. This opinion serves to supplement the reasoning provided from the bench for such disallowance. In addition, it is necessary to make one clarification with respect to this ruling. In the order, the Court stated that it was disallowing all of the Government's claims beyond the 15,049 beneficiaries identified. That number was taken from the United States' Opposition to the Summary Judgment Motion at 11-12. Therein, the Government mistakenly stated that it had identified 28 IHS beneficiaries. Review of the amended IHS proof of claim, however, shows that the Government actually identified 27 IHS beneficiaries. The true number of identified federal beneficiaries is 15,048.

Now that there has been a final adjudication disallowing the portion of the United States' claims pertaining to the unnamed federal beneficiaries, those claims cannot magically revive and become non-disallowed when the Settlement Facility begins to pay allowed breast-implant claims. See 11 U.S.C. § 1141(d) (discharging the debtor, with certain exceptions not relevant to the Government's claims, from any debt that arose before the date of confirmation).

The Government also complained of the effect that a so called "Cut-off Provision" would have on its claims against the Settlement Facility. This provision explains that "[c]ertain Claimants in Class [15] have asserted rights . . . to recover from the Settlement Facility if the Settlement Facility pays Allowed Claims of Settling Personal Injury Claimants without notice to or an adjudication of competing rights of such Class [15] Claimants to such settlement amounts." Plan § 6.8. The Cut-off Provision then provides that "[the Debtor] will seek, as part of the Confirmation Order or pursuant to an adversary proceeding to be heard concurrently with confirmation, a determination that any such right to recover against the Settlement Facility shall be cut off by the payment of an Allowed Claim of a Settling Personal Injury Claimant. . . ." Id. If the Debtor is successful in this endeavor, "the sole remedy available to such Class [15] . . . Claimant shall be to pursue a recovery directly from the Settling Personal Injury Claimant." Id. The Proponents have proposed to modify this provision to provide a second remedy to Class 15 claimants in the event that their rights to recover from the Settlement Facility are cut off. Besides being able to seek recovery from the settling breast implant claimant, the modification would enable Class 15 claimants to seek "injunctive or other equitable relief from the MDL 926 Court (to the extent such relief is available under applicable law) with respect to the Settlement Facility's payment of an Allowed Claim to any Settling Personal Injury Claimant whom the Class . . . 15 Claimant timely identifies in connection with its filed proof of claim." Post-Hearing Memorandum of Proponents at 26.

The Government asserts that the Cut-off Provision "cannot be approved without an adversary proceeding and should not be approved because it improperly denies creditors the right to participate in the plan of reorganization." U.S. Memorandum of Law at 9. The Court agrees that the relief contemplated in the Cut-off Provision can be obtained only through an adversary proceeding. See F.R.Bankr.P. 7001(9). As a result, the relief envisioned by the Cut-off Provision will not be accorded the Debtor pursuant to the confirmation order. Moreover, the Debtor has not instituted an adversary proceeding seeking such relief. By the Plan's own language, the Cut-off Provision is not self-effectuating. The steps necessary to give it effect have not been taken. Thus, the Government's objection to this provision is moot. But this can be of little solace to the Government. Given our holding in this opinion, that the United States does not possess claims against the Settlement Facility, the relief sought in the Cut-off Provision is unnecessary as the Court cannot purport to cut off rights that do not exist.

The Government makes a feeble attempt to argue that certain of its MSP-based claims against the Debtor will arise only post-confirmation and, as such, are not subject to discharge. The MSP enables the United States to recover double damages from the responsible third party "if it does not make appropriate arrangements to provide for payment of the United States' claims." U.S. Memorandum of Law at 3 (citing to 42 U.S.C. § 1395y(b)(3)(A)). Relying on In re Chateaugay Corp., 112 B.R. 513 (S.D.N.Y. 1990) and In re Food City, Inc., 110 B.R. 808 (Bankr.W.D.Tex 1990), the Government maintains that its right to recover double damages would arise post-confirmation if the Reorganized Debtor pays primary claimants without arranging for the Government's share.

In Chateaugay, the United States sought declaratory judgment that certain claims arising against the debtor under the Comprehensive Environmental Response Compensation Liability Act ("CERCLA") were not discharged. A CERCLA claim, such as the one at issue in Chateaugay, can arise only upon the "release, or threatened release, of hazardous waste." Chateaugay, 112 B.R. at 521. If neither of these events occurs prepetition, a claim for compensation under CERCLA is not dischargeable in bankruptcy. Id. at 521. In Food City, the court observed that if the means for implementing a plan requires the proponent to violate a law post-confirmation, such violation will give rise to a liability of the reorganized debtor, not the estate. Food City, 110 B.R. at 813. The United States reasons that since its MSP claim for double damages can arise only post-confirmation it should not be subject to discharge. The Government's argument is not persuasive. All Food City said was that a plan cannot insulate a debtor from violations of law it commits after confirmation of the plan — not exactly a startling proposition. The question here is whether the Debtor would be violating federal law by exercising its right to a bankruptcy discharge as to the claims of the Government — those that are allowed and those that are disallowed. The Chateaugay case, in particular, belies the Government's position. That court stated that "[a] claim, even a contingent claim, arises under the Bankruptcy Code at the time when the acts giving rise to the alleged liability were performed." Chateaugay 112 B.R. at 520 (internal quotations omitted). And "[s]o long as there is a pre-petition triggering event, . . . the claim is dischargeable, regardless of when the claim for relief may be in all respects ripe for adjudication." Id. at 522.

The triggering events which give rise to the Government's claims against the Debtor arose prepetition. As a result, its claims must be resolved through the bankruptcy process. The MSP's double payment provision does not change this fact. The applicability of the double payment provision in this case is first dependent on the Debtor being found liable for a prepetition act — causing injury to a breast-implant claimant who received treatment from the United States. The Government must then show that the Debtor paid the claim of a federal beneficiary without making arrangements to resolve its competing claim. However, the Plan does make arrangements to resolve the United States' claims: They are channeled to the Litigation Facility and if the Government prevails at trial the claims will be paid in full. To summarize the above discussion, the Government has filed proofs of claim against the Debtor seeking recovery for the costs of treatment provided to 15,048 named federal beneficiaries. Those claims, to the extent they are not resolved through the Proponents' pending summary judgment motion, will be channeled to the Litigation Facility for resolution. If such claims become allowed through trial or settlement, they will be paid in full with interest by the Settlement Facility. In addition, the United States does not possess claims against the Settlement Facility. Therefore, since all Class 15 claims will be paid in full, the Plan satisfies the requirements of § 1129(b)(2)(B)(i).

III. Conclusion

The Plan does not unfairly discriminate against and is fair and equitable to Class 15. The requirements of cramdown are, therefore, satisfied with respect to this rejecting class.

AMENDED OPINION ON THE CLASSIFICATION AND TREATMENT OF CLAIMS

On this date the Court issued its Findings of Fact and Conclusions of Law on the matter of the confirmation of the Plan. To supplement and explicate some of the findings and conclusions, the Court contemporaneously releases this opinion and several others. A number of general unsecured creditors, whose claims arose from the Debtor's manufacture and sale of silicone-gel breast implants, objected to confirmation of the Plan. The objections addressed in this opinion assert that the Plan does not comply with 11 U.S.C. § 1122(a) and 1123(a)(4). The Court disagrees, and for the reasons stated below these objections are overruled.

Unless otherwise noted all statutory references are to the Bankruptcy Code, 11 U.S.C. § 101 et seq.

I. Background

Section 1129(a) sets forth 13 requirements for confirmation of the plan, one of which is that a plan of reorganization must "compl[y] with all applicable provisions of [the Bankruptcy Code]." 11 U.S.C. § 1129(a)(1). Two of those applicable provisions are §§ 1122(a) and 1123(a)(4). Section 1122(a) governs claim classification and § 1123(a)(4) provides general requirements for within-class treatment of claims.

The Plan divides claims and interests into 33 classes and subclasses. The following classes are relevant to this opinion: Class 4 Unsecured Commercial Claims; Class 5 Domestic Breast Implant Claims; Class 6.1 Foreign Breast Implant Claims; Class 6.2 Foreign Breast Implant Claims; Class 7 Silicone Material Claims; Class 12 Physician Claims; and Class 15 Government Payor Claims.

The other classes of claims or interest contained in the Plan are: 1 — Other Priority Claims; 2 — Secured Claims; 3 — Convenience Claims; 4A — Prepetition Judgment Claims; 4B — Guaranty Claims; 6A — Quebec Class Action Claimants; 6B — Ontario Class Action Claimants; 6C — British Columbia Class Action Claimants; 6D — Electing Australia Breast Implant Settlement Claimants; 7 — Silicone Material Claims; 8 — Miscellaneous Raw Material Claims; 9 — Domestic Other Products; 10.1 — Foreign Other Products; 10.2 — Foreign Other Products; 11 — Co-Defendant Claims; 13 — Health Care Provider Claims; 14 — Domestic Health Insurer Claims; 14A — Foreign Health Insurer Claims; 16 — Shareholder Claims; 17 — General Contribution Claims; 18 — Long Term Contraceptive Implant ("Norplant") Personal Injury Claims; 19 — LTCI Other Claims; 20 — Intercompany Claims; 21 — Subordinated Claims; 22 — Environmental Claims; 23 — Retiree Benefit Claims; 24 — Interest Holders.

Class 4 is made up of all unsecured commercial claims against the Debtor. Amended Joint Disclosure Statement With Respect to the Amended Joint Plan (the "Disclosure Statement") § 6.1(C)(8). Claimants in this class will be paid in full with interest and will also be entitled to receive any fees, costs and expenses that are allowable under applicable law. On the Effective Date, or as soon as practicable thereafter, each Class 4 claimant will be paid in cash an amount equal to up to 24% of its allowed claim. Each Class 4 claimant will then receive a Senior Note for the balance of its claim. Plan § 5.1.

In general, Class 5 consists of breast-implant claims against the Debtor held by claimants who are either citizens of the United States or are resident aliens within the United States, Puerto Rico, the territories of the United States, or a United States military facility (hereafter these geographic areas are referred to as the "Greater U.S."). Disclosure Statement § 6.1(C)(4). Claims of those who do not meet the above citizenship or residency requirements, but who had their breast-implant procedures performed inside the Greater U.S. are also categorized in Class 5.

The Plan would provide domestic breast-implant claimants with the option to either settle or litigate their claims against the Debtor. The claims of those who opt to settle would be channeled to the Settlement Facility. Once there, claimants would be given the opportunity to qualify for a number of different settlement levels ranging from an expedited payment of $2,000 to a payment of $300,000 for the most severe injuries. Id. at 20. Class 5 claimants who choose to litigate would be channeled to the Litigation Facility.

Classes 6.1 and 6.2 are composed of breast-implant claims against the Debtor held by individuals who are neither citizens of the United States nor resident aliens of the Greater U.S., and who had their breast implant procedures performed outside the Greater U.S. Plan § 1.67. A foreign breast implant claim is in Class 6.1 if the claimant is a resident of a country that either: belongs to the European Union, has a common law tort system, or has a per capita gross domestic product ("GDP") that is greater than 60% of the United States' per capita GDP. The claims of foreign breast-implant claimants who are residents of countries that do not meet one of these requirements are placed in Class 6.2.

The disclosure statement filed in connection with the Plan identifies the countries that the Proponents believe to be within each of these classes. According to the disclosure statement, claims held by claimants from the following countries are placed in Class 6.1: Australia, Canada, New Zealand, United Kingdom, Austria, Bahamas, Belgium, Bermuda, Cayman Islands, Denmark, Finland, France (including French Polynesia and New Caledonia), Germany, Greece, Hong Kong, Iceland, Ireland, Italy, Japan, Kuwait, Liechtenstein, Luxembourg, Monaco, Netherlands, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Arab Emirates.
According to the disclosure statement, claims held by individuals from the following countries are classified in Class 6.2: Argentina, Barbados, British Virgin Islands, Chile, Cyprus, Czech Republic, Israel, Korea, Malaysia, Malta, Mauritius, Qatar, Saudi Arabia, Taiwan, Algeria, Belize, Bolivia, Botswana, Brazil, Bulgaria, Cambodia, Central African Republic, China, Colombia, Cook Islands, Costa Rica, Ctte-d'Ivoire (Ivory Coast), Croatia, Cuba, Dominican Republic, Ecuador, Egypt, Estonia, Fiji, Ghana, Grenada, Guatemala, Guyana, Haiti, Honduras, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Lebanon, Lithuania, Mali, Mexico, Morocco, Namibia, New Guinea, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Saint Kitts and Nevis, Senegal, South Africa, Thailand, Tonga, Turkey, Uruguay, Venezuela, Vietnam, Zambia, Zimbabwe.

Like domestic breast-implant claimants, all foreign claimants are given the opportunity to either settle or litigate their claims. The claims of those who elect to settle are channeled to the Settlement Facility where they are given the opportunity to qualify for the same settlement levels that are offered to domestic breast-implant claimants. It is at this point in the settlement process that treatment of domestic and foreign breast-implant claims diverge. Settlement payments to Class 6.1 claimants would be 60% of the amounts paid to domestic breast-implant claimants. Class 6.2 claimants would receive settlement payments that are 35% of the amounts paid to domestic breast-implant claimants.

Class 7, Silicone Material Claims, consists of claims held by both foreign and domestic claimants and which arise from the claimant's use or implantation of a breast-implant manufactured by a company other than the Debtor. The manufacturer in question must be an entity that is either domiciled or has its manufacturing facilities in the United States. In addition, the manufacturer must have purchased medical-grade gel systems from the Debtor. Id. § 1.166. Class 7 claimants, like other breast-implant claimants, will be able to resolve their claims through litigation or settlement. Those choosing to settle will be paid from a fixed fund of $57.5 million and will have two settlement options, an expedited-release payment and a disease-option payment. Disclosure Statement at § 6.6(J)(2)(b). Claimants selecting the expedited-release payment will each receive the same amount, an amount which is to be determined by the Claims Administrator at a later date. Id. Claimants choosing the disease-option payment will be able to qualify for the same settlement grid levels as breast-implant claimants in Classes 5, 6.1 and 6.2. But payments under this option will be no more than 40% of the amount paid to a breast-implant claimant under the equivalent grid level. Id. All settlement payments to Class 7 claimants will be subject to a dollar-for-dollar reduction for any payment that the claimant has received or is eligible to receive from the actual manufacturer of the breast implant. This reduction will not apply, however, if the breast implant was manufactured by CUI, Mentor or Bioplasty, since those companies have been liquidated through bankruptcy proceedings. Id. The Plan classifies all physician claims in Class 12. These claims arise out of the Debtor's manufacture and sale of silicone-gel breast implants and other medical products and the marketing and provision of such products to physicians. Disclosure Statement at 12. Physician claims are of two types. Most physician claimants seek reimbursement or indemnification from the Debtor in the event that the physician claimant is found personally liable for the injuries allegedly caused by the implants to the implant recipients. These claims have been dubbed "Physician Derivative Claims." A few physician claimants also assert what are called "Physician Direct Claims." This type of claim alleges, for example, that in its marketing, sale and provision of breast implants to physician claimants, the Debtor fraudulently misrepresented the extent and results of testing on breast-implant safety and that, as a result of such misrepresentation, these physicians suffered direct injury such as loss of profit or damage to reputation. Id.

The Plan would provide physician claimants with the choice to either settle or litigate their claims against the Debtor. Regardless of the route taken by the physician claimant, however, her claims would be treated in an aggregated manner. That is, a physician claimant who chooses to settle would have to settle all of her claims against the Debtor, both derivative and direct. A physician claimant who chooses to litigate would have to litigate all of her claims against the Debtor. Id. The settlement offer extended to physician claimants is not in the form of cash. Instead, in return for releasing all Physician Derivative and Direct Claims that they have against the Debtor and all other parties to be released under the Plan, the settling physician claimants would receive a release: from all products-liability-based claims held against them by the Debtor and all other parties to be released under the Plan; and from all breast-implant and other personal injury claims (except for malpractice claims as that term is defined in the Plan) that settling personal injury claimants hold against settling physician claimants. Id. at 12-13. Settling physician claimants will not be released, however, as to breast-implant claimants and other personal injury claimants who choose to litigate their claims against the Debtor. Physician claimants who opt for litigation would have all of their claims, both derivative and direct, channeled to the Litigation Facility. Litigating physician claimants would not receive the release protection afforded to settling physician claimants. Id. at 13.

Class 15 is composed of all "Government Payor Claims." A Government Payor is defined as a Governmental Unit that has paid or provided medical care for injuries allegedly arising out of the Debtor's manufacture and sale of silicone-gel breast implants and other medical products. Plan § 1.71. The class includes claims filed by the United States on behalf of the Department of Health and Human Services (including the Indian Health Service) ("IHS"), the Health Care Financing Administration ("HCFA"), the Department of Defense ("DoD"), and the Department of Veteran's Affairs ("VA"). The only other Class 15 claimants are the Canadian provinces of Alberta and Manitoba ("Alberta" and "Manitoba"). Post-Hearing Memorandum of [the Proponents] Supporting Confirmation at 28-29.

The Plan provides that unless a Class 15 claim is consensually resolved, the Proponents will seek to have the claim estimated for distribution on or before the Confirmation Date. Plan § 5.13.5. Class 15 claims which become allowed in this manner would be paid on the Effective Date with cash and senior notes. Id. § 6.11.8. Class 15 claims not resolved through this method will be channeled to the Litigation Facility for liquidation. Id. § 5.13.5. A Class 15 claim liquidated through the Litigation Facility would then be paid by the Settlement Facility with funds provided pursuant to the Settlement Facility Agreement and Funding Payment Agreement.

Disclosure Statement § 6.6(G)(4).

Objections to claim classification are discussed in Part II of this opinion. Part III addresses the objections made to within-class claim treatment. As the following analysis will demonstrate, the Plan complies with both § 1122(a) and § 1123(a)(4).

II. Classification of Claims Under the Plan A. Standards Governing Classification

Claims may be classified together only if they are "substantially similar" to one another. 11 U.S.C. § 1122(a) ("[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."). "Substantially similar" means similar in legal nature, character or effect. 7 Collier on Bankruptcy 6 1122.03[3] (15th ed. rev. 1999); see also In re Johnston, 21 F.3d 323, 327 (9th Cir. 1994). Section 1122(a) speaks solely to the types of claims that can be classified together. It does not address the question of whether substantially similar claims may be classified separately. In re U.S. Truck Co., 800 F.2d 581, 585 (6th Cir. 1986). Virtually every circuit that has encountered the issue, including the Sixth, has held that substantially similar claims may be classified separately. Id. at 585-86; Clerk, U.S. Bankruptcy Court v. Aetna Cas. Surety Co. (In re Chateaugay Corp.), 89 F.3d 942, 949 (2nd Cir. 1996); In re Barakat, 99 F.3d 1520, 1526 (9th Cir. 1996); In re Woodbrook Assoc., 19 F.3d 312, 317-18 (7th Cir. 1994); John Hancock Mutual Life Ins., Co. v. Route 37 Business Park Assoc., 987 F.2d 154, 158 (3rd Cir. 1993); In re Bryson Properties, XVIII, 961 F.2d 496, 502 (4th Cir. 1992); In re Greystone III Joint Venture, 995 F.2d 1274, 1278-79 (5th Cir. 1992); Olympia York Florida Equity Corp. v. Bank of New York (In re Holywell Corp.), 913 F.2d 873, 880 (11th Cir. 1990); Hanson v. First Bank of South Dakota, N.A., 828 F.2d 1310, 1313 (8th Cir. 1987); In re AOV Indus., Inc., 792 F.2d 1140, 1150 (D.C. Cir. 1986).

Most of these courts, however, also take the view that there are limits on a plan proponent's classification freedom. See, e.g., U.S. Truck, 800 F.2d at 586; Bryson Properties, 961 F.2d at 502; Greystone III, 995 F.2d at 1279. In short, they reason that substantially similar claims may not be classified separately when it is done for an illegitimate reason. U.S. Truck, 800 F.2d at 585-87; Chateaugay, 89 F.3d at 949; Woodbrook Assoc., 19 F.3d at 318; John Hancock, 987 F.2d at 158; Bryson Properties, 961 F.2d at 502; Greystone III, 995 F.2d at 1278-79; In re Jersey City Medical Center, 817 F.2d 1055, 1061 (3d Cir. 1987). Cf. Hanson, 828 F.2d at 1313; AOV Indus., 792 F.2d at 1150. Whether the reason proffered is legitimate is a factual determination that must be made on a case-by-case basis. See U.S. Truck, 800 F.2d at 586 (Bankruptcy courts have "broad discretion to determine proper classification according to the factual circumstances of each individual case."); see also Chateaugay, 89 F.3d at 949 ("[T]o warrant having separate classification of similar claims, the debtor must advance a legitimate reason supported by credible proof."); see also In re Stratford Assocs. Ltd. Partnership, 145 B.R. 689, 695 (legitimate reason for separately classifying similar claims exists "so long as such classification is based on legal or factual distinctions").

The Ninth Circuit has held that a plan proponent may classify substantially similar claims separately only when there is "legitimate business or economic justification" for doing so. In re Barakat, 99 F.3d 1520, 1526 (9th Cir. 1996). Adding the terms "business or economic" to the test of when substantially similar claims may be classed separately would seem to be unnecessary gloss that can only serve to further muddle the classification analysis. After all, the purpose of the reorganization process is to develop a plan that pays creditors to the greatest extent possible while at the same time enabling the debtor to continue operating as a viable business entity. In other words, the entire plan of reorganization is created for a business or economic purpose. This of course means that any time a legitimate reason exists for structuring a plan in a particular manner — including a proposed classification scheme — that reason is a fortiori business or economic in nature.

B. Comment on Classification Standards

Before applying the "legitimate reason" standard to the current objections, we pause to comment on this standard's correctness. We do so for two important reasons. First, as will be discussed below, this Court believes that the standard is wrong as a matter of law. And second, the real world costs of applying this legally incorrect standard can be enormous. In this case, for example, attorneys for a number of the foreign breast-implant claimants argued that the Proponents had not demonstrated a "legitimate reason" for classifying their claims separately from domestic breast-implant claims. Evidence and argument on the classification objections were presented to the Court during the confirmation hearing over the course of approximately six days. And as part of their case, the Proponents brought in a number of comparative law experts from countries such as England and Australia. It is safe to say that the costs incurred by the Debtor to properly respond to the classification objections ranged into the six-figures. It is bad enough that a debtor may be required to ante up this needless expense; it would be even worse if the debtor were insolvent and the money is taken from the pot established for creditors. In addition, the judicial resources involved in addressing such objections also can be substantial. Sadly, none of this time and expense would have been necessary if § 1122(a) were interpreted, as it should be, in accordance with its plain language.

The development of this standard occurred primarily in the context of cases where separate classification of substantially-similar claims had allegedly been done solely for the purpose of gerrymandering the vote on the plan. In one of the first Code cases to address this issue, the Sixth Circuit stated that "there must be some limit on a debtor's power to classify" such claims separately when the singular reason for doing so is to ensure that at least one accepting class of impaired creditors exists for cramdown purposes. U.S. Truck, 800 F.2d at 586. Otherwise, the court reasoned, "[t]he potential for abuse would be significant." Id. Thereafter, the Eight and Eleventh Circuits agreed with this reasoning. See Holywell Corp., 913 F.2d at 880; Hanson, 828 F.2d at 1313. The Fifth Circuit also agreed with U.S. Truck's "potential for abuse" assessment. Greystone III, 995 F.2d at 1279. But in the course of its analysis, Greystone III also suggested that a broad interpretation of § 1122(a) would render §§ 1122(b) and 1111(b) superfluous. Id. at 1278-80. Greystone III's reasoning, which will be discussed in greater detail below, led to its frequently cited "one clear rule" pronouncement: "[T]hou shalt not classify similar claims differently in order to gerrymander an affirmative vote on a reorganization plan." Id.

There is no evidence suggesting that the Plan's classification scheme was designed with such an objective in mind. In fact, such a conclusion would be counterintuitive. Twenty-four classes voted to accept it. And most of those 24 classes accepted by overwhelming margins. Not surprisingly, no meaningful allegation of gerrymandering was made by any of the objecting parties. Moreover, even if the Proponents admitted that they classified these similar claims separately in order to obtain an accepting impaired class, so long as there is another legitimate reason supporting separate classification, the separate classification can be upheld. See In re U.S. Truck Co., 800 F.2d 581, 586 n. 8 (6th Cir. 1986) (Although the plan proponent admitted that it separately classified the Teamsters Committee's unsecured claims from the other unsecured claims in order to obtain at least one accepting impaired class of claims, the court held that independent justifications made the classification permissible.).

Perhaps it is because the three words prefacing this statement convey the feel of a command set in stone, but for whatever reason, most courts have, with little question, accepted this judicial pronouncement as the supreme rule governing classification decisions. Barakat, 99 F.3d at 1525; In re Boston Post Road Ltd. Partnership, 21 F.3d 477, 481-83 (2d Cir. 1994); Woodbrook Assoc., 19 F.3d at 317-18; John Hancock, 987 F.2d at 160; Bryson Properties, 961 F.2d at 502. John Hancock further suggested that a broader interpretation of § 1122(a) than that ascribed by Greystone III would enable plan proponents to circumvent the requirements of § 1129(a)(10). John Hancock, 987 F.2d at 159.

Greystone III's "one clear rule" directive certainly has superficial appeal. But the reasoning which underlies it cannot withstand legal scrutiny. Even worse, its real world application actually makes the reorganization process, and classification issues in particular, needlessly complex, costly and unpredictable.

To see why, we must begin with the language of § 1122(a) which merely provides that "a plan may place a claim . . . in a particular class only if such claim . . . is substantially similar to the other claims . . . of such class." 11 U.S.C. § 1122(a). The plain language of this provision would seem to require a court to do nothing more than look at each individual class and determine whether the claims within that class are substantially similar. U.S. Truck, 800 F.2d at 585 ("[B]y its express language, [§ 1122(a)] only addresses the problem of dissimilar claims being included in the same class."). Under commonly accepted rules of statutory interpretation, this is where the analysis would normally end. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989); see also Hudson v. Reno, 130 F.3d 1193, (6th Cir. 1997) ("If the words of the statute are unambiguous, the judicial inquiry is at an end, and the plain meaning of the text must be enforced.").

As exemplified by the Sixth Circuit, however, courts have not done this. See U.S. Truck, 800 F.2d at 584 (stating, as justification for its reliance on § 1122(a)'s legislative history, that "Congress has sent mixed signals on the issue [of classification]"). The legislative history provides that § 1122(a) "requires classification based on the nature of claims . . . classified, and permits inclusion of claims . . . in a particular class only if such claim . . . being included is substantially similar to the other claims . . . of the class." S. Rep. No. 989. 95th Cong., 2d Sess. 118, reprinted in 1978 U.S. Code Cong. Ad.News 5787, 5904. This piece of legislative history appears to fully support the plain language interpretation of § 1122(a) noted above. However, the legislative history also states that § 1122(a) "codifies current case law surrounding the classification of claims." Id. Unfortunately, "[i]t is difficult to follow Congress' instruction to apply old case law to the new Code provision." U.S. Truck, 800 F.2d at 586. In part, the reason for this is that there were three forms of business reorganizations under the Act, one each under Chapters X, XI and XII. See Linda J. Rusch, Gerrymandering The Classification Issue In Chapter Eleven Reorganizations (hereafter "Gerrymandering"), 63 U. Colo. L. Rev. 163, 189 (1992).

Case law under Chapters XI and XII, which contained identical classification provisions, apparently placed no limits on a plan proponent's ability to separately classify substantially similar claims. Id. at 190 nn. 128 130 (and cases cited therein). Under Chapter X, courts would generally allow separate classification of similar claims when doing so was "in the best interest of creditors; fostered reorganization efforts; did not violate the absolute priority rule; and did not uselessly increase the number of classes." In re Ag Consultants Grain Div., Inc., 77 B.R. 665, 673 (N.D.Ind. 1987) (Bankruptcy Code case surveying case law pertaining to classification under the Bankruptcy Act); see also Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 190. The first problem in applying cases decided under the Bankruptcy Act is knowing which case law Congress intended to codify. If it was case law interpreting Chapters XI and XII which Congress meant to codify, it would seem appropriate to use the plain-language interpretation of § 1122(a) since such cases permitted a plan proponent to separately classify substantially similar claims. Arguably this same result obtains if it is case law interpreting Chapter X that is pertinent because most of the factors considered under Chapter X, such as whether a plan is in the best interest of creditors and whether it satisfies the absolute priority rule, are addressed under Code provisions other than § 1122(a). See 11 U.S.C. § 1129(a)(7) (best interest of creditors' test) and § 1129(b)(2) ("fair and equitable" standard includes the absolute priority rule). And once these factors are removed from the equation, there would seem to be no reason not to apply § 1122(a) in accordance with its plain language. Thus, even assuming that the straightforward language of § 1122(a) is not plain and that there is justification for relying on legislative history, doing so would seem only to lead to the same interpretive result as the plain language construction already noted.

Another common rule of statutory construction is that every provision of a statute should be construed so that no other provision is rendered superfluous or meaningless. Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 977 (1998). As noted above, Greystone III and others expressed concern that if limits are not placed on a plan proponent's ability to classify substantially similar claims separately, then §§ 1122(b), 1111(b) and 1129(a)(10) would be rendered meaningless. But these concerns are unfounded.

Greystone III stated that "if § 1122(a) is wholly permissive regarding the creation of . . . classes, there would be no need for § 1122(b) specifically to authorize a class of smaller unsecured claims." Id. at 1278; see also 11 U.S.C. § 1122(b) ("A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience." (emphasis added)). For this reason, the court concluded that a broader interpretation of ' 1122(a) than the one expressed in its holding would render § 1122(b) superfluous. One must presume, then, that Greystone III saw § 1122(b) as an expression of Congressional intent to circumscribe a plan proponent's ability to place substantially similar claims in different classes. But for this to be correct, one would also have to take the view that "every unsecured claim" is substantially similar to every other unsecured claim. It makes little sense to conclude that Congress intended for two phrases contained in the same statute — "substantially similar [claims]" and "every unsecured claim" — to carry identical meanings. Moreover, there seems to be little dispute that unsecured claims can be substantially dissimilar in nature. In this case for instance, there is no question that while disputed and unliquidated personal injury breast-implant claims and undisputed and liquidated commercial claims are both unsecured, they may be separately classified.6 Fortunately, there is a more reasonable construction of § 1122(b) which enables it to co-exist perfectly with a plain-language interpretation of § 1122(a) — that is, as a general rule only substantially-similar claims may be classified together. 11 U.S.C. § 1122(a). There will be times, however, when matters of administrative convenience make it "reasonable and necessary" to classify substantially dissimilar claims together. Section 1122(b) grants the court authority to do this when such circumstances arise. See In re City of Colo. Springs Spring Creek Gen. Improvement Dist., 187 B.R. 683, 689 (Bankr.D.Colo. 1995) (Section 1122(b) allows dissimilar and de minimis unsecured claims to be classified together.); In re ZRM-Oklahoma Partnership, 156 B.R. 67, 70 n. 3 (Bankr.W.D.Okla. 1993). Thus, a broad interpretation (or more precisely a plain-language interpretation) of § 1122(a) in no way renders § 1122(b) meaningless.

As indicated, Greystone III also relied on § 1111(b) to support its interpretation of § 1122(a). Such reliance, too, was misplaced. Without § 1111(b), an undersecured non-recourse creditor's potential recovery would be limited to the value of the collateral securing its claim because its deficiency claim would be subject to disallowance pursuant to § 502(b)(1). 4 Norton Bankruptcy Law Practice 2d § 89:2 at 89-5. Any subsequent appreciation in the collateral would be captured by the debtor. Under Chapter XII of the Bankruptcy Act, which was available only to individuals and partnerships, this in fact was how the process worked. Id. (discussing effect of ruling in In re Pine Gate Assoc., Ltd., 2 B.C.D. 1478 (Bankr.N.D.Ga. 1976)). Had this process carried over into the Bankruptcy Code, these same opportunities would have become available to corporate debtors. The potential for such a development was perceived to pose a substantial threat to non-recourse secured lenders in the form of unrealistically low valuations of collateral. Id.

To mitigate this risk, Congress enacted § 1111(b). Id. Section 1111(b) permits an undersecured non-recourse creditor to choose between two possible treatments with respect to its deficiency claim. The creditor can elect to have its deficiency claim treated as a recourse unsecured claim, whereby it will then have the right to vote its claim in a class composed of substantially similar unsecured claims. 11 U.S.C. § 1111(b)(1)(A). Alternatively, such a creditor can choose to have the entirety of its claim treated as fully secured by its collateral. 11 U.S.C. § 1111(b)(2).

Greystone III postulated that if, any time an undersecured non-recourse creditor elects the § 1111(b)(1)(A) option, a plan proponent has the unfettered ability to place that claim in a class by itself, that creditor's "right to vote in the unsecured class would be meaningless." Greystone III, 995 F.2d at 1280-81. The result, according to Greystone III, would be as follows:

Plan proponents could effectively disenfranchise the holders of such claims by placing them in a separate class and confirming the plan over their objection by cramdown. With its unsecured voting rights effectively eliminated, the electing creditor's ability to negotiate a satisfactory settlement of either its secured or unsecured claim would be seriously undercut. It seems that the creditor would often have to "elect" to take an allowed secured claim under § 1111(b)(2) in the hope that the value of the collateral would increase after the case is closed. Thus, the election under § 1111(b) would be essentially meaningless.

Id. at 1280.

Based upon this passage it appears that Greystone III attributed a broader purpose to § 1111(b) than was intended by Congress. See Bruce A. Markell, Clueless on Classification: Toward Removing Artificial Limits on Chapter 11 Claim Classification (hereafter "Clueless"), 11 Bankr. Dev. J. 1, 21 (1994-95) (observing that "[p]rohibiting separate classification for creditors who have . . . made the [§ 1111(b)(1)(A)] election . . . gives the secured creditor more than Congress provided"). As noted, § 1111(b) grants an undersecured non-recourse creditor the right to elect one of two types of treatment. This choice is an absolute right that cannot be denied by a plan proponent or the court. Consequently, if the creditor elects the § 1111(b)(1)(A) option — that is, if it opts to have a secured claim to the extent of the value of the collateral and to have the deficiency treated as an allowed unsecured claim — that is the treatment the creditor must receive under any plan that is confirmed. This is true whether confirmation of the plan is achieved on a consensual basis or through cramdown.

Moreover, the undisputed right to receive the selected treatment is all that § 1111(b) provides to the undersecured non-recourse creditor. There is nothing within the text of this section that suggests that it was intended to exclude such a creditor from the possibility of cramdown. Nor is there any language in this section suggesting that a creditor who chooses § 1111(b)(1)(A) must be placed in a class with every other unsecured creditor. And importantly, even if the plan proponent places such a creditor in its own class, this does not mean that the creditor is thereby disenfranchised from the bankruptcy process or that its vote somehow becomes meaningless. Markell, Clueless, 11 Bankr. Dev. J. at 20 ("[O]nly a myopic view of bankruptcy law would see the partially-secured creditor as disenfranchised."). The creditor will still retain the ability to object to any aspect of the proposed plan. If the creditor votes to reject the plan, the plan can be confirmed only if the cramdown requirements are satisfied. And, despite intimation to the contrary by Greystone III, satisfying the cramdown requirements is no small hurdle for a plan proponent to overcome.

In addition, Greystone III's view of what constitutes a level field for purposes of negotiating a plan of reorganization is curious. Assume that there are two classes of unsecured creditors, one of which is composed entirely of the undersecured non-recourse creditor's deficiency claim. Such a plan could be confirmed over the objection of the creditor only if all of the requirements of §§ 1129(a) and (b) are satisfied — including the best-interest-of-creditors test and the absolute priority rule. Therefore, the undersecured creditor will likely be placed in a negotiating position of some strength. See Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 197-98 (discussing aspects of the bankruptcy process that provide a dissenting undersecured non-recourse creditor with negotiating leverage). On the other hand, assume that the undersecured creditor is classified, as Greystone III requires, with all other unsecured creditors and that its claim is of sufficient value to control the class vote. In such a case, the undersecured creditor will have more than a strong bargaining position; it will have absolute veto power over the plan. Markell, Clueless, 11 Bankr. Dev. J. at 21; Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 204. And this will be the case regardless of whether the proposed plan is capable of satisfying all requirements of confirmation save for § 1129(a)(10). See 11 U.S.C. § 1129(a)(10) (providing that at least one impaired class of claims must have accepted the plan before it is eligible for cramdown). The chapter 11 reorganization process serves a number of important policy objectives including "debtor relief, a preference for feasible reorganizations as opposed to liquidations, equality among similarly situated creditors, and loss distribution in an equitable way among the creditors and the debtor." Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 200. Under the second scenario just discussed, these important policy objectives will clearly be defeated. Id. It is doubtful that this is the impact that Congress intended for § 1111(b). Therefore, a plain language interpretation of § 1122(a) would not render § 1111(b) meaningless. Lastly, we are left with John Hancock's reliance on § 1129(a)(10). Section 1129(a)(10) establishes the requirement that at least one class of impaired creditors must have accepted the plan before it can be eligible for cramdown. 11 U.S.C. § 1129(a)(10). Undoubtedly, it is this provision of the Code that sometimes causes plan proponents to place substantially similar claims in separate classes. In John Hancock, the court stated that

where . . . the sole purpose and effect of creating multiple classes is to mold the outcome of the voting, it follows that the classification scheme must provide a reasonable method for counting votes. In a "cram down" case, this means that each class must represent a voting interest that is sufficiently distinct and weighty to merit a separate voice in the decision whether the proposed reorganization should proceed. Otherwise, the classification scheme would simply constitute a method for circumventing the requirement set out in . . . § 1129(a)(10). John Hancock, 987 F.2d at 159.

John Hancock was correct that the cramdown process should not be undertaken unless the rejecting class is properly constituted. The problem with the court's statement, however, is that the classification determination is not made pursuant to § 1129(a)(10), but pursuant to § 1122(a), which is incorporated into the confirmation process through § 1129(a)(1). Cf. Markell, Clueless, 11 Bankr. Dev. J. at 37 ("A flexible or expansive reading of section 1122 has little to do with section 1129(a)(10)."). Section 1122(a) requires the claims within each class to be substantially similar in legal nature and character. It does not require a finding that "each class . . . represent a voting interest that is sufficiently distinct and weighty to merit a separate voice" in the confirmation process. And to this Court's knowledge there is nothing in the case law or legislative history that would require a court to ratchet the classification requirements up a notch whenever § 1129(a)(10) and cramdown come into play. Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 185 ("[N]othing in the legislative history of section 1129(a)(10) suggests that Congress intended that section to require the debtor to place all substantially similar claims into one class or that separate classification to create an accepting impaired class is abusive."). As a result, § 1129(a)(10) should not bear upon a determination of whether classification is proper pursuant to § 1122(a).

The above analysis demonstrates that § 1122(a) should not be circumscribed by judicially created limitations, but instead should be construed in accordance with its plain language. Accord ZRM-Oklahoma, 156 B.R. at 70-71. Classification objections should require a court to look only at whether the claims within a class are substantially similar. And importantly, § 1122(a) should not be viewed as prohibiting a plan proponent from placing substantially similar claims in different classes regardless of whether it has proven a "legitimate reason" for doing so. Such an interpretation of § 1122(a) does not conflict with or render meaningless any other provision of the Bankruptcy Code. Nor does such an interpretation work any inequities upon unsecured creditors. Rusch, Gerrymandering, 63 U. Col. L. Rev. at 199 (observing that a restrictive approach to classification is not necessary to protect the interests of unsecured creditors as long as bankruptcy judges, as they are statutorily mandated to do, require plan proponents to comply with all applicable provisions of § 1129).

Concerns as to whether a proposed plan is abusive of the bankruptcy process can be addressed through the good faith requirement of § 1129(a)(3). Kenneth N. Klee, Adjusting Chapter 11: Fine Tuning the Plan Process (hereafter "Adjusting Chapter 11") 69 Am. Bankr. L.J. 551, 562-63 (Fall, 1995); Markell, Clueless, 11 Bankr. Dev. J. 38; Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 204. Furthermore, before a plan can be crammed down, the proponent must demonstrate that the plan does not unfairly discriminate against and is fair and equitable to any class that rejects it. See ZRM-Oklahoma, 156 B.R. at 71 (observing that concerns expressed by Greystone III and its progeny are adequately addressed through other provisions of the Code such as §§ 1129(a)(3), 1129(a)(7) 1129(b)); see also Klee, Adjusting Chapter 11, 69 Am. Bankr. L.J. at 562; Markel, Clueless, 11 Bankr. Dev. J. at 43; Rusch, Gerrymandering, 63 U. Colo. L. Rev. at 200-01. Furthermore, we must presume that Congress carefully crafted the provisions of § 1129 with an eye toward ensuring that the reorganization process does not impose inequitable results upon the parties in involved. Cf. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988) (stating that "whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code"). This discussion demonstrates why § 1122(a) should be interpreted in accordance with its plain language. That is, when faced with a classification objection, a court's only task should be to ascertain whether the claims within that class are substantially similar in character to each other. Though we do not repeat them here, we emphasize again the enormous practical benefits that would result from a proper construction of this section. For these reasons, should forthcoming appeals on this matter reach the Sixth Circuit, we would encourage the court to reconsider the "legitimate reason" standard established in U.S. Truck. Irrespective of whether the "legitimate reason" standard is correct, however, this Court is bound by U.S. Truck to apply it to the current § 1122(a) objections.

C. Classification Objections of Class 4 Claimant

One Class 4 Claimant, Halcyon/Alan B. Slifka Management Company LLC and Halcyon Offshore Management Company LLC (collectively "Halcyon"), asserts that Class 4 claims are substantially similar to claims in Classes 4B and 16 and that the Proponents have failed to demonstrate a legitimate reason for classifying these claims separately.

Class 4B consists of all allowed DCC Guaranty Claims. DCC Guaranty Claims are those claims "arising with respect to guaranty agreements entered into between DCC and various lenders, guaranteeing certain of the financial obligations" of its subsidiaries. Plan § 1.43. These claims are plainly contingent because the Debtor will incur an obligation only upon the occurrence of an extrinsic event that may or may not take place — that is, the failure of one of its subsidiaries to perform its financial obligation to the guarantee lender. See, e.g., In re Mazzeo, 131 F.3d 295, 300 (2d Cir. 1997) (defining a contingent claim as one that is dependent upon the happening of extrinsic event which may or may not occur). In contrast, claims in Class 4 are all noncontingent. Consequently, claims in Class 4 are of a different legal nature and character than claims in Class 4B, and it is therefore appropriate to classify such claims separately.

Class 16 is composed of all personal injury claims asserted against the Debtor by a shareholder-affiliated party. Plan §§ 1.116, 1.164, 5.13. Accordingly, Class 16 claims are derivative of claims of primary personal injury claimants. Since these are claims which assert personal injuries, the legal nature and character of Class 16 claims is substantially different from that of the commercial claims in Class 4. As a result, Class 4 claims are properly classified separately from the claims classified in Class 16.

Of course, had the Proponents wanted to, the Plan could have consisted of a single class of unsecured claims, as each holder of an unsecured claim of either type would have the same priority on the assets of the Debtor. See, e.g., In re U.S. Truck Co., 47 B.R. 932, 938 (E.D.Mich. 1985), aff'd, 800 F.2d 581 (6th Cir. 1986) ("[A]s a general rule unsecured claims normally comprise one class."); In re Apex Oil Co., 118 B.R. 683, 696 (Bankr.E.D.Mo. 1990) (Classifying all pre-petition general unsecured claims in one class is "the preferred course."). Our point is that the Code does not mandate a single class in such circumstances.

D. Classification Objections of Class 5 Claimants

Section 1122(a) objections were lodged by a small fraction of the approximately 137,500 domestic breast-implant claimants who filed claims against the Debtor. Proponents' Exhibit 26.2. Included within this small fraction are about 45 claimants from the State of Nevada represented by the law firm of White Meany (the "Nevada Claimants") whose claims are classified in Class 5. A few Class 5 claimants represented by Alan B. Morrison (the "Morrison Claimants") also objected to classification.

The Nevada Claimants contend that their claims are substantially different from those of other domestic breast-implant claimants as a result of the Nevada Supreme Court's decision in Dow Chemical Co. v. Mahlum, 970 P.2d 98 (Nev. 1998). In Mahlum, the plaintiff received a $4.2 million judgment against The Dow Chemical Company, a 50% owner of the shares of the Debtor. The verdict was based on a theory that Dow Chemical negligently undertook certain actions in connection with the Debtor's manufacture and sale of silicone-gel breast implants. Id. at 117-18. The Nevada Claimants assert that Mahlum makes their claims substantially different in two ways. First, they assert that Dow Chemical is now collaterally estopped from relitigating the issue of liability in Nevada. Second, they argue that, unlike other Class 5 claimants, their claims cannot be subjected to a Daubert hearing. They instead contend that their claims against the Debtor, even those that may ultimately be tried in federal court, would be subject to Nevada procedural law governing the admissibility of expert scientific testimony. See Class Five Nevada Claimants' Reply Brief in Support of Memorandum of Law and Objections to Debtor's Amended Joint Plan of Reorganization ("Brief of Nevada Claimants") at 19-21. They reason that while a federal court usually applies federal law to procedural matters, it sometimes has the discretion to disregard federal law and apply state procedural law when doing so is necessary to avoid the "inequitable administration of . . . [the state's] substantive laws." Id. at 20. Apparently fearing that application of Daubert could lead to a less favorable result than was attained by the plaintiff in Mahlum, the Nevada Claimants assert that application of federal procedural law could negatively and impermissibly impact upon state substantive rights that only they have. From this they maintain that a federal court presiding over the trial of a Nevada Claimant would be free to apply that state's procedural law regarding the admissibility of scientific evidence. Addressing the second argument first, a breast-implant claimant who chooses to litigate her claim against the Debtor will be subject to three potential trial venues: the federal district for the Eastern District of Michigan; the federal district court sitting in the district where the claim arose; or a state court in the state where the claim arose. The venue will be chosen at the discretion of the District Court.

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).

If a personal injury claimant chooses to litigate her claim against the Debtor, the district court which presides over this case has the discretion to order that that claim "be tried in the [federal] district court in which the bankruptcy case is pending, or in the [federal] district in which the claim arose." 28 U.S.C. § 157(b)(5). Under certain circumstances the district court also has the ability to abstain from having the breast-implant case heard in federal court, which would mean that the case would then be eligible to be tried in state court. 28 U.S.C. § 1334(c); see also, e.g., In re Dow Corning Corp., 113 F.3d 565 (6th Cir. 1997).

Should the trial of a litigating Nevada Claimant take place in federal court, that court would have jurisdiction over the claimant's state law tort claim. See, e.g., 28 U.S.C. § 1334(a) (b) (granting district courts "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11"). And it is widely recognized that the principles established by the Supreme Court in a line of cases beginning with Erie R.R. Co. v. Tomkins, 304 U.S. 64 (1938), while being developed within the framework of diversity litigation, apply with equal force in the context of other types of federal jurisdiction. Mangold v. California Pub. Util. Comm'n., 67 F.3d 1470, 1478 (9th Cir. 1995) (citing dicta to this effect in United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966)); Sayre v. Musicland Group, Inc., 850 F.2d 350, 352 (8th Cir. 1988); Maternally Yours, Inc. v. Your Maternity Shop, 234 F.2d 538, 541 (2d Cir. 1956) ("[T]he Erie doctrine applies, whatever the ground for federal jurisdiction, to any issue or claim that has its source in state law."); In re The Elder-Beerman Stores Corp., 222 B.R. 309, 311 (Bankr. S.D. Ohio 1998); 17 Moore's Federal Practice 3d § 124.01[4]. In accordance with these principles, a federal court presiding over such a case would be required "to apply state substantive law and federal procedural law." Hanna v. Plumer, 380 U.S. 460, 465 (1965).

The Nevada Claimants' assertion that federal courts are required to apply a federal rule of procedure only when that rule "directly conflicts with a state rule of procedure," Reply Brief of Nevada Claimants at 20, reads the Supreme Court's pronouncements in this area too narrowly. A federal court must apply a federal rule to a state claim if, "when fairly construed, the scope of [the federal rule] is `sufficiently broad' to cause a `direct collision' with the state law or, implicitly, to `control the issue' before the court, thereby leaving no room for the operation of that law." Burlington Northern R.R. Co. v. Woods, 480 U.S. 1, 4-5 (1987) (quoting Walker v. Armco Steel Corp., 446 U.S. 740, 749-50 (1978), Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 26 (1988). Thus, irrespective of whether a conflict exists, if the federal rule is "sufficiently broad . . . to control the issue before the court" and if it represents a valid exercise of Congress' rulemaking authority," the federal rule "must be applied." Burlington Northern, 480 U.S. at 5; Stewart Organization, 487 U.S. at 27 ("If Congress intended to reach the issue before the District Court, and if it enacted its intention into law in a manner that abides with the Constitution, that is the end of the matter; [f]ederal courts are bound to apply rules enacted by Congress with respect to matters . . . over which it has legislative power." (internal quotations omitted)).

Federal Rule of Evidence 702, which speaks to the issue of when expert testimony is admissible, provides that "[i]f scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise." Fed.R.Evid. 702. It is clear from the expansive language of this federal rule that its scope is "sufficiently broad" to cover any dispute regarding the admissibility of expert scientific or medical testimony regarding breast implants. And in fact, numerous cases have employed Rule 702 for just this purpose. See, e.g., Allison v. McGhan Medical Corp., 184 F.3d 1300, 1309-1322 (11th Cir. 1999); Hopkins v. Dow Corning Corp., 33 F.3d 1116, 1124 (9th Cir. 1994); In re Breast Implant Litig., 11 F. Supp.2d 1217, 1221-22 (D.Colo. 1998). The Nevada Claimants do not dispute this point. Nor do they contend that Nevada's state rule of evidence on expert testimony, which contains terminology that is virtually identical to that found in Rule 702, is any greater in scope. Brief of Nevada Claimants at 20 ("The Nevada evidentiary rule concerning the testimony of expert witnesses is almost identical to the wording of the federal rule . . ., the . . . rules address the same issue, [and] they do not conflict."). The next question is whether the Federal Rules of Evidence in general, and Rule 702 in particular, represent "a valid exercise of Congress' rulemaking authority." As the Supreme Court has observed, "Article III of the Constitution, augmented by the Necessary and Proper Clause of Article I, § 8, cl. 18, empowers Congress to . . . establish procedural Rules governing litigation in [federal district and appellate courts] courts." Burlington Northern, 480 U.S. at 5 n. 3. For this reason, "Rules regulating matters indisputably procedural are a priori constitutional. Rules regulating matters `which, though falling within the uncertain area between substance and procedure, are rationally capable of classification as either,' also satisfy this constitutional standard." Id. at 5. It is established that rules of evidence are "procedural in their nature." Salsburg v. State of Maryland, 346 U.S. 545, 550 (1954); Brooks v. American Broadcasting Companies, 999 F.2d 167, 173 (6th Cir. 1993) ("The admissibility of expert testimony is a matter of federal . . . procedure."); McInnis v. A.M.F., Inc., 765 F.2d 240, 244 (1st Cir. 1985); Stroud v. Cook, 931 F. Supp. 733, 736 (D.Nev. 1996) ("Rules of evidence are at least nominally rules which govern matter of procedure, rather than rules which allocate `substantive rights.'"); see also Fed.R.Evid. § 101 ("These rules govern proceedings in the courts of the United States and before the United States bankruptcy judges and United States magistrate judges. . . ."). Without question, there are a few instances where federal courts will be required to apply a state evidentiary rule. For instance, the Federal Rules of Evidence specifically provide that when a state law claim is at issue, questions of privilege and competency "shall be determined in accordance with state law." Fed.R.Evid. §§ 501 and 601. In addition, a handful of state evidentiary rules have been found to be so intimately bound up with the state law cause of action as to actually be substantive in nature. 17 Moore's Federal Practice 3d § 124.09[2]. Examples of such state evidentiary rules include the parol evidence rule, rules permitting findings of medical malpractice panels to be admitted and state rules on burden of proof. Id. (and cases cited therein). The Nevada Claimants do not suggest that Rule 702 should be characterized as anything other than procedural. Rather, they complain that utilization of this federal rule could detrimentally affect their state law substantive rights. However, that this may occur does not bear upon the determination of whether Rule 702 would be applicable to their claims. As the Supreme Court has observed, "[t]o hold that a Federal Rule . . . must cease to function whenever it alters the mode of enforcing state-created rights would be to disembowel . . . the Constitution's grant of power over federal procedure." Hanna, 380 U.S. at 473-74. As these conclusions are fairly straightforward, it should come as no surprise that federal courts are virtually unanimous in their view that the Federal Rules of Evidence ordinarily govern the admissibility of evidence in cases involving state-law claims. See, e.g., 17 Moore's Federal Practice 3d § 124.09[1] (and cases cited therein). Of particular significance is the fact that this is the view adopted by the Sixth and Ninth Circuits, the two possible federal court venues for litigating Nevada Claimants. See Brooks, 999 F.2d at 173; Gibbs v. State Farm Mutual Ins. Co., 544 F.2d 423, 428 n. 2 (9th Cir. 1976). Finally, courts uniformly recognize that questions concerning the admissibility of expert testimony are governed by federal law, not state law.

Brooks, 999 F.2d at 173; Clark v. Heidrick, 150 F.3d 912, 914 (8th Cir. 1998); Cavallo v. Star Enter., 100 F.3d 1150, 1157 (4th Cir. 1996); Stutzman v. CRST, Inc., 997 F.2d 291, 296 (7th Cir. 1993); Orth v. Emerson Elec. Co., 980 F.2d 632, 636 (10th Cir. 1992). Therefore, a federal court presiding over the breast-implant trial of a Nevada Claimant would not have the discretion to apply Nevada procedural law pertaining to the admissibility of expert testimony. Rather, it would be required to apply Rule 702 as interpreted by the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993); General Elec. Co. v. Joiner, 522 U.S. 136 (1997); and Kumho Tire Co. Ltd. v. Carmichael, 526 U.S. 137 (1999). The Nevada Claimants are not different from the other Class 5 claimants in this regard.

The Nevada Claimants' collateral estoppel argument is equally unpersuasive. Since the jury rendered its verdict in Mahlum, there have been new developments in science which tend to negate the case that silicone gel causes the diseases alleged by breast-implant claimants. Counsel for the Nevada Claimants acknowledged during the confirmation hearing that should Dow Chemical once again become a defendant in a breast-implant trial in the State of Nevada, it would be entitled to present this new scientific evidence to the jury. Transcript, July 30, 1999 at 101 (statement of John White). Likewise if Dow Chemical found new fact witnesses tending to disassociate itself from the development and manufacture of the Debtor's product. Therefore, Dow Chemical would not be collaterally estopped from relitigating the issue of liability in Nevada state court.

See, e.g., Institute of Medicine Report: Safety of Silicone Breast-implants (June 1999); MDL 926 National Science Panel Report (November 1998).

But, for an entirely different reason too, the collateral estoppel issue is irrelevant to the question of whether the Plan properly classifies claims pursuant to § 1122(a). The Plan classifies claims filed against the Debtor, not its shareholders. As a result, it is the legal nature and character of the claims against the Debtor that guides the Court's inquiry with respect to § 1122(a). See AOV Indus., 792 F.2d at 1151 ("The existence of a third-party guarantor does not change the nature of a claim vis-a-vis the bankruptcy estate and, therefore, is irrelevant to a determination of whether claims are `substantially similar' for classification purposes."). The Morrison Claimants assert that it is improper to classify breast-implant claimants who have had multiple ruptures with claimants who have had only a single rupture. Objections to Reorganization Plan of Breast-Implant Claimants Rita Altig and Others and Gel Claimant Christiane Clegg and Others at 13. They reason that multiple-rupture claims are more valuable than, and are therefore not substantially similar to, single-rupture claims. Id. These assertions are unavailing. Even assuming that it were practical to identify which of the hundreds of thousands of women with Dow Corning breast implants have had more than one rupture, this objection is without merit.

It is apparent that the Nevada Claimants' true concern is the complete release from future liability that the Plan proposes to provide to Dow Chemical. See Class Five Nevada Claimant' Reply Brief in Support of Memorandum of Law and Objections to Debtor's Amended Joint Plan of Reorganization at 11 ("[B]ut for the Plan's release of Dow Chemical, the Nevada [Claimants] would have no significant problems with their classification."). However, the appropriateness of these releases is an issue which is separate and distinct from whether classification is proper. The issue of the releases will be addressed in a separate opinion.

To be substantially similar, claims need not be identical. 7 Collier on Bankruptcy 6 1122.03[3][a]. And there is certainly no requirement that claims be classified according to their values. Cf. In re Resorts Int'l, Inc., 145 B.R. 412, 448 (Bankr.D.N.J. 1990) (classification may be appropriate "even though some class member may have stronger claims, or stronger defenses than others."). As indicated, claims will be substantially similar if they are similar in legal nature or character. There is no question that Class 5 claimants meet this requirement. All Class 5 claims are held by domestic breast-implant claimants. They are all unsecured claims which are unliquidated and disputed. They all arise out of the Debtor's manufacture and sale of breast implants. All of the claimants used the Debtor's products in the same manner. And all such claims allege that the breast implants caused them or will cause them personal injuries. As a result, all Class 5 claims are substantially similar in legal character and are appropriately classified together.

E. Classification Objections of Claimants in Classes 6.1 6.2

Classification objections were also filed by a number of foreign breast-implant claimants. Almost all of these objectors assert that their claims should be placed in Class 5 and that the settlement offers extended to them under the Plan should be exactly the same in amount as those offered to domestic breast-implant claimants.

Among these objectors were the following Class 6.1 claimants: certain New Zealand claimants represented by Charles Wolfson (the "New Zealand Claimants"); certain Australian claimants represented by Cashman Partners and Hopkins Sutter (the "Australian Claimants"); certain Netherlands claimants represented by John T. Johnston (the "Netherlands Claimants"); and approximately 250 claimants represented by Sybil Shainwald, P.C. who are citizens of either Belgium, Canada, France, Germany, Italy, Ireland, Netherlands, New Zealand or Switzerland (the "Shainwald Claimants").
The Class 6.2 claimants who objected to classification are: a small number of claimants from Argentina, Israel and South Africa who are likewise represented by Sybil Shainwald, P.C. (and who are also referred to as the "Shainwald Claimants"); certain Brazilian claimants represented by David J. Hutchinson and Fernando Vergueiro (the "Brazilian Claimants"); South Korean claimants represented by Yeon-Ho Kim (the "South Korean Claimants"); and certain South African claimants represented by the Sibley Law Firm (the "South African Claimants").

The New Zealand Claimants' justification for this position is based on a forum non conveniens argument. They note the Proponents' contention that separate classification is merited because there are rudimentary distinctions between the legal rights of foreign and domestic breast-implant claimants which warrant different treatment. Objections of New Zealand Claimants to Amended Joint Plan of Reorganization at 8. These legal differences allegedly stem from the fact that "[d]omestic [c]laimants can litigate their claims in [United States] courts, but the [f]oreign [c]laimants . . . cannot." Id. This would mean that a breast-implant claimant from Germany, for instance, who chooses to litigate her claim would likely have her claim tried in a German court under German law. But the New Zealand Claimants profess to be differently situated than other Class 6.1 claimants in this respect. They insist that their claims would survive a forum non conveniens motion made by the Debtor and that, as a result, their claims would be tried in a United States court as opposed to a New Zealand court. In support of this position, they primarily rely on Ashley v. Dow Corning Corp. (In re Silicone Gel Breast Implants Products Liability Litigation), 887 F. Supp. 1469 (N.D.Ala. 1995).

Ashley involved a forum non conveniens motion made by Dow Corning against approximately 151,194 breast-implant plaintiffs from Australia, Great Britain and Canada as well as 40 plaintiffs from New Zealand. Id. at 1471-72. The motion was granted with respect to all of the Australian, British and Canadian plaintiffs. Id. at 1478-79. However, the motion was denied as to an unspecified number of New Zealand plaintiffs whose claims met certain criteria. Id. at 1475.

A number of other objectors raise forum non conveniens arguments. The Brazilian Claimants contend that, irrespective of whether foreign claimants could survive a forum non conveniens motion, using this doctrine as one of the factors justifying separate classification is unfair and discriminatory. Objections of Certain Brazilian Claimants at 2. And in any case, they argue that consideration of the traditional forum non conveniens factors suggests that their claims would likely survive such a motion. Id. at 3-7.

The Shainwald Claimants concur with this view, but also add another twist. They argue that since the Supreme Court's decision in Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981), a court faced with a forum non conveniens motion must also consider the impact of any existing treaty of Friendship, Commerce and Navigation ("FCN treaty") between the United States and the country in question. Objections of Shainwald Claimants at 21. And the impact of these treaties, according to the Shainwald Claimants, is that similarly-situated foreigners and nationals must be afforded equal access to the courts of the country where the legal proceeding is taking place. See Id. at 23 (quoting from Article VI 6 1 and Article XXV 6 1 of the FCN treaty between the United States and Germany dated October 29, 1954: A similarly situated foreign party must be accorded treatment which is both "fair and equitable" and on "terms no less favorable than the treatment accorded . . . to nationals."); see also Objections of The Netherlands Claimants at 6-8 n. 4 (quoting from the FCN treaty between The Netherlands and the United States: "Nationals and companies of either Party shall be accorded national treatment with respect to access to the courts of justice and to administrative tribunals and agencies within the territories of the Other Party.").

The Shainwald Claimants assert that the separate classification, and the disparate treatment which is part and parcel with such classification under the Plan, violates the FCN treaties in the following manner. The Plan provides the Litigation Facility Administrators discretion to seek dismissal of foreign claims pursuant to the doctrine of forum non conveniens. Amended Joint Plan 6 5.12. However, no such discretion is provided with respect to domestic breast-implant claimants. Thus, the separate classification leads to unequal treatment and violates the FCN treaties. Objections of the Shainwald Claimants at 24; Objections of The Netherlands Claimants at 8.

But the Shainwald Claimants do not rest there. They maintain that, irrespective of whether their claims could survive a forum non conveniens motion and regardless of the impact of the FCN treaties, the Proponents have failed to justify what they perceive to be the unfairly discriminatory treatment of their claims. The Australian and South African Claimants also make this objection. As a result, these objectors argue that the Proponents have not demonstrated a legitimate reason for separately classifying their claims from domestic breast-implant claims. The Australian Claimants insist that there are no meaningful differences between the fundamental legal rights of Australian claimants and domestic claimants. Under Australian choice-of-law rules, they argue, an Australian court presiding over a breast-implant trial would apply U.S. law. And even if the Australian court did not do this, from a breast-implant claimant's perspective, Australian tort law is just as favorable as U.S. law. Objections of Australian Claimants at 2. South African Claimants made a similar objection. Objections by South African Claimants at 1. The Shainwald Claimants seem to argue that even if there are meaningful differences between the substantive legal rights of foreign and domestic claimants, that the Proponents have failed to sufficiently articulate what those legal differences are. Objections of the Shainwald Claimants at 17.

These objectors also attempt to debunk the Proponents' assertion that economic considerations (i.e. each country's per capita GDP) provide additional support for separate classification. Objections of Australian Claimants at 2; and Objections of the Shainwald Claimants at 17-19; Objections of South African Claimants at 2.

The Australian Claimants further contend that there is no applicable legal precedent supporting the Plan's classification scheme. Objection of Australian Claimants at 3. And after asserting that all breast-implant claims should be classified together, Memorandum of Law of Australian Claimants at 11, the Australian Claimants, somewhat contradictorily, complain that their claims are not substantially similar to and are therefore improperly classified with the claims of certain non-Australian Class 6.1 claimants. Objections of Australian Claimants at 3. Two more points are raised by the Shainwald Claimants. They note that the Plan classifies United States citizens who live in foreign countries and who received implants outside of the Greater U.S. in Class 5. Objections of the Shainwald Claimants at 17. According to the Shainwald Claimants, the Proponents have not adequately explained why these claimants are appropriately placed in a class separate from similarly situated foreign claimants. Id. Lastly, the Shainwald Claimants assert that it is improper to separately classify certain Canadian claimants in Classes 6A, 6B and 6C and certain Australian Claimants in Class 6D because such classification is, in some unexplained way, not "based on the interest of the claimants themselves." Id. at 20.

The final objection to account for was made by the South Korean Claimants. These claimants do not per se object to the separate classification of foreign and domestic claimants. Their complaint is with the fact that the Plan suggests that their claims fall within Class 6.2. In their view, South Korea's per capita GDP, which is about 53% of the United States per capita GDP, is sufficient to merit their inclusion in Class 6.1. Objection of South Korean Claimants at 1-2.

We begin by noting a fairly obvious point upon which there is virtually no disagreement: all breast-implant claims, both domestic and foreign, are substantially similar. All are unsecured, unliquidated and disputed tort claims arising out of the Debtor's sale and manufacture of silicone-gel breast implants. All such claimants allege that the breast implants caused or will cause them personal injuries.

Moreover, the claims within each class of breast-implant claims are substantially similar in legal nature and character. In addition to the common characteristics noted above, claims within each class possess certain other characteristics that are unique to that class. For instance, Class 5 claimants are all citizens of the United States or residents of the Greater U.S. All Class 6.1 claimants are residents of countries that either: belong to the European Union, have a common law tort system, or have a per capita GDP that is greater than 60% of the United States' per capita GDP. And all Class 6.2 claimants are residents of countries that: do not belong to the European Union; do not have a common law tort system; and do not have a per capita GDP that is greater than 60% of the United States' per capita GDP.

The real question is whether there is a legitimate reason for classifying breast-implant claims in three separate classes. As explained below, the answer to this question is yes. In reaching this conclusion the Court need not determine, as urged by The Netherlands Claimants, whether the proposed settlement offers to foreign claimants satisfies the fair, adequate and reasonable requirements of Federal Rule of Civil Procedure 23(e). Objections of Netherlands Claimants at 6 (citing Holmes v. Continental Can Co., 706 F.2d 1144, 1147 (11th Cir. 1983)). Quite simply, this is a bankruptcy case and the Court's decision is governed, not by the rules of class action proceedings, but by the requirements of the Bankruptcy Code. Nor is it necessary for the Court to determine whether the settlement offers in question are unfairly discriminatory toward foreign claimants. The conditions of § 1129(a) must be satisfied before a plan can be confirmed. But that section does not contain a requirement that a plan not discriminate unfairly against a particular class of creditors. Rather, that issue arises only when an impaired class has rejected a proposed plan, thereby triggering the cramdown requirements under § 1129(b). 11 U.S.C. § 1129(b)(1) (A plan which meets all conditions of § 1129(a), save § 1129(a)(8), can be confirmed only if the court finds that the plan "does not discriminate unfairly" against the rejecting, impaired class.). A class has accepted a plan if its members vote to accept the plan by more than one-half in number and two-thirds in amount. 11 U.S.C. § 1126(c). In this case, the Court temporarily allowed all breast-implant claims at an equal value for purposes of voting. To be an accepting class of breast-implant claims then, at least 66 2/3% of that class' members needed to vote in favor of the Plan. Class 6.1 voted to accept the Plan by a margin of 78.9% in number (and therefore in amount). As a result, unfair discrimination was never an issue with respect to their claims. Class 6.2 initially garnered acceptance of only 65.8%. So when the confirmation hearing began, unfair discrimination was an arrow in the Class 6.2 claimants' quiver. During the confirmation hearing, however, a proposed plan modification affecting their claims was accepted by a number of formerly rejecting Class 6.2 claimants. See In re Dow Corning Corp., 237 B.R. 374 (Bankr.E.D.Mich. 1999). Consequently, Class 6.2 is now an accepting class. Id. at 380. Therefore, whether the Plan unfairly discriminates against Class 6.2 claimants is no longer an issue. For these reasons, it is not necessary to decide the fairness of the proposed settlement offers to foreign breast-implant claimants.

The valuation of one unit per claim for voting purposes was subject to reconsideration on motion by an affected claimant. No breast-implant claimant has filed such a motion.

Nonetheless, it merits noting that the Proponents presented overwhelming evidence tending to show that the costs of resolving tort claims in foreign legal systems is such that the settlement offers contained in the Plan are neither unfair, unreasonable nor discriminatory. The Proponents' chief evidence on this regard was the testimony of three expert witnesses: Professor Basil Markesinis, Mr. Augustus Ullstein and Professor Harold Luntz.

Professor Markesinis is a professor of law at the University of Oxford in England, the University of Leiden in The Netherlands and the University of Texas School of Law. He holds chairmanships at each of these institutions and his areas of instruction include comparative law, comparative methodologies, tort law and European law. In addition, to holding seven Ph.D.'s (four earned and three honorary), Professor Markesinis is a Fellow of the British Academy, a Corresponding Fellow of the Royal Belgian Academy, a Fellow of the Academy of Athens, a Foreign Fellow of the Royal Dutch Academy and a Member of the American Law Institute. He is an expert in the tort systems of each of the major legal systems of Europe (Germanic, English and Romanesque/French) and is well versed on how those tort systems have spread to and been implemented by countries in virtually every part of the world (i.e. United States, Central and South America, Japan, Africa etc.). Professor Markesinis has authored approximately 20 books and over 100 legal articles, most of which pertain in some manner to comparative law. Finally, he served as a member of a panel appointed by United States District Judge Speigel (the "Pfizer Foreign Fracture Panel"), that was charged with determining fair settlement levels for foreign tort claimants in the class action case of Bowling v, Pfizer, No. C-1-91-256 (S.D.Ohio 1995). See Proponent's Exhibit 22, Curriculum vitae of Professor Basil Markesinis; see also Transcript, June 30, 1999 at 271-86; Transcript, July 1, 1999 at 11-43.

Mr. Augustus Ullstein is a Queen's Counsel and practicing barrister in the United Kingdom. In addition to specializing in products liability litigation in England, Mr. Ullstein is knowledgeable on tort systems and verdict values in the United Kingdom, Germany, The Netherlands and South Africa. Like Professor Markesinis, he also served on the Pfizer Foreign Fracture Panel. See also Proponents' Exhibit 23, Curriculum vitae for Augustus Ullstein; Transcript, July 1, 1999 at 288-292.

Professor Luntz, a professor of law at the University of Melbourne in Australia, is an expert in the tort systems and damage awards of both Australia and New Zealand. He is the author of a number of books and articles on tort law, including the leading torts textbook in Australia and "Assessment of Damages for Personal Injury and Death." As part of his preparation for updating this latter book, now in its fourth edition, Professor Luntz stays current on developments in tort law in the United States. Transcript, July 2, 1999 at 63. He is the editor of the Torts Law Journal in Australia and was a member of the Pfizer Foreign Fracture Panel. See also Proponents' Exhibit 24, Curriculum vitae for Harold Luntz; Transcript, July 2, 1999 at 59-63.

The conclusions offered by Professor Markesinis can be set forth rather summarily. He testified that there are a number of legal, economic, cultural and miscellaneous factors which tend to cause tort recoveries in foreign legal systems to be markedly lower than tort recoveries in the United States. Transcript, July 1, 1999 at 12-41. For this reason, he believes it is appropriate for the Plan to differentiate between foreign and domestic breast-implant claimants. Professor Markesinis also testified that these same factors provide a reasonable and fair basis for further differentiating between the claimants in Classes 6.1 and 6.2.

These factors include: the availability of strong social security system payments in foreign countries; that most tort cases in foreign countries are tried by judges, not juries; that punitive damages are typically not available in foreign countries or are available in only limited instances; that foreign countries lack American-style contingency fees; that foreign countries exhibit lower tort awards, and different, less plaintiff-friendly standards of liability; that cultural factors in foreign countries lead to a diminished propensity to litigate; that more plaintiffs proceed in foreign countries on a pro se basis; and that significant weight is given in foreign countries to semi-official medical reports completed at the direction of the government. See Transcript, July 1, 1999 at 12-41.

For the complete testimony of Professor Markesinis, see Transcript, June 30, 1999 at 271-86 and Transcript, July 1, 1999 at 11-273.

Mr. Ullstein testified that a woman bringing a breast-implant case in either the United Kingdom, Germany, The Netherlands or South Africa would face substantial legal and procedural obstacles that would not be present in the United States. Therefore, he concluded that the settlement offers extended to foreign breast-implant claimants under the Plan are fair Professor Luntz similarly opined that, based upon his knowledge of tort damage awards in Australia and New Zealand, the settlement offers extended under the Plan to breast-implant claimants are more than fair and reasonable.

Like Professor Markesinis, Professor Luntz stated that there are a number of factors which lead to this result. They are: Australians tend to be less litigous; certain social benefits, such as universal health care, which are not available in United States are available in Australia; litigation costs rules are a significant deterrent to lawsuits; judges, not juries, usually decide product liability cases; strict liability is less frequently available in Australia than in the United States; damage awards in Australia and New Zealand are lower than in the United States; and punitive damages are rarely available. For the complete testimony of Professor Luntz, see Transcript, July 2, 1999 at 59-145.

Through long hours of cross-examination, the foreign objectors doggedly, though ultimately unsuccessfully, attempted to cast doubt upon the testimony by the Proponents' witnesses. The foreign objectors' witnesses were also unhelpful in this regard. For instance, the Shainwald Claimants presented the testimony of Edward Kellogg. It was apparent on cross-examination that Mr. Kellogg has minimal practice experience in the English tort system, Transcript, July 15, 1999 at 86-89, and minimal knowledge of average recovery amounts in the English tort system. Id. at 92-94. But more importantly, and despite the noted limitations on his expertise, implicit within his testimony was an acknowledgment that tort values in the United States do indeed tend to be considerably higher than those in England. Id. at 94-103. The Australian Claimants proffered the testimony of Professor David Partlett. Though reform officer of the Australian Law Reform Commission. For the past 14 years he has been a professor of law at Vanderbilt University Law School. He teaches advanced torts and remedies and has taught courses in areas such as comparative law and health law. Professor Partlett has also published books and articles on a variety of topics including professional negligence, child mental health and the law, medical malpractice, punitive damages and repressed memories. Australian Claimants' Exhibit 1, Curriculum vitae for David Frederick Partlett; Transcript of Hearing, July 14, 1999 at 151-56.

Mr. Kellogg is a practicing attorney in Atlanta, Georgia specializing in pharmaceutical products liability cases. In addition to being a member of the Georgia bar, he is admitted to the British bar as a barrister. See Transcript, July 15, 1999 at 13-19.

Professor Partlett originally hails from Australia where he taught at the Australian National University in Canberra, Australia for nine years. Prior to that he was the principal law in relation to those extended to domestic claimants.

Professor Partlett testified that substantial differences did not exist between tort values in the United States and Australia, he nevertheless agreed with many of the differentiating factors identified by Professor Luntz. Transcript, July 14, 1999 at 220-38. His concurrence with Professor Luntz was bolstered by reference to a law review article which he co-authored and in which he reiterated his agreement with many of those differentiating factors. Id. at 238-43 (discussing Jeffery O'Connell and David F. Partlett, An America's Cup for Tort Reform? Australia and America Compared, 21 U. Mich. J.L. Ref. 443 (1988)). In this article, in fact, Professor Partlett went so far as to refer to Australia's tort system as a "defendant's pleasure dome." Id. at 243; An America's Cup for Tort Reform? at 457. Not surprisingly, Professor Partlett made no attempt to similarly characterize the United States' tort system. 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. The record further shows that it is appropriate to differentiate, as the Plan does, between categories of foreign claimants on this basis. There is, in fact, little dispute among the legal community over the correctness of these basic propositions. Piper Aircraft Co., 454 U.S. at 252 n. 18 (observing that American courts are very attractive to foreign plaintiffs); Bhatnagar v. Surrenda Overseas Ltd., 52 F.3d 1220, 1235 (3d Cir. 1995); Reid-Walen v. Hansen, 933 F.2d 1390, 1409 (8th Cir. 1991) (Timbers, J., dissenting); Coakes v. Arabian Am. Oil Co., 831 F.2d 572, 576 (5th Cir. 1987); MGN Pension Trustees v. Morgan Stanley Trust Co., 947 F. Supp. 611, 617 (E.D.N.Y. 1996); see also Howard M. McCormack, Uniformity of Maritime Law, History, and Perspective from the U.S. Point of View, 73 Tul. L. Rev. 1481, 1506 (1999); Douglas W. Dunham Eric F. Gladbach, Forum Non Conveniens and Foreign Plaintiffs in the 1990's, 24 Brook. J. Int'l L. 665, 666 (1999).

The Court emphasizes once again that both classes of foreign breast-implant claimants voted to accept the Plan and that it is, therefore, not necessary for the Plan to satisfy the cramdown requirements of § 1129(b). And again, this means that the issue of whether the settlement offers extended to foreign claimants are fair is not at issue in this case. Were we required to decide this issue, however, the evidence demonstrates that the Plan easily passes muster in this respect.

Through use of the forum non conveniens doctrine, the objecting foreign breast-implant claimants have attempted to show that there is not a legitimate reason for classifying their claims separately from domestic claims. After all, if a foreign claimant is able to survive a motion to dismiss based on forum non conveniens, the claimant's case would likely be tried in federal court in the Eastern District of Michigan. And according to the foreign objectors, the law which would then govern would be the law of the State of Michigan. Under such circumstances, differences in substantive legal rights between domestic and foreign claimants should no longer be a factor justifying the separate classification of such claims.

That a number of the foreign objectors relied so heavily on the forum non conveniens issue is interesting, for such reliance almost carries with it an implicit admission that substantive differences in legal rights between foreign and domestic claimants are material to the level of settlement offers made. Otherwise, counsel for these claimants would not be expressing such a strong preference for having their clients' cases tried in the United States. Cf., e.g., Joann S. Lublin, Bain Loses Round in Battle With Rival Claiming Raid and Data Theft in Brazil, THE WALL STREET JOURNAL, July 7, 1999, at B8 (An Italian company with a consulting operation in Brazil sued a Boston-based company in New York federal court for harm it had allegedly caused to the Brazilian operation. The New York court dismissed the case on forum non conveniens. Rather than sue in Italy or Brazil, the Italian company re-filed the lawsuit in federal court in Boston.).

In any event, most, if not all, of the foreign claims would likely be subject to forum non conveniens dismissal. See, e.g., Ashley, 887 F. Supp. 1469 (granting Dow Corning's forum non conveniens motion as to 151,194 Australian, Canadian and British breast-implant plaintiffs). See also Piper Aircraft, 454 U.S. 235 (discussing factors to be considered when deciding forum non conveniens motion); Gschwind v. Cessna Aircraft Co., 161 F.3d 602 (10th Cir. 1998); Torres v. Southern Peru Copper Corp., 113 F.3d 540 (5th Cir. 1997); Magnin v. Teledyne Continental Motors 91 F.3d 1424 (11th Cir. 1996); but see Bhatnaga, 52 F.3d 1220 (holding that extreme delay in the alternative forum can render that forum inadequate). Thus far, the only foreign breast-implant claimants who have survived a motion to dismiss in federal court based on forum non conveniens were the unspecified number of New Zealand claimants in Ashley. And even these claimants' ultimate fate on the matter is unknown. While the court denied the motion to dismiss, it was done "without prejudice to resubmission if factually warranted." Ashley, 887 F. Supp. at 1478.

In addition, if any foreign claimants would happen to survive a forum non conveniens motion, they would still face substantial choice-of-law hurdles. Contrary to the assertions made by some of the foreign objectors, case law suggests that resolution of their claims in such a situation would be governed, not by the law of the State of Michigan, but by the law of the country where the claimant is a citizen. To resolve whether an action is governed by Michigan law or the law of a foreign jurisdiction, "a federal court whose jurisdiction is based on diversity of citizenship must apply the conflict of law rules of the forum state." Johnson v. Ventra Group, Inc., 191 F.3d 732, 738 (6th Cir. 1999). See also Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 490 (1941). When confronted with a choice-of-law question, Michigan courts use an "interest analysis" to ascertain which jurisdiction's law should apply. Sutherland v. Kennington Truck Serv., Ltd., 454 Mich. 274, 278-86, 562 N.W.2d 466 (1997); Hall v. General Motors Corp., 229 Mich. App. 580, 585, 582 N.W.2d 866 (1998). First, the court determines whether the foreign jurisdiction has an interest in having its law applied. Sutherland, 454 Mich. at 286. If it does not, Michigan law will apply. If the foreign jurisdiction does have an interest in having its law applied, the court must determine whether Michigan's interest is substantial enough to nevertheless mandate the application of its own law. Id.

Although the district court would be exercising its bankruptcy jurisdiction, 28 U.S.C. § 1334(a), and not its diversity jurisdiction, 28 U.S.C. § 1332, the result in this case ought not be different. This statement is, perhaps, an oversimplification of what actually takes place in a bankruptcy proceeding. As noted above, a federal court sitting in diversity will apply the forum state's choice of law rules. In contrast, some courts have held that a court sitting in bankruptcy must apply the choice of law rules of the state with which the parties have the most significant contacts. See, e.g., Limor v. Weinstein Sutton (In re Smec, Inc.), 160 B.R. 86, 90-91 (M.D.Tenn. 1993). However, in this case, Michigan's choice of law rules would be the only one available to apply.

In Hall, the court had to determine whether to implement Michigan law or North Carolina law. Even though the plaintiff was barred from filing suit in North Carolina due to the statute of limitations, the court nonetheless concluded that North Carolina had an interest in having its law applied. The court observed that the plaintiff had the following connections to the state of North Carolina: he lived and worked there and was employed by a company located in the state; his injury occurred there and was caused by a vehicle owned, licensed and insured in the state; and he received medical treatment at a hospital located in the state. Hall, 229 Mich. App. at 585-86. For these reasons, the court concluded that "North Carolina . . . obviously has an interest in applying its law to [the] dispute." Id. at 586. The court further noted that this interest was heightened by a foreign jurisdiction's clear interest in establishing and applying product liability laws that encourage manufacturers to do business there. Id. at 586-87. In contrast, Michigan had little interest in applying its own law to the situation: "`Michigan has no interest in affording greater rights of tort recovery to a North Carolina resident than those afforded by North Carolina.'" Id. at 587 (quoting Farrell v. Ford Motor Co., 199 Mich. App. 81, 501 N.W.2d 567 (1993)). Were these same considerations to be applied to a litigating foreign breast-implant claim that has overcome a forum non conveniens motion, it seems unlikely that the result would differ from the one in Hall.

This leaves the matter of the FCN treaties. The Shainwald Claimants make too much of the treaties' impact. As one commentator has stated: "[I]n any forum non conveniens inquiry with a foreign plaintiff, a FCN treaty may exist that could compel the court to apply the same standard to that foreign plaintiff as would apply to a United States plaintiff." Allan Jay Stevenson, Forum Non Conveniens and Equal Access Under Friendship, Commerce, and Navigation Treaties: A Foreign Plaintiff's Rights, 13 Hastings Int'l Comp. L. Rev. 267, 283 (1990). All that is indicated by this comment is that if a forum non conveniens motion is filed against a litigating foreign claimant in this case, the district court may be compelled to apply the same standards and factors that would apply to a similar motion made against a domestic claimant. There is nothing in the law to suggest that these treaties necessarily preclude the granting of a motion to dismiss based on forum non conveniens. Nor is there anything to suggest that the treaties are violated if a defendant brings a forum non conveniens motion against a foreign plaintiff but does not bring such a motion against a similarly-situated domestic plaintiff.

The Plan merely preserves the Debtor's (or more accurately the Litigation Facility's) ability to pursue procedural rights that it would possess outside of bankruptcy. Should the Litigation Facility so decide, these procedural rights could be pursued before the District Court against foreign claimants who choose to litigate their claims. There is nothing improper about the Plan in this respect. And, of course, in this there is a real difference between foreign and domestic claimants. Foreign claimants bear a considerable risk of having their claims dismissed from United States' courts based on forum non conveniens; domestic claimants do not. In the off chance that a foreign claimant would be able to get past such a motion, the law of her home jurisdiction would likely apply to the resolution of her claim. These considerations show that there are indeed legitimate reasons for classifying foreign breast-implant claims separately from domestic claims: there are most definitely significant differences between the procedural rights of foreign and domestic breast-implant claimants, and there appear to be substantial differences between the substantive legal rights of such claimants as well.

There is another reason that the Plan's classification of foreign breast-implant claimants is appropriate. A settlement is a private agreement voluntarily reached between parties to a dispute that legally resolves their differences. Black's Law Dictionary 1377 (7th ed. 1999). Since it is a private agreement, the parties are free to settle on terms of their choosing. The fact that the settlement offer contained in the Plan is more or less a "take-it-or-leave-it" proposal does not in any way make it improper or illegal. Quite simply, a court cannot tell a chapter 11 debtor how much it should offer to settle pending personal injury claims. If the foreign objectors find the terms of the Debtor's offer unacceptable they are free to reject it and to litigate their claims instead.

The Debtor made a considered judgment as to what settlement amounts the various breast-implant claimants would accept in resolution of their claims. In ascertaining these amounts, the Debtor relied on a number of factors such as differences in substantive and procedural legal rights and differences in economic conditions. There is nothing arbitrary, unreasonable or irrational about using such factors for this purpose. After all, settlement offers are always driven by projected litigation outcomes. If the projections turn out to be incorrect, the Debtor will have fewer takers. But the fact that, in the Debtor's judgment, different breast-implant claims warrant different settlement offers is a perfectly "legitimate reason" to classify those claims separately. For all of the reasons expressed, the Court concludes that the Plan's classification of foreign claims complies with § 1122(a).

F. Classification Objections of Class 12 Claimants

The Official Committee of Physician Claimants ("PCC") and about 50 physician claimants represented by Hartley Hampton objected to the fact that the Plan classifies both direct and derivative Physician Claims in Class 12. This classification is improper, they argue, because the two types of claims "differ in character." Memorandum of Law of the PCC at 57. As noted supra p. 6, a Physician Direct Claim alleges that the holder of such a claim was injured as a result of fraudulent misrepresentations made by the Debtor in connection with its manufacture and sale of breast-implants and other medical products to that physician. A Physician Derivative Claim, on the other hand, merely seeks indemnification in the event the holder of such a claim is found liable to a patient or a patient's spouse for injuries allegedly caused by a Dow Corning product that the physician implanted in a primary implant claimant.

The objections made by the PCC and Hartley Hampton were identical. For the sake of simplicity, the Court will refer only to the PCC throughout the remainder of this opinion.

Further evidence of what the PCC dubs Class 12's lack of "homogeneity" stems from their belief that the Plan provides unequal treatment to physician claimants who assert both types of claims. The Plan, as indicated, tenders the same settlement offer to all physician claimants. The PCC states that "a class is not homogenous when certain class members must give up greater consideration for the same treatment accorded to other members of the same class." Id. at 58. This argument misses its mark. The issue of whether all claims within a class are receiving the same treatment is a matter that is separate and distinct from whether such claims are substantially similar to one another. The treatment issue arises only in the context of § 1123(a)(4) and will be addressed accordingly.

The PCC then asserts that the Plan's classification scheme is improper because it is "designed to manipulate [Class 12] voting." Id. at 59 (quoting Holywell Corp., 913 F.2d at 880). Few physician claimants have expressed an intent to assert a Physician Direct Claim. According to the PCC, physician claimants who have not expressed such an intent are more likely to accept the Plan than those who have. Memorandum of Law of the PCC at 59-60. And the voting results do appear to support this supposition, for physician claimants overwhelmingly accepted the Plan by a margin of 91.4%. As a result, the PCC contends that the Plan effectively disenfranchises claimants holding Physician Direct Claims. Id. at 59.

Once again, the PCC's classification argument is off target. It may well be that one of Congress' primary motivations for limiting class membership to substantially similar claims was, as the PCC states, to ensure "that the votes cast by the class will reflect the joint interests of the class." Id. (quoting In re Huckabee Auto Co., 33 B.R. 141, 148 (Bankr.M.D.Ga. 1981)). But to accomplish this goal, Congress enacted a single requirement, which is that a class may consist only of substantially similar claims. When determining whether claims within a single class meet this requirement, assertions of attempted vote gerrymandering are simply irrelevant. If all claims within a class are substantially similar, then the class is properly constituted. If all claims within a class are not substantially similar, then the classification violates § 1122(a). Consequently, accusations that a classification scheme has been designed to gerrymander the vote on a proposed plan need be addressed, it at all, only when the plan proponent has placed substantially similar claims in separate classes. See U.S. Truck, 800 F.2d 581; Greystone III, 995 F.2d at 1274. But see supra Part II.B (postulating that vote gerrymandering should not be an issue with respect to whether claim classification is proper). That, of course, is not the case with physician claims which are all classified in a single class, Class 12. Thus, when the smoke clears from the PCC's classification rhetoric there is still but one question for the Court to answer: are all the claims in Class 12 substantially similar? We conclude that they are.

The PCC also argued that the Plan violates § 1123(a)(1) because it classifies physician creditors and not physician claims. See 11 U.S.C. § 1123(a)(1) (stating that "a plan shall . . . designate . . . classes of claims"). That this objection is without merit seems patently obvious on its face. It is disposed of entirely, however, by the above conclusion that all physician claims are substantially similar and are appropriately classified.

All of the physician claims, whether they are direct or merely derivative, are nonpriority, unliquidated and disputed unsecured claims. They are all claims held by physicians who, in the course of providing medical services to patients, utilized silicone-gel breast implants and/or other medical products either manufactured and sold by the Debtor or containing components or materials supplied by the Debtor. All such claims arise, in some form or another, out of the physician claimant's use of such medical products. Thus all such claims arise out of a similar fact pattern and context. In short, the physician claimants whose claims are classified in Class 12 form a subgroup which shares characteristics that are unique among the Debtor's creditors as a whole. See also In re Dow Corning Corp., 194 B.R. 121, 144-46 (Bankr.E.D.Mich. 1996), rev'd in part on other grounds, 212 B.R. 258 (E.D.Mich. 1997) (appointing official committee to represent interests of all physician claimants).

Moreover, the PCC makes too much of any differences that may exist between derivative and direct claims. After all, every physician claimant potentially could have, even now, both a direct and derivative claim against the Debtor. At this point there is no way to know, however, because proofs of claim need not identify the causes of action that the creditor would assert should litigation actually be required. For these reasons, it was logical and appropriate for the Proponents to classify all physician claims together.

III. Within-Class Treatment of Claims Under the Plan

Section 1123(a)(4) requires that a plan of reorganization "provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment." 11 U.S.C. § 1123(a)(4). Assertions that the Plan does not satisfy this provision were made by: the Morrison Claimants with respect to Class 5; the New Zealand Claimants with respect to Classes 6.1 and 7; the PCC concerning Class 12; and the United States concerning its claims in Class 15. As the Court has noted, all breast-implant claims are, in some respects, substantially similar. The Shainwald Claimants state that "[a] fundamental premise of the Bankruptcy Code is that there must be equality of distribution to similarly situated creditors." Objections of the Shainwald Claimants at 14. Since the Plan provides different treatment to domestic breast-implant claims than it does to foreign breast-implant claims, the Shainwald Claimants assert that § 1123(a)(4) is violated. The Australian Claimants similarly argue that § 1123(a)(4) requires that Australian claims in Class 6.1 and Australian claims in Class 6D receive the same treatment since, after all, all such claims are substantially similar. Memorandum of Law of the Australian Claimants at 15. Both of these objections misconstrue the import of § 1123(a)(4). This provision of the Code pertains only to the treatment of claims within the same class. It does not require that claims legitimately classified in separate classes receive the same treatment. Whether it is appropriate for a proposed plan to provide different treatment to claims which are legitimately classified in separate classes will arise, if at all, in the context of cramdown. See 11 U.S.C. § 1129(b) (providing that a plan can be crammed down only if it does not unfairly discriminate against a rejecting class of creditors).

As they did with the classification objections, certain physician claimants represented by Hartley Hampton joined in the § 1123(a)(4) objections made by the PCC.

A. Treatment Objections of Class 4 Claimant

Halcyon's § 1123(a)(4) objection is entirely dependent upon its classification objection. It reasons that Class 4 claims are substantially similar to, and should therefore receive the same treatment as, Class 4B and Class 16 claims. There is no need to address the more absurd aspects of Halcyon's treatment objection — whereas Class 4 claims are being paid in full with interest, Class 4B claims will receive no distribution except in the event of an unlikely contingency, and many of the Class 16 claims are being released for non-cash consideration. The Court has overruled Halcyon's classification objection. As a result, the Court need look only to the treatment provided to claimants within Class 4. And on this point, there is no dispute that all claims within Class 4 receive the same treatment. Halcyon's § 1123(a)(4) objection is therefore overruled.

B. Treatment Objections of Certain Claimants in Classes 5, 6.1 and 12

The objectors with claims in Classes 5, 6.1 and 12 assert that the Plan fails to comply with § 1123(a)(4) because, in exchange for the same treatment from the Debtor, certain of the claimants are required to provide more valuable consideration than the other members of the class. For instance, the PCC acknowledges that every physician claim is extended the same settlement offer under the Plan. But in return for this settlement offer, it maintains that certain of the physician claimants would be forced to release both Physician Direct and Derivative Claims while other physician claimants would be required to release only Physician Derivative Claims. Memorandum of Law of the PCC at 44-49. The Morrison Claimants similarly assert that women who have had multiple breast-implant ruptures have more valuable claims and should be extended larger settlement offers than those woman having had only one rupture. Objections of the Morrison Claimants at 12. The New Zealand Claimants, as noted above, contend that their claims are more valuable than other foreign breast-implant claims on the basis that their claims could survive a forum non conveniens motion while other foreign breast-implant claims could not. Nevertheless, the New Zealand Claimants are extended the same settlement offer as every other Class 6.1 claimant. Memorandum of Law of the New Zealand Claimants at 9-12. Each of the above objectors complains that this aspect of the Plan violates the "same treatment" requirement of § 1123(a)(4).

In support of these arguments, the objectors rely on AOV Indus., 792 F.2d 1140. In AOV, all unsecured creditors were placed in the same class. Id. at 1150. One of those unsecured creditors, Hawley Fuel Coalmart, possessed a direct claim against certain third parties whereas the remaining class members possessed only derivative claims against the third parties. Id. at 1151. The plan provided each class member with the option to either settle or litigate its claim. Id. The settlement offer was such that any class member who agreed to release its claim against the third parties would receive a pro rata distribution of funds contributed to the plan of reorganization by those third parties. Id. at 1150. Class members who found the settlement offer unacceptable would maintain the right to pursue litigation against the third parties. Hawley maintained, and the court agreed, that Hawley's direct claim was more valuable than the other class members' derivative claims. Id. at 1151 ("While other [Class 5 members] received their pro rata distributions from the [third-party] . . . fund in exchange for the release of their derivative claims, Hawley was required to release a more valuable, direct claim against the [third parties]."). Because it was forced to tender a more valuable claim in return for identical consideration, Hawley argued that the treatment offered to it under the plan was unequal and in violation of § 1123(a)(4). In agreeing with Hawley the court stated:

[T]he most conspicuous inequality that § 1123(a)(4) prohibits is payment of different percentage settlements to co-class members. The other side of the coin of unequal payment, however, has to be unequal consideration tendered for equal payment. It is disparate treatment when members of a common class are required to tender more valuable consideration . . . in exchange for the same percentage of recovery.

Id. at 1152. The current objectors contend that the treatment provided to their claims under the Plan is the "other side of the coin" that AOV found violative of § 1123(a)(4). The claim treatment found offensive in AOV is indeed very similar to the Plan's proposed treatment of domestic breast-implant claims, foreign breast-implant claims and physician claims. Id. at 1151. As was the case in AOV, the claimants in each of these classes are offered the opportunity to either settle or litigate their claim. Despite these similarities, we reject the reasoning of AOV.

To begin with, AOV sets forth a test of such impractical rigidity that it will be unworkable any time there is a class containing disputed and unliquidated claims. The cornerstone of AOV`s reasoning, of course, is the notion that all creditors within a class are entitled to share in the distribution of available funds on a pro rata basis. This foundational principle of bankruptcy law is simple to apply when all claims within a class are undisputed and liquidated. The court need ensure only that available proceeds are divided equally based upon the known values of the claims.

The situation changes considerably, however, when a class is composed of disputed and unliquidated claims. Under this scenario, the precise value of the claims will not be known. And short of actually liquidating the claims, there is no way to determine whether a proposed settlement is offering to pay claimants the same percentage recovery on their respective claims. Any attempt to practically apply the rule of AOV, then, would be unduly burdensome and would severely inhibit, if not eliminate the estate's ability to settle disputed and unliquidated claims.

See id. at 1155-56 (Starr, J., dissenting) (observing the immense impracticalities that would be involved in trying to determine the amount of consideration that each creditor in a class would be required to give in exchange for its distribution under the plan). Settlements, which serve the salutary purpose of avoiding the time, expense and uncertainty involved in liquidating a claim, are strongly favored and encouraged by the law. See, e.g., Franks v. Kroger Co., 670 F.2d 71, 72 (6th Cir. 1982). In fact, a prime objective of the reorganization process is to foster a negotiated resolution to the many disputes underlying the bankruptcy. Moreover, and even though AOV seems to suggest otherwise, a court is not empowered to tell a debtor how much it must offer to settle a claim.

Another problem with the AOV reasoning is that it would make the traditional use of convenience classes found in many chapter 11 plans impractical. Section 1122(b) permits a plan to "designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience." 11 U.S.C. § 1122(b). See generally 7 Collier on Bankruptcy, 61122.03[5]. Convenience class claims are frequently paid the same fixed dollar amount as a dividend despite the fact that some of the claims might be more valuable than others. As a result, each class member may receive a somewhat different percentage of recovery. Outlawing such a common, well-accepted practice would be both bad public policy and contrary to the Bankruptcy Code. For one thing, § 1122(b) expressly permits such a practice. For another, § 1123(a)(4) applies to all classes of claims and interests, including convenience classes. And it is clear that § 1123(a)(4)'s mandate, that each claim within a class receive "the same treatment," does not compel the conclusion that claims of different values within a convenience class may not receive the same absolute dividend. Since the AOV reasoning would lead to the imposition of that result judicially, the logic of AOV is not persuasive. The above discussion reveals only some of the significant flaws in AOV's reasoning. But there is another, and perhaps stronger reason for rejecting the rule propounded by that court. AOV simply ignored the second half of § 1123(a)(4). Section 1123(a)(4) expressly provides that disparate treatment of a claim is indeed permissible if the holder of that claim "agrees to a less favorable treatment." 11 U.S.C. § 1123(a)(4) (emphasis added). For claimants in Classes 5, 6.1 and 12, the primary treatment provided under the Plan is the opportunity for a claimant to litigate her claim against the Litigation Facility. After all, when a plaintiff files suit against a defendant the expressed intent of the complaint is to resolve the matter through trial. While settlement is encouraged by the law, this outcome is achieved only in lieu of litigation. Claimants in Classes 5, 6.1 and 12 who choose the Plan's primary treatment — litigation — would be able to pursue whatever causes of action they believe they have against the Debtor. For example, a physician claimant who chooses to litigate could pursue both a Physician Direct and Derivative Claim. And at the conclusion of any trial that takes place, the litigating claimant would be entitled to payment of his judgment in full. See, e.g., Findley v. Blinken (In re Joint Eastern and Southern District Asbestos Litig.), 982 F.2d 721, 749 (2d Cir. 1992) ("Asbestos health claimants would receive the "same treatment" if they all were permitted to present their claims to a jury and were all paid whatever amounts the jury awarded."). Although the litigation procedures may vary somewhat between classes, within each of these classes the primary treatment is unquestionably the same for each claimant. This fact alone demonstrates that, at least with respect to these classes, the Plan fully complies with § 1123(a)(4). Cf. In re Central Medical Center, Inc., 122 B.R. 568, 575 (Bankr.E.D.Mo. 1990) (concluding that the equal treatment requirement of § 1123(a)(4) is satisfied when class members are subject "to the same process for claim satisfaction," even though that process may lead to a different pecuniary result for certain individual creditors).

A fundamental problem with the court's reasoning in In re AOV Indus., 792 F.2d 1140, 1150-51 (D.C. Cir. 1986), is its inappropriate attempt to address classification concerns in the context of § 1123(a)(4). As indicated, a plan may classify only "substantially similar" claims together. Section 1123(a)(4) then mandates that all claims classified together receive the "same treatment." Interestingly, the court stated that "[i]f Hawley's factual predicate was correct, and it had a unique, guaranteed claim against . . . [the third party], its position differed substantively from that of its co-class members." Id. at 1151 (second emphasis added). This statement was one of the predicates for the court's holding that equal treatment is not necessarily equal. The court's problematic holding, which suggests that § 1123(a)(4) requires bankruptcy courts to undertake unworkable claim valuation determinations, could have been avoided altogether if instead the court had held that Hawley's substantively different claim was improperly classified. But the court inexplicably overruled Hawley's classification objection by stating that "in appropriate cases a plan may classify all unsecured creditors in a single class." Id.

The secondary treatment provided to claims in Classes 5, 6.1 and 12 is the settlement option. Should a claimant in one of these classes accept the Plan's settlement offer, she does so voluntarily. Therefore, even if the settlement option does provide less favorable treatment than the litigation option, any claimant who selects settlement will have done so in a manner that complies with the second clause of § 1123(a)(4). In re Texaco Inc., 84 B.R. 893, 905 (Bankr.S.D.N.Y. 1988) (Section 1123(a)(4) was satisfied when the creditor agreed to a settlement providing it less favorable treatment than treatment provided to other members of its class.).

For these reasons, we reject the notion that a plan must always provide strict proportional equality of payments within a class. The Court instead agrees with the view that § 1123(a)(4) "is not to be interpreted as requiring precise equality of treatment, but rather, some approximate measure [of equality]." In re Resorts Int'l, 145 B.R. 412, 447 (Bankr.D.N.J. 1990). The settlement offers extended to claimants within Classes 5, 6.1 and 12 easily meet this requirement. As noted above, every physician claimant potentially has both a Direct and a Derivative Physician Claim. Every physician claimant who chooses to settle would be required to release both of these potential claims. As a result, every settling physician claimant would be providing roughly equivalent consideration. With respect to the New Zealand Claimants, the Court found that the doctrine of forum non conveniens does not place their claims in a materially different legal position than that held by other members of Class 6.1. Thus, the New Zealand Claimants who choose to settle would be providing consideration that is essentially the same as that provided by all other members of their class. For the same reason, the Morrison Claimants' argument that multiple-rupture breast-implant claimants who opt for settlement are required to provide greater consideration is also unpersuasive. First, it was not clear that counsel for the Morrison Claimants had standing to make this argument for he did not identify a single client that has had multiple ruptures. Second, even if one of his clients has experienced multiple ruptures, counsel failed to present any evidence indicating that this would materially increase the value of such a claim.

For all of the above reasons, the Plan provides the "same treatment" to claims in Classes 5, 6.1 and 12 and satisfies § 1123(a)(4).

C. Treatment Objections by Certain Class 7 Claimants

As explained earlier, settling holders of Class 7 claims (Silicone Material Claims) who choose the expedited payment option each receive the same amount. Those who choose the disease-payment option will receive up to 40% of the amounts payable to breast-implant claimants under the equivalent grid level. The New Zealand Claimants acknowledge that the expedited-payment option provides the same treatment to all Class 7 claimants who choose the expedited route. Their concern is with the treatment afforded under the disease-payment option. They complain that, under this option, a Class 7 foreign claimant's percentage recovery would be based on the amount payable to a similarly situated Class 6.1 or 6.2 claimant. Conversely, a Class 7 domestic claimant's percentage recovery would be based on a similarly situated Class 5 claimant. Memorandum of Law of the New Zealand Claimants at 14.

This objection is without merit for a number of reasons. First, § 1123(a)(4) requires, not that class members receive equal payment, but equal treatment. The formula used to compute the amounts payable to Class 7 claimants who opt for the disease-payment option is the same for both foreign and domestic class members. In that sense, Class 7 claimants choosing the disease payment option will receive identical treatment. That the payment formula may yield different amounts depending upon the variables that each claimant brings to the equation does not detract from this fact. Second, and more importantly, the primary treatment provided to Class 7 claimants is the opportunity to litigate their claims against the Litigation Facility. This treatment is the same for every Class 7 claimant. Secondary treatment is provided through the two settlement options. If the disease payment option does provide less favorable treatment to certain of the Class 7 claimants, their choice to elect such treatment is voluntary. Accordingly, the treatment of Class 7 is appropriate under § 1123(a)(4).

D. Treatment Objections by Certain Class 15 Claimants

The United States asserts that the treatment its claims would receive under the Plan violates § 1123(a)(4) in a number of respects. The Government's alleged right of recovery against the Debtor is founded upon two non-bankruptcy federal statutes. The Federal Medical Care Recovery Act ("FMCRA"), 42 U.S.C. § 2651-2653, forms the basis of the IHS, VA and DoD claims. Forming the basis of the HCFA claim is the Medicare Secondary Payer Act ("MSP"), 42 U.S.C. § 1395y. Under the FMCRA, when the United States provides medical treatment to a federal beneficiary for injuries that arose under circumstances creating a tort liability upon a third party, the United States is entitled to recover from that third party the reasonable costs of the treatment. 42 U.S.C. § 2651(a). The MSP similarly entitles the Government to recover, from the "required or responsible" entity, the costs of medical treatment that it provided to a federal beneficiary. 42 U.S.C. § 1395y(b)(2)(B)(ii). The Plan channels all Class 15 claims not otherwise resolved through estimation or settlement to the Litigation Facility. Neither the Debtor nor the Government have sought to estimate the claims of the Government. Nor have the parties been able to resolve these claims through settlement. Consequently, the United States' claims which remain pending on the Confirmation Date will be channeled to the Litigation Facility.

The Government first argues that the Plan provides different treatment to Class 15 claims that relate to settling breast-implant claimants than it does to Class 15 claims that relate to non-settling breast-implant claimants. Second, the Government asserts that the claims of the Canadian provinces of Alberta and Manitoba would receive more favorable treatment under the Plan than would its claims. Lastly, relying on AOV, supra p. 9, the Government contends that it is being forced to give up greater consideration than the other Class 15 claimants. Though the Government's first argument is difficult to articulate, it is essentially that the Plan creates two subclasses within Class 15 and that the treatment extended to those two subclasses is not equal. Memorandum of Law in Support of the United States' Objection to the Joint Plan of Reorganization ("United States' Memorandum of Law") at 11. The Government argues that the channeling of its claims to the Litigation Facility would create a subclass with respect to non-settling breast-implant claimants. The Plan also contains a cut-off provision that, according to the Government, would create another subclass of government payor claims relating to settling breast-implant claimants. Plan § 6.8. The cut-off provision states that certain Class 15 claimants have asserted a right to recover from the Settlement Facility if the facility pays the allowed claim of a settling breast-implant claimant without providing notice to or an adjudication of the rights of a competing Class 15 claimant. Id. It further provides that the Debtor will seek, on or before the Confirmation Date, an order determining that this asserted right will be cut off by the payment of the settling breast-implant claim. Once this cut-off occurs, the sole remedy of the competing Class 15 claimant will be to pursue recovery directly from the settling breast-implant claimant herself. Id.

The Government's argument is unpersuasive. Since Class 15 claims are those arising from injuries allegedly received by others — the federal beneficiaries with potential claims against the Debtor — they are entirely derivative of these primary claims. See Black's Law Dictionary 455 (Derivative lawsuits are those which arise from the injury of another.); Transcript, June 28, 1996 at 31 (Court stating, without refutation by counsel for Government, that the United States' claims are plainly derivative). Nevertheless, the treatment extended to a Class 15 claimant is not dependent upon the treatment extended to the underlying primary breast-implant claimant because regardless of whether the primary claimant chooses to settle or litigate her claim, the derivative Class 15 claim will be channeled to the Litigation Facility for liquidation. The Plan, therefore, does not create two subclasses of government payor claims. It creates one class. Furthermore, the claims of all governments, foreign and American, which have a similar character, are in it. And unless a Class 15 claimant has otherwise resolved its claim through settlement, the Plan's provisions discussed above would apply to all Class 15 claimants equally. The Government also asserts that § 1123(a)(4) is violated because of the treatment that would be extended under the Plan to Alberta and Manitoba. Alberta and Manitoba are afforded certain rights under the British Columbia Class Action Settlement Agreement ("B.C. Agreement"). The B.C. Agreement stems from a class action lawsuit brought against the Debtor and its Canadian subsidiary by breast-implant claimants residing in certain Canadian provinces, including Alberta and Manitoba. Proponents' Exhibit 10 — B.C. Agreement at 6. The B.C. Agreement is incorporated into the Plan, see Plan § 5.7, and is intended to resolve the claims of Class 6C claimants. Class 6C is composed of Canadian women who have filed proofs of claims in this case and who are also members of the class action in British Columbia. See, e.g., Plan § 1.16.

Under the B.C. Agreement, Class 6C claimants would be required to notify the class action claims administrator of any unresolved subrogation claims or liens held by various Canadian provinces, including Alberta and Manitoba. Proponents' Exhibit 10 — B.C. Agreement at 14. Upon such notification, the claims administrator will hold the amount payable to the claimant until the dispute is resolved. Subrogation claims which are disputed by the Class 6C claimant would be adjudicated by a British Columbia court. Id. In the event that the Class 6C claimant fails to notify the claims administrator of a subrogation claim or lien held by Alberta or Manitoba, and the affected government payor claimant asserts a subrogation claim against the Debtor, the Class 6C claimant will be required to indemnify the Debtor against such claim. Id. The Court is not persuaded that the treatment provided to the United States is less favorable than that afforded Alberta and Manitoba. First, there is a notice provision in the Settlement Facility Agreement that will accrue to the benefit of the United States and all other government payor claimants. Settlement Facility Agreement 6 7.02(f)(i). It permits the Government to submit to the Settlement Facility Claims Administrator a request for notification with respect to the resolution of a breast-implant claim for which it asserts a right of reimbursement. Id. But in contrast to the B.C. Agreement, the Plan's notice provision does not expressly permit the Settlement Facility Claims Administrator to delay payment to the primary breast-implant claimant until any disputes as to such amounts are resolved. Id. § 7.02(f)(ii). The Government acknowledges the Plan's notice provision, but complains that it is not as favorable as the one in the B.C. Agreement because: it places the onus of notification on the government payor as opposed to the breast-implant claimant; it does not require the Settlement Facility Claims Administrator to hold the amounts payable to a breast-implant claimant until the government's reimbursement claim is resolved; and it does not permit the government to pursue a right of repayment against the Litigation Facility, as the B.C. Agreement does, in the event that disbursements are made to a breast-implant claimant before its alleged reimbursement claim is resolved.

At present, the names of breast-implant claimants in this case are protected by two confidentiality orders. See Order Authorizing Debtor to file Certain Portions of the Schedules, the Matrix and Certain Certificates of Service Under Protective Seal; Order Regarding Debtor's Renewed Motion for Order . . . Setting Bar Date for Filing Proofs of Claim. . . . (allowing implant proofs of claims to be filed under certain confidentiality protections). However, the Court has already ruled, see Transcript, October 21, 1999 at 24-27, that it will lift confidentiality upon the confirmation of a plan of reorganization. Moreover, this ruling was not a new or previously unexpressed position of the Court. Throughout this case the Court has consistently stated that, since this is a public proceeding, the confidentiality protections must be lifted prior to the actual disbursements of proceeds to breast-implant claimants. Transcript, June 28, 1996 at 147 ("[N]o payments will be secret[,] . . . this is a public proceeding."); Transcript, June 12, 1996 at 225 (Breast-implant claimants should "be aware that . . . before checks get written, . . . that at some point their identity will have to be known. This is a public process."); see also Implant Proof of Claim Form ("Limited Confidentiality: The information in this Implant proof of claim form will not become public unless the Court determines that the class of Implant claimants may be entitled to receive payment on their claims, or otherwise modifies its confidentiality order."). Notice will, of course, be sent to breast-implant claimants informing them of the imminent loss of confidentiality. In that notice, the Court will include a provision which informs claimants who have received breast-implant-related treatment from the United States, that they may have certain obligations to notify the Government of an intent to resolve their claim, and that they should notify either the Government or the Claims Administrator that the United States may have a competing interest in her claim. At the same time, and contrary to the situation faced by Alberta and Manitoba, the United States would not need to rely on the goodwill of such breast-implant claimants, for once confidentiality has been lifted, it will have access to their identities. Armed with this information, a search of its own files would enable the Government to identify which breast-implant claimants provide it with a potential right of reimbursement. At this point, the Government would likely have sufficient tools at its disposal to prevent disbursement until its competing rights are resolved. As can be seen, the Settlement Facility Agreement's notice provision is, in practice, no less favorable to the United States as the B.C. Agreement is to Alberta and Manitoba.

The fact that Alberta and Manitoba may later choose to seek recovery on their unreimbursed subrogation claims is also not problematic. Any direct claims that Alberta or Manitoba assert against the Debtor will be channeled to the Litigation Facility on the Confirmation Date. This means that, should Alberta and Manitoba decide to pursue their claims against the Debtor, those claims will be resolved through the Litigation Facility in exactly the same manner as the claims of the United States Government.

Relying on the discredited AOV, supra p. 9, the Government's final § 1123(a)(4) objection is that, in return for the same treatment, it would be forced to provide greater consideration than other Class 15 claimants. United States' Memorandum of Law at 12. To begin with, it is inconsistent for the Government to now argue, as part of this objection, that it would receive "the same treatment" as other Class 15 claimants. But more importantly, since this objection is framed in terms of the consideration that the Government would be required to provide, it suggests that the Government is being extended a settlement offer under the Plan. However, this is not the case. The Plan would provide the Government with one claims resolution option — litigation. Thus, the issue of consideration is not relevant.

The treatment that would be provided to the Government's claims under the Plan is not identical to the treatment extended to Alberta and Manitoba. But as noted, identical treatment is not what § 1123(a)(4) requires. Rather, its requires within-class claim treatment to provide an approximate measure of equality. Without question, the Plan accomplishes this with respect to Class 15 claimants, and so, the Government's treatment objections are overruled.

IV. Conclusion

In Part II the Court determined that the Plan's classification scheme fully complies with the requirements of § 1122(a). The Court further determined in Part III that the treatment afforded to claimants under the Plan satisfies § 1123(a)(4). Therefore, the objections to classification and treatment lodged by certain claimants in Classes 4, 5, 6.1, 6.2, 7, 12 and 15 are overruled.

Pursuant to F.R.Bankr.P. 7052, the Court enters the following findings of fact and conclusions of law with respect to the contested matter of the confirmation of the Amended Joint Plan of Reorganization dated February 4, 1999, as modified on July 28, 1999 and supplemented on July 30, 1999 ("Plan") of the Debtor and the Official Committee of Tort Claimants, hereafter jointly referred to as the "Proponents." Any finding of fact shall constitute a finding of fact even if it is stated as a conclusion of law, and any conclusion of law shall constitute a conclusion of law even if it is stated as a finding of fact.

On June 28, 1999, this Court commenced the hearing to consider confirmation of the Plan as then formulated. The Court reviewed and considered: the Joint Plan; the Disclosure Statement; the Plan Documents; the pleadings and memoranda filed in connection with the confirmation issues, including all objections to confirmation and responses thereto; the testimony of witnesses, the exhibits and other evidence received at the confirmation hearing; and the many arguments relating thereto.

Preliminary conclusions of law:

A. The United States District Court for the Eastern District of Michigan has jurisdiction over this case and the matter of the confirmation of the Plan pursuant to 28 U.S.C. § 1334(a).

B. The District Court referred its jurisdiction over bankruptcy cases generally, including this case, as permitted by 28 U.S.C. § 157(a) by E.D. Mich. LR 83.50.

C. This is a core proceeding. 28 U.S.C. § 157(b)(2)(L).

D. The form, content and manner of notice provided in connection with the Plan afforded due process, including adequate notice and opportunity to be heard to all known and unknown claimants and to all other parties whose rights are or may be affected by the Plan, and satisfied the requirements of the United States Constitution, the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure.

Findings of fact:

1. The Proponents comply with the applicable provisions of title 11 of the United States Code. 11 U.S.C. § 1129(a)(2). See the separate opinion to be issued later for further explication of this finding.

2. The Plan has been proposed in good faith and not by any means forbidden by law. 11 U.S.C. § 1129(a)(3). See the separate opinion issued contemporaneously herewith entitled "Opinion on Good Faith" for further explication of this finding.

3. Any payment made or to be made by the Proponents or by a person issuing securities or acquiring property under the Plan, for services or for costs and expenses in or in connection with the case, or in connection with the Plan and incident to the case, has been approved by, or is subject to the approval of, the Court as reasonable. 11 U.S.C. § 1129(a)(4).

4. The Proponents have disclosed the identities and affiliations of any individuals proposed to serve, after confirmation of the Plan, as directors, officers, or voting trustees of the Debtor or a successor to the Debtor under the Plan. 11 U.S.C. § 1129(a)(5)(A)(i).

5. The appointment to, or continuance in, such office of the individuals referred to in the previous finding is consistent with the interests of creditors and equity security holders and with public policy. 11 U.S.C. § 1129(a)(5)(A)(ii).

6. The Proponents have disclosed the identities of any insiders that will be employed or retained by the Reorganized Debtor, and the nature of any compensation for such insiders. 11 U.S.C. § 1129(a)(5)(B).

7. There is no governmental regulatory commission with jurisdiction, after confirmation of the Plan, over the rates of the Debtor. 11 U.S.C. § 1129(a)(6).

8. With respect to each impaired class of claims or interests, each holder of a claim or interest of such class has accepted the Plan; or will receive or retain under the Plan on account of such claim or interest property of a value, as of the effective date of the Plan, that is not less than the amount that such holder would so receive or retain if the Debtor were liquidated under chapter 7 of this title on such date. 11 U.S.C. § 1129(a)(7). See In re Dow Corning Corp., 237 B.R. 380, 34 B.C.D. 982 (Bankr.E.D.Mich. 1999) with respect to claims in Class 4, and the separate opinion to be issued later with respect to claims in other classes.

9. Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the Plan provides that, with respect to a claim of a kind specified in § 507(a)(1) or 507(a)(2) of title 11 United State Code, on the effective date of the Plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim. 11 U.S.C. § 1129(a)(9)(A). See the separate opinion issued contemporaneously herewith entitled "Opinion on 11 U.S.C. § 1129(a)(9) Objections" for further explication of this finding.

10. Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the Plan provides that, with respect to a class of claims of a kind specified in 11 U.S.C. § 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7), each holder of a claim of such class will receive, if such class has accepted the Plan, deferred cash payments of a value, as of the effective date of the Plan, equal to the allowed amount of such claim; or if such class has not accepted the Plan, cash on the effective date of the Plan equal to the allowed amount of such claim. 11 U.S.C. § 1129(a)(9)(B).

11. Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the Plan provides that, with respect to a claim of a kind specified in 11 U.S.C. § 507(a)(8), the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the Plan, equal to the allowed amount of such claim. 11 U.S.C. § 1129(a)(9)(C). See the separate opinion issued contemporaneously herewith entitled "Opinion on 11 U.S.C. § 1129(a)(9) Objections" for further explication of this finding.

12. At least one class of claims that is impaired under the Plan has accepted the Plan, determined without including any acceptance of the Plan by any insider. 11 U.S.C. § 1129(a)(10).

13. Confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor or any successor to the Debtor under the Plan. 11 U.S.C. § 1129(a)(11). See separate opinion to be issued later for further explication of this finding.

14. All fees payable under 28 U.S.C. § 1930, as determined by the Court at the hearing on confirmation of the Plan, have been paid or the Plan provides for the payment of all such fees on the effective date of the Plan. 11 U.S.C. § 1129(a)(12).

15. The Plan provides for the continuation after its effective date of payment of all retiree benefits, as that term is defined in 11 U.S.C. § 1114, at the level established pursuant to subsection 11 U.S.C. § 1114(e)(1)(B) or 11 U.S.C. § 1114(g), at any time prior to confirmation of the Plan, for the duration of the period the Debtor has obligated itself to provide such benefits. 11 U.S.C. § 1129(a)(13).

16. Not every impaired class of claims or interests accepted the plan. 11 U.S.C. § 1129(a)(8).

17. The Proponents requested the Court to confirm the Plan notwithstanding the failure to satisfy 11 U.S.C. § 1129(a)(8). 11 U.S.C. § 1129(b)(1).

18. With respect to Class 4, the Plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the Plan, equal to the allowed amount of such claim. 11 U.S.C. § 1129(b)(2)(B)(i).

19. With respect to Class 15, the Plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the Plan, equal to the allowed amount of such claim. 11 U.S.C. § 1129(b)(2)(B)(i).

20. With respect to Class 18, the Plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the Plan, equal to the allowed amount of such claim. 11 U.S.C. § 1129(b)(2)(B)(i).

21. The Settling Physicians, the Settling Insurers, Corning, Inc. and The Dow Chemical Company will all make important contributions to the reorganization as part of a confirmed Plan.

22. The release and injunction provisions with respect to the Settling Physicians, Settling Insurers, Corning, Inc. and The Dow Chemical Company are essential to reorganization pursuant to this Plan.

23. A large majority of the creditors impacted by the release and injunction provisions approved the Plan.

24. There is a close connection between the claims of the Settling Physicians, the Settling Insurers, Corning, Inc. and The Dow Chemical Company on the one hand and the claims against the Debtor on the other hand.

25. The Plan provides for the payment of all of the claims affected by the release and injunction provisions of the Plan.

Conclusions of law:

D. The Plan complies with the applicable provisions of title 11 United States Code. 11 U.S.C. § 1129(a)(1). See separate opinion to be issued later with respect to this issue.

E. With respect to Class 4, the Plan does not discriminate unfairly. 11 U.S.C. § 1129(b)(1).

F. With respect to Class 15, the Plan does not discriminate unfairly. 11 U.S.C. § 1129(b)(1). See separate opinion, entitled "Cramdown of Class 15," issued contemporaneously herewith, for further explication of this conclusion.

G. With respect to Class 18, the Plan does not discriminate unfairly. 11 U.S.C. § 1129(b)(1). See separate opinion, entitled "Cramdown of Class 18," issued contemporaneously herewith, for further explication of this conclusion.

H. The Plan is fair and equitable with respect to Class 4. See separate opinion, entitled "Cramdown of Class 4," issued contemporaneously herewith, for further explication of this conclusion.

I. The Plan is fair and equitable with respect to Class 15. See separate opinion, entitled "Cramdown of Class 15," issued contemporaneously herewith, for further explication of this conclusion.

J. The Plan is fair and equitable with respect to Class 18. See separate opinion, entitled "Cramdown of Class 18," issued contemporaneously herewith, for further explication of this conclusion.

K. Classes 1, 2, 3, 4B, 22 and 23 are unimpaired and therefore have accepted the Plan. 11 U.S.C. § 1126(f).

OPINION ON BEST-INTERESTS-OF-CREDITORS TEST, FEASIBILITY, AND WHETHER PLAN AND THE PROPONENTS COMPLY WITH THE APPLICABLE PROVISION OF TITLE 11

The Debtor and the Official Committee of Tort Claimants ("TCC") filed a Joint Plan of Reorganization on November 9, 1998. An order confirming the Plan in its amended and modified form was entered on November 30, 1999. In conjunction with that order, the Court on the same date released its Findings of Fact and Conclusions of Law. This is the last in a series of opinions serving to supplement and explain these findings and conclusions.

A general overview of the Plan's terms is contained in the opinion on classification and treatment issues. When necessary, additional Plan terms are explained here. Except when otherwise stated, all statutory references are to title 11 of the United States Code (the Bankruptcy Code).

I. Section 1129(a)(7)

The two strongest § 1129(a)(7) objections were raised by several parties, but were argued most vociferously by certain Nevada Claimants represented by the law firm of White and Meany. The first of these objections stems from the $400 million net present value cap on the Litigation Facility's liability. The second pertains to the Plan provision disallowing punitive damages. These objectors argued that, as a result of these provisions, the Plan does not insure that claims of breast-implant claimants who choose to litigate would be paid an amount not less than what they would receive via a chapter 7. Both of these arguments raise the best-interests-of-creditors test, 11 U.S.C. § 1129(a)(7), as a bar to confirmation. These are legitimate and difficult issues from an academic standpoint. Unfortunately for the objectors, the evidence at the confirmation hearing does not support a finding in their favor.

The Plan proceeds on the assumption that $2.35 billion (net present value) will be sufficient to pay all personal injury claims in full, either through settlement or litigation. The Proponents assert that the Court can make a finding of fact that the funding is adequate to accomplish this task. But the Nevada Claimants insist that a plan must provide absolute certainty that the confirmation standards are met, most especially the best-interests-of-creditors standard. They argue that so long as there is any doubt on the subject, the Plan cannot provide for classes subordinate to them. But such is not the standard for confirmation of a plan. Findings of fact at a confirmation hearing are by a mere preponderance of the evidence. In re Trevarrow Lanes, Inc., 183 B.R. 475, 479 (Bankr.E.D.Mich. 1995). Certainty is never the test in a bankruptcy reorganization. It is commonplace for a plan to make provisions for creditor classes as well as to reserve equity for equity classes. If the reorganized debtor defaults some time after plan confirmation, and some creditors are left unpaid, usually their sole recourse is to enforce their allowed claim in a nonbankruptcy forum. In other words, equity does not revert to creditors. In re Xofox Indus., Ltd., No. 98-21696, 1999 WL 1084231, at *2-3 (Bankr. E.D. Mich. Nov. 29, 1999); In re Jordan Mfg. Co., 138 B.R. 30, 37 ("When a Chapter 11 plan is confirmed and the debtor fails to pay, the creditors' remedy is not to seek a revocation of the discharge, but rather to enforce the debtor's obligation to the creditor arising out of the Chapter 11 proceeding.") (quoting In re Curry, 99 B.R. 409, 410 (Bankr.C.D.Ill. 1989); Randy P. Orkik, Conversion After Chapter 11 Plan Confirmation What Is It Good For? — Absolutely Nothing!, 23 Cal. Bankr. J. 91, 95 (1996) ("Breach of a plan, in and of itself, is not grounds for revocation of the order of confirmation. The parties seeking revocation must show fraud in procuring confirmation of the plan.").

That is, unless the plan itself provides for such a remedy. See, e.g., In re Winom Tool Die, Inc., 173 B.R. 613, 621 n. 2 (Bankr.E.D.Mich. 1994).

Until an effective time machine becomes available, a certain percentage of trials will continue to reach a factually incorrect result. In most courts trials require the judge or jury to determine an historical fact. Did this defendant murder the decedent? Did this defendant run the red light and thereby cause injury to the plaintiff? Bankruptcy judges are sometimes called upon for fact-finding of a similar nature. Did this debtor deface the plaintiff's automobile so that the resulting damages are nondischargeable? But by far the more common form of "fact-finding" is of a future event. Bankruptcy judges make all sorts of prognostications in the form of "findings of fact." For example: Is the secured creditor's claim adequately protected by a replacement lien on new inventory? Does the chapter 13 plan provide "that all of the debtor's projected disposable income to be received in the three-year period . . . will be applied to . . . the plan?" 11 U.S.C. § 1325(b)(1)(B). Is it likely that confirmation of the plan will "be followed by the liquidation, or the need for further financial reorganization, of the debtor?" 11 U.S.C. § 1129(a)(11). Juries err from time to time. It has always been so. It will likely forever be so. People have lost their lives because a jury mistakenly thought — beyond a reasonable doubt no less — that they were guilty of capital offenses. People and companies have been bankrupted due to a jury's erroneous finding — by a mere preponderance of the evidence — that the defendant caused the plaintiff harm. Yet even with this knowledge, the criminal and civil justice systems plod on. To paraphrase Sir Winston Churchill: It has been said that our legal system is the worst . . . except for all the others that have been tried.

The Nevada Claimants protest that, because this Court might err in its prognostication that the Litigation Facility is sufficiently funded to pay all claims which survive trial, the Plan cannot be confirmed. But, as noted, the possibility of error is inherent in any ruling. A court cannot let that possibility paralyze it from making the tough decisions. A court relies on the evidence and whatever learning and common sense it can bring to the case to make the best judgment available.

In this case, on the issue of the sufficiency of the net present value $400 million Litigation Facility funding, the question is not even close. In order to properly justify this statement, however, we must first deal with the issue of punitive damages, for if punitive damages were realistically available, there would be more doubt about the previous finding.

This hesitancy is only logical. Nevertheless, the Proponents' principal witness on this issue, Frederick C. Dunbar, testified that his determination that the Litigation Facility's funding would be more than adequate would remain unchanged even if punitive damages were permitted. See Transcript, June 29, 1999, at 247-48.

A. Punitive damages

It is true that unsecured creditors are entitled to be paid not just the compensatory damages of their claim, but any exemplary, punitive or multiple damages, before equity is entitled to receive any distribution in chapter 7. 11 U.S.C. § 726(a). In this Plan, the equity security holders will retain their shares in the reorganized debtor, worth billions of dollars, while creditors who might theoretically be entitled to punitive or multiple damages would receive nothing for that species of claim. But a theoretical right of recovery is of no moment unless those creditors are actually entitled to such damages.

This is an issue that was litigated, and though the proofs were skimpy, they were decidedly one-sided. Several witnesses testified generally that, in their opinion, the Plan (and more specifically the Settlement and Litigation Facilities) provide for the full payment of all personal injury claims against the estate. Among the several witnesses so testifying was Arthur B. Newman, a senior managing director of The Blackstone Group. The Plan provides for payment of $2.35 billion net present value for tort claimants. Without serious contradiction on cross-examination or otherwise, Mr. Newman testified that in his opinion, in the aggregate, creditors would receive in a chapter 7 no more than they would receive pursuant to the Plan. Transcript, July 14, 1999, p. 99. Moreover, before unsecured claims can be paid, they must be liquidated. Without a settlement framework like the one in the Plan, the cost of liquidating hundreds of thousands of claims would be monumental. See generally In re Dow Corning Corp., 211 B.R. 545 (Bankr.E.D.Mich. 1997). There is no way of knowing what type of process would be utilized in the chapter 7. Certainly a trustee would not simply lie down and let the personal injury claimants name their own damage figure. It is probable, therefore, that a chapter 7 estate would defend on liability grounds as well. In this Court's experience, expenses of administration in the likely event of protracted claims litigation and appeals would be enormous. This would leave a much depleted estate for creditors. And, unless the estate were more-or-less exonerated of liability as a result of some consolidated megatrial, (in which case, of course, no tort claimant would be entitled to punitive damages anyway), it is more likely than not that the total of all allowed claims in the hypothetical chapter 7 would exceed the remaining funds available for disbursement to them. Since funds would be insufficient to pay all of the compensatory damages, no creditor would receive a penny of exemplary, punitive or multiple damages, even if she were otherwise found entitled to it.

The Proponents also called as an expert witness Frederick C. Dunbar, a senior vice-president at National Economic Research Associates, Inc. He is a statistician with a PhD in economics and a leading expert on matters involving estimation in mass tort cases. In addition to the general tenor of his entire testimony that all claims would be paid in full, Mr. Dunbar testified that he had studied every breast implant verdict in the past 3 = years and found that no punitive damages had been awarded to plaintiffs. He further testified that even Dow Corning had not been hit with a punitive damage verdict since 1992. Transcript, June 30, 1999, at 48. In one well-publicized breast-implant case during this time period a jury returned a verdict for compensatory and punitive damages, but the punitive damages portion of the verdict was set aside. Transcript, July 15, 1999, at 149 (Statement of Geoffrey White). See Mahlum v. Dow Chemical Co., 970 P.2d 98 (Nev. 1998).

In the face of this testimony, the Nevada Claimants and others were silent. As a result, theory was trumped by facts. Based on the evidence, the Court can make only one factual finding and that is that punitive damages would not be paid by a trustee in a chapter 7 case. Therefore, the Plan which provides for no punitive damages does not violate the individual rights of any rejecting tort claimant and so satisfies § 1129(a)(7).

For what it is worth, the Proponents also raise an interesting legal issue with regard to the Plan's express refusal to provide for punitive damages. The argument goes as follows. Punitive damages are for the purposes of punishing wrongdoers and deterring them and others from further wrongdoing. City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 266-67 (1981) ("Punitive damages by definition are not intended to compensate the injured party, but rather to punish the tortfeasor whose wrongful action was intentional or malicious and to deter him and others from similar extreme conduct."). Punitive damages may be no greater than what is "reasonably necessary" to achieve these goals. BMW of North America, Inc. v. Gore, 517 U.S. 559, 563 (1996). According to the Proponents, the goals of deterrence and punishment are adequately met in this case without resort to punitive damages because the amount of compensatory damages being paid is sufficient in itself to accomplish these objectives. Rosado v. Santiago, 562 F.2d 114, 121 (1st Cir. 1977) (reversing punitive damages award because "[a]n award of actual damages coupled with reinstatement [of employment] is ample relief . . . and a sufficient deterrent to future wrongdoing"); In re Kratzer, 9 B.R. 235, 239 (Bankr.W.D.Mo. 1981) (the "award of compensatory damages . . . is sufficient to punish the defendants"); Magallanes v. Superior Court, 167 Cal.App.3d 878, 886, 213 Cal. Rept. 547, 552 (1985) (where "the objectives of punishment and deterrence appear to be sufficiently met by the enormity of the present and prospective awards of compensatory damages" and where "the offending goods have long since been removed from the market place," punitive damages against a product manufacturer were refused); Quick Air Freight, Inc. v. Teamsters Local Union No. 413, 575 N.E.2d 1204, 1217 (Ohio Ct.App. 1989) (punitive damages need not be awarded when compensatory damages are sufficient to punish defendants and to deter them and others from similar conduct); see also 22 Am. Jur.2d Damages § 264 (Punitive damages "should not be awarded in a case where the amount of compensatory damages is adequate to punish the defendant.").

There is no question but that the ordeal that the Debtor has gone through over the last decade, and more particularly in the nearly five years this case has been pending in bankruptcy court, coupled with the enormous damages it has agreed to pay while still believing that it is not responsible for any of the alleged harms, is truly a deterrent to future conduct which might entail risks of public harm. No rational company would knowingly engage in activity that would risk its continued existence, especially after having so narrowly escaped oblivion. On the question of punishment, it is easy for this Court to simply say that the Debtor has been punished enough. However, if in fact the Debtor's products caused the harms alleged (something that this Court has no need nor opportunity to decide), and if the product came to market in a manner which justifies punitive damages, then it is difficult to make such a finding. But these more metaphysical questions need not be decided at this time since the record nevertheless supports the Plan's provision for omission of punitive damages.

B. The Sufficiency of the Funding of the Litigation Facility

The evidence was overwhelming that $400 million net present value would be more than sufficient to pay all personal injury claims resolved through litigation in full even after factoring in the costs of the process. The evidence took multiple forms. The first such evidence came from Tommy Jacks, a plaintiff's personal injury lawyer who represented many clients suing the Debtor over their breast implants, who was a member of the Official Committee of Tort Claimants, and who helped negotiate the Plan. He testified that, in his opinion, the funding of the Litigation Facility was adequate for the purpose intended.

Q And do you have a view as to whether or not the $400,000,000 net present value will be adequate to satisfy non-settling claims in full?

A I do have.

Q And what's the basis for your view?

A Well, . . . my view is based upon my knowledge and experience as a lawyer who is familiar with this litigation and . . . there are a number of reasons why I believe that the amount provided in the facility is . . . an adequate amount. . . .

A I think . . . the settlement aspects of this plan are far more beneficial . . . to claimants and to a broader class of claimants than was the corresponding settlement provision made available through the revised settlement program. I think on that basis that we will see a greater acceptance of the settlement facility and a lower propensity of claimants to opt out. I think at the same time we can't under estimate [sic — overestimate] the effect that the passage of time itself has had in these cases. And I think that's reflected very much in the vote of the various classes of claimants, the overwhelming acceptance of the plan by the vast majority of claimants.

In women who have claims to assert in this case, whether by settlement or by litigation, . . . most of them [have] been involved in litigation now going back to the early 1990's. Certainly to 1992, some seven years. There is, I believe, a tremendous desire of women to achieve closure of their claims. And I think that will prompt the settlement of claims. The litigation environment I think is an important factor. . . . [W]hatever you think about it, it's a more difficult environment for claimants to litigate their claims now than it has been in the past however much we may disagree with conclusions.

For example . . . the science panel or more recently . . . the National Institute of Medicine. The fact is that those fairly weighty opinions are there and will be given importance by some Courts. And it's for all those reasons I think the expectation should be of . . . a very small number of opt outs. And I know that's certainly going to be the case . . . among my own clientele as compared with the days of the global settlement or revised settlement program. And I believe that the $400,000,000 amount of funding that's provided is an adequate amount for those claims that will be opted out and litigated. Transcript, June 28, 1999, at 161-63; see also id. at 229-256.

The most important — and impressive — witness on the adequacy of the Litigation Facility's funding was Mr. Dunbar. His qualifications, both educational and experiential, were exquisitely matched to the task for which he was retained. His testimony was thorough, logical, well-documented, and credible. Notwithstanding attempts at cross-examination and at obfuscation in closing argument, the purity of his reasoning shines through. As the record established, and as is generally well-known, other large breast-implant manufacturers agreed to a revised settlement program in the context of the MDL 926 proceedings in Birmingham, Alabama (the "RSP"). The Plan was based largely on the RSP, but there were significant differences. Mr. Dunbar testified that because of demonstrated enhancements in the current plan from the RSP, a greater percentage of the eligible population will elect to settle in the Settlement Facility than elected to settle in the RSP. Concomitantly, a smaller percentage of people entitled to do so will opt to litigate in the Litigation Facility. To arrive at an appropriate settlement/litigation ratio, he also used data from a similar mass-tort bankruptcy case, that of A.H. Robins Co. Mr. Dunbar's conclusions on the number of expected litigants was based purely on his statistical models — a model that was theoretically not much different from the one routinely used by real estate appraisers in bankruptcy cases. The factors Mr. Jacks testified about — the increasing fatigue of breast-implant claimants over the lengthy delays; the recent tide of anti-plaintiff scientific studies and resultant publicity; the expansion of the Daubert line of cases — played no part in Mr. Dunbar's calculations. His methodology was beyond reproach and his estimation that 7,513 people would opt into the Litigation Facility is adopted by this Court. Moreover, Mr. Dunbar's scientific approach was corroborated to a large extent by the testimony of Tommy Jacks, and even by a witness called by objecting claimants, John C. Thornton III. Transcript, July 16, 1999, at 40-58.

Although certain claimants vehemently argued that the A.H. Robins experience was not relevant to this task, Mr. Dunbar persuasively explained why it was.

Mr. Dunbar next had to determine what the average award would be for plaintiffs proceeding to litigation in the Litigation Facility. Because he was precluded from obtaining information about the settlement of RSP opt-out claimants by a gag order imposed by Judge Pointer, see In re Dow Corning Corp., 237 B.R. 364, 371 (Bankr.E.D.Mich. 1999), Mr. Dunbar used what he believed was the closest comparable experience — the Dalkon Shield Claimants Trust experience arising from the bankruptcy proceeding of A.H. Robins Co. The information Mr. Dunbar obtained on the Dalkon Shield Claimants Trust was supplemented and corroborated by the testimony of Professor Georgene M. Vairo, who has been the chairperson of the board of trustees of this Trust since 1989. Based on that comparison, Mr. Dunbar concluded that the anticipated average cost of resolving each breast-implant claim, factoring in both plaintiff and defendant verdicts as well as settlements of claims of both domestic and foreign claimants in the Litigation Facility, would be approximately $11,700 in nominal terms. Simple multiplication results in a total nominal expense to the Litigation Facility for resolving breast implant claims of approximately $88 million. Mr. Dunbar then determined that the nominal legal and administrative costs of resolving these claims would be approximately $43.6 million, taking the total nominal costs of resolving breast-implant claims in the Litigation Facility to about $131.6 million.

In addition, the Litigation Facility would be tasked with resolving various other claims such as personal injury claims stemming from products other than breast implants, claims of breast-implant claimants whose implants were made by non-Debtor manufacturers with Dow Corning-produced silicone gel, and the claims of certain commercial and governmental health care providers and insurers. In the aggregate, Mr. Dunbar estimated that these other claims would cost the Litigation Facility approximately $26 million, nominally.

All tolled, Mr. Dunbar testified that the cost to the Litigation Facility for disposing of all disputed personal injury claims in nominal terms, including an allowance for administrative and legal expenses, would come to approximately $157.6 million. The Litigation Facility is expected to pay out funds over a 16-year life. Mr. Dunbar used a 7% discount rate, and calculated that the net present value of this figure is about $83 million. Thus, the $400 million net present value funding of the Litigation Facility is almost five times what will be necessary to satisfy all claims funneled to it.

No credible evidence was introduced to show otherwise. But of all places, a vociferous attack on Mr. Dunbar came from counsel for the Official Committee of Physician Claimants, a party that appeared not to have a dog in this fight. After considering the logic behind the attack on Mr. Dunbar's methodology and conclusions, the Court rejects it. The argument is anything but obvious and no witness, expert or otherwise, makes the case posited. In summary, then, this Court entirely credits the testimony of Mr. Dunbar and adopts in full his findings with regard to the adequacy of the Plan's funding, and specifically, the Litigation Facility's funding for personal injury claims.

Class 12, a class containing the claims of the physician claimants, voted to accept the Plan by an overwhelming 91.4%. Nevertheless, the Physicians' Committee felt somehow constrained to oppose the Plan. Despite having virtually nothing to ask Mr. Dunbar on cross-examination, and calling no witnesses of his own, counsel unloaded a substantial blast during closing arguments and in a post-trial memorandum at Mr. Dunbar's methodology and conclusions.

II. Feasibility

Two years ago, this Court explained why finding that "[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor," would be a simple task. See 11 U.S.C. § 1129(a)(11). In our estimation opinion, we noted that the Debtor's then plan did not say:

"The Reorganized Dow Corning will pay all tort claims in full. The Debtor expects that the $600 million set aside in the Settlement Trust and the $1.4 billion reserved for the Litigation Trust will be sufficient to do that. However, if it proves to be inadequate, the Reorganized Debtor will nevertheless pay however much is required to satisfy all such claims in full." Such a provision would truly be a promise to pay all tort claims in full. And if the Debtor's plan did contain this hypothetical provision, it would be necessary to determine the aggregate value of tort claims because that value could potentially exceed the financial capabilities of the Reorganized Debtor. Nobody doubts the Debtor's ability to put up war chests totaling $2 billion. But it could be that the aggregate amount of tort claims far exceeds $2 billion and that the Reorganized Debtor is incapable of paying the additional amounts necessary to satisfy those claims in full. In that case, the Court could not confirm the proposed plan because the Debtor would be unable to satisfy 11 U.S.C. § 1129(a)(11), commonly referred to as the requirement to establish the "feasibility" of a plan.

Instead, the Debtor's plan essentially says: "The Reorganized Dow Corning will set aside $600 million for settlement of personal injury claims and an additional $1.4 billion for litigation of personal injury claims. The Debtor expects that these amounts will be sufficient to pay all such claims in full. However, if it proves to be inadequate, the claimants will nevertheless receive only that amount and have to share these amounts pro rata. To the extent these claimants are not paid in full, the remaining debt will be discharged."

From this summary it is clear why estimation is not necessary for plan confirmation purposes. The Reorganized Debtor's ability to pay tort claims in full would simply not be an issue under '1129(a)(11) for no matter how large the actual aggregate tort liability may turn out to be, the Reorganized Debtor would clearly be able to perform the pertinent terms of the plan. If the Court estimated the aggregate claims at something within the $2 billion treasury, the plan would be feasible. If the Court estimated the claims at an amount far in excess of $2 billion, the plan would still be feasible, because the Reorganized Debtor's obligation is capped by the plan at $2 billion, and the Debtor has $2 billion. In re Dow Corning Corp., 211 B.R. 545, 568-69 (Bankr.E.D.Mich. 1997) (emphasis added). Though much about the current Plan differs from the earlier one, the cap on the Litigation Funding plus the possibility (however slight), that personal injury claims are not fully satisfied out of those funds, remains. In this case, no one seriously disputes the Debtor's ability to put up a war chest of $2.35 billion net present value for those claims. See Funding Payment Agreement, § 2.01. Nor for that matter is there any doubt that the Debtor will be able to fully fund its entire obligation under the Plan to pay $3.8 billion (net present value) over the Plan's term. And Mr. Newman so testified.

Obviously, the Debtor will be able to satisfy its Plan obligations without liquidating or further financial reorganization.

III. Proponents Comply With Applicable Provisions of Title 11

"The court shall confirm a plan only if . . . (2) [t]he proponent of the plan complies with the applicable provisions of this title." Section 1129(a)(2). This section is worded peculiarly. Exactly how does a plan proponent comply (present tense) with the applicable provisions of title 11? One would think that the sentence should have been written in the past tense, for as he stands before the court at the confirmation hearing, the proponent cannot help but comply with title 11: He isn't doing anything at the moment.

Probably because the sentence makes no sense as written, treatises and cases have had to infuse it with meaning. Section 1129(a)(2) has been interpreted to pertain almost exclusively to solicitation of ballots. See 7 Collier on Bankruptcy 61129.03[2] (15th ed. rev. 1999); see also In re Apex Oil Co., 118 B.R. 683, 703 (Bankr.E.D.Mo. 1990).

The Official Committee of Unsecured Creditors ("U/S CC") and the Bank of New York asserted that the Proponents did not comply with this provision of the Bankruptcy Code because they did not timely deliver ballots to some of the commercial creditors, and in so doing, failed to properly solicit acceptances of the Plan. But the Bank's and U/S CC's memoranda lacked any argument on this point. As a result, the Proponents similarly did not discuss it in their responsive memorandum. Moreover, neither the Bank nor the U/S CC raised this objection at the confirmation hearing. The Court therefore concludes that they have waived their right to challenge confirmation on this ground.

This situation is analogous to one where a party raises an issue at the trial level but then fails to pursue it on appeal, or where it raises the issue on appeal in a cursory manner with no supporting case law or statutory citations. In either case, the issue not addressed would be deemed waived. It is the settled appellate rule that issues adverted to in a perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed waived. It is not enough merely to mention a possible argument in the most skeletal way, leaving the court to do counsel's work, create the ossature for the argument, and put flesh on its bones. . . . Judges are not expected to be mindreaders. Consequently, a litigant has an obligation to spell out its arguments squarely and distinctly, or else forever hold its peace.

United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990), cert. denied, 494 U.S. 1082 (1990) (internal quotations and citations omitted). See also United States v. Reed, 167 F.3d 984, 993 (6th Cir. 1999) (relying on Zannino, in finding appellant's argument "forfeited" due to its inadequacy); United States v. Brown, 151 F.3d 476, 487 (6th Cir. 1998); Gafford v. General Electric Co., 997 F.2d 150, 167 (6th Cir. 1993); Bob Willow Motors, Inc. v. General Motors Corp., 872 F.2d 788, 795 (7th Cir. 1989); Brown, 151 F.3d at 492 (Gilman, J., concurring in part and dissenting in part) ("[t]he provisions of [Federal] Rule [of Appellate Procedure] 28 are not simply a technical nicety; they have a direct impact on the functioning of the adversary system."). There is no logical reason why the standard for briefing issues at the trial level, where the same concerns apply, should be any lower than at the appellate level. Applying that standard here, it is clear that the U/S CC and the Bank waived any objection based upon allegedly improper solicitation of acceptances because there was no reference to such an argument in their briefs, nor did they make (or even suggest) a showing that manifest injustice would result from a finding of waiver. "The burden on the dockets of the federal courts is severe enough already, without requiring the courts to raise, research, and explain an issue not deemed important enough by the parties to justify mention in their briefs." Sumner v. Mata, 449 U.S. 539, 554 (1981). See also In re Campbell, 58 B.R. 506 (Bankr.E.D.Mich. 1986). But even assuming this objection had been pursued, the Court would nevertheless overrule it. The issue raised is one of fact. As there is no record evidence to support the bare allegation that ballots were delivered late to certain members of Class 4, there is no basis for a finding of fact adverse to the Proponents on § 1129(a)(2). What minimal evidence there is supports this Court's finding that the notice, solicitation procedures and balloting were beyond reproach.

This objection fails for yet another reason. It was not shown that any deficiency in the solicitation procedures which might have existed in any way prejudiced the outcome of voting or otherwise affected the rights of those parties to whom ballot delivery was allegedly untimely. Class 4 rejected the Plan. Therefore, the harmless error standard of F.R.Civ.P. 61, made available in bankruptcy proceedings by F.R.Bankr.P. 9005, is applicable. By this rule, the Court "must disregard any error or defect in the proceeding which does not affect the substantial rights of the parties." F.R.Civ.P. 61.

Bankruptcy courts, either by applying this standard or by looking to the legislative history of § 1129(a), have refused to deny confirmation of chapter 11 plans based on mere technical or trivial violations of confirmation requirements. One court explained that minor violations of § 1129(a)(2), ought not be viewed as "a `silver bullet' to kill th[e] Plan," . . . [because] "Congress did not intend to fashion a minefield out of the provisions of the Bankruptcy Code. . . . [I]f Congress had meant that any infraction, no matter how early on in the case, no matter how minor the breach, and regardless of whether the court has remedied the violations, should result in a denial of confirmation, Congress would have given some clearer indication in the legislative history or made the statutory provision far more express." In re Landing Assocs., Ltd., 157 B.R. 791, 810-811 (Bankr.W.D.Tex. 1993). See also Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 647 (2d Cir. 1988) (refusing to decide if the alleged voting irregularities violated the Bankruptcy Code because they constituted, at most, harmless error and explaining that "[t]he harmless error rule has been invoked in the bankruptcy context where procedural irregularities, including alleged errors in voting procedures, would not have had an effect on the outcome of the case"); Gilman v. Davis (In re State Thread Co.), 126 F.2d 296, 301 (6th Cir. 1942) (holding that although "the district judge erred in reversing the referee's action" of permitting the complaining party to vote at the election of the trustee, because such party had not contended that he had suffered any actual injury, he had "been deprived of a mere technical and not a substantial right," and so the error was harmless).

As noted, there is no evidence showing that some ballots were not timely delivered. However, had this been shown, under the circumstances of this case, this would constitute, at most, a harmless error that would not justify denial of confirmation of the Plan. Accordingly, this objection is overruled.

Approximately 25 foreign breast implant claimants represented by Sybil Shainwald, P.C., claimed that they did not receive ballots. Although they say that this fact means that the Plan does not comply with the applicable provisions of title 11, that makes no sense. The Plan is the Plan; it doesn't disseminate itself. What this objection really states is an attack on the second confirmation standard, § 1129(a)(2).
This objection, like those of the U/S CC and the Bank, was never pursued at the confirmation hearing. It is, therefore, likely that this objection, like the others, were resolved to the satisfaction of the objectors prior to the completion of the hearing. Even if this is not the case, this objection likewise will not be sustained as there was no evidence presented in support of the underlying factual allegation.

IV. Plan Complies With Applicable Provisions of Title 11 A. The Deemed Waivers and Releases

A plan cannot be confirmed unless it "complies with the applicable provisions of [the Bankruptcy Code]." 11 U.S.C. § 1129(a)(1). Terms in a plan which are neither required nor expressly authorized by the Code are nevertheless permissible under § 1129(a)(1) if they are "appropriate . . . [and] not inconsistent with the applicable provisions of" the Code. 11 U.S.C. § 1123(b)(6). See United States v. Energy Resources, 495 U.S. 545, 549 (1990) ("The Bankruptcy Code does not explicitly authorize the bankruptcy courts to approve reorganization plans designating tax payments as either trust fund or nontrust fund. The Code, however, grants the bankruptcy courts residual authority to approve reorganization plans including `any . . . appropriate provision not inconsistent with the applicable provisions of [the Code]. . . .'" (quoting 11 U.S.C. § 1123(b)(5), which has since been recodified as § 1123(b)(6)). Article Eight of the Plan, entitled "Effects of Plan Confirmation," contains provisions which implicate § 1123(b)(6). Pursuant to § 8.3, personal-injury claims against various parties "are deemed . . . waived and released." Plan § 8.3. The next section provides that holders of the claims which have been so deemed "shall be permanently enjoined . . . from . . . commencing or continuing . . . any action" seeking to enforce their claims. Id. § 8.4. Clearly, the Code does not mandate that provisions of this sort be included in a plan. And in this context, the Code also does not explicitly authorize the inclusion of such provisions. Compare 11 U.S.C. § 524(g) (allowing for substantially the same relief with respect to a non-debtor's liability arising from asbestos exposure). Accordingly, the Plan cannot be confirmed if §§ 8.3 and 8.4 are inconsistent with the Code or otherwise improper.

Discussion

Sections 8.3 and 8.4 provide:

8.3 Release . . . [I]n consideration of (a) the promises and obligations of the Debtor-Affiliated Parties under the Plan . . ., (b) the undertakings of the Shareholders . . ., (c) the undertakings of the Settling Insurers pursuant to their respective settlements with the Debtor, and (d) the release of Claims against the Debtor-Affiliated Parties by the Settling Physicians and Settling Health Care Providers, on the Effective Date (i) all Persons who have held, hold, or may hold Products Liability Claims, whether known or unknown, shall be deemed to have forever waived and released all such rights or Claims, whether based upon tort or contract or otherwise, that they heretofore, now or hereafter possess or may against the Debtor-Affiliated Parties, the Shareholder-Affiliated Parties, the Settling Insurers, and, to the extent released by the Debtor under the settlement agreements with such Settling Insurers, [parties related to] . . . the Settling Insurers, and (ii) all Persons who hold, may hold or may have held Personal Injury Claims shall be deemed to have forever waived and released all such rights or Claims, whether based upon tort or contract or otherwise, that they heretofore, now or hereafter possess or may possess against the Settling Physicians (except for Malpractice Claims) or the Settling Health Care Providers (except for Malpractice Claims) (. . . collectively[,] . . . the "Released Parties"), in each case based upon or in any manner arising from or related to . . . [the Debtor's materials and products]

. . .

The . . . Released Parties . . . shall be deemed released by the Quebec Class Action Settlement Claimants, the Ontario Class Action Settlement Claimants, the B.C. Class Action Settlement Claimants and the Australia Breast Implant Settlements Claimants, and shall be entitled to receive executed releases pursuant to [such agreements]. . . .

8.4 Permanent Injunction Against Prosecution of Released Claims . . . [F]or the consideration described in section 8.3 above, on the Effective Date all Persons who have held, hold, or may hold Released Claims, whether known or unknown, . . . shall be permanently enjoined on and after the Effective Date from (a) commencing or continuing . . . any action . . . with respect to any Released Claim against the [Released Parties] . . ., the Settlement Facility, [and] the Litigation Facility . . . (collectively, the "Parties") or the property of the Parties, (b) seeking the enforcement, attachment, collection or recovery . . . of any judgment, award, decree, or order against the Parties or the property of the Parties, with respect to any Released Claim, (c) creating, perfecting, or enforcing any encumbrance of any kind against the Parties or the property of the Parties with respect to any Released Claim, (d) asserting any setoff, right of subrogation, or recoupment of any kind against any obligation due to the Parties with respect to any Released Claim, and (e) taking any act . . . that does not conform to or comply with provisions of this Plan, or the Settlement Facility Agreement and the Litigation Facility Agreement.

. . .

Plan §§ 8.3 and 8.4. See id. § 1.59 ("`Effective Date' means the first Business Day (a) that is at least 11 days after the Confirmation Date; (b) on which no stay of the Confirmation Order is in effect; and (c) on which all conditions to effectiveness of this Plan have occurred or been waived.").

Among the so-called "Released Parties" are the Debtor and its shareholders, The Dow Chemical Company and Corning, Inc. See id. §§ 1.47, 1.163, 1.165. Other beneficiaries of §§ 8.3/8.4 include insurance companies that the Debtor released from claims pursuant to settlement agreements, and health-care providers in Classes 12 and 13 who settle their respective claims against the Debtor. See id. §§ 1.159, 1.160 and 1.162.

Most personal-injury claims against the Debtor are to be paid by a "Litigation Facility" or a "Settlement Facility," both established and funded by the Debtor. See Plan § 6.11.3.

Before considering whether these provisions are permissible, we must ascertain their meaning. To assist us in that task, we will invoke rules of construction applicable to contracts and statutes. See generally, e.g., In re Texas Gen. Petroleum Corp., 52 F.3d 1330, 1335 (5th Cir. 1995) ("We apply the rules of contract interpretation to the interpretation of a plan of reorganization."); In re Beta Int'l, Inc., 210 B.R. 279, 285 (E.D.Mich. 1996) ("Interpretation of a Chapter 11 plan is basically a matter of contractual interpretation."); see also Pennsylvania R.R. Co. v. Chesapeake Ohio R.R. Co., 229 F.2d 721, 727 (6th Cir. 1956) ("[T]he same principles of statutory construction derived from [the cited cases] . . . applies [sic] to the interpretation of contracts. . . .").

We begin our analysis of § 8.3 with consideration of the verb "deem," which simply means "to hold as an opinion" or to "regard." Random House College Dictionary (rev. ed. 1980). See generally, e.g., Klamath Water Users Protective Ass'n v. Patterson, 191 F.3d 1115, 1119 (9th Cir. 1999) ("Contract terms are to be given their ordinary meaning. . . ."). Section 8.3 does not specify just who is to "regard" the claims in question as having been waived or released. But of course, the only "opinion" on the subject which ultimately matters is that of judges called upon to make a ruling as to whether a claim remains enforceable. Thus we infer that what § 8.3 really means is that the courts shall deem the claims to be waived and/or released. And particularly since the Plan contemplates a permanent injunction, we also infer that the first court to do the "deeming" is this one. Cf. In re Dore Assocs. Contracting, Inc., 43 B.R. 717, 720 (Bankr. E. D. Mich. 1984) (where this Court rejected the "argu[ment] that the mere confirmation of the plan effected a de facto permanent injunction").

Next we consider the words "release" and "waiver." The latter term is defined as "[t]he voluntary relinquishment or abandonment — express or implied — of a legal right." Black's Law Dictionary (7th ed. 1999). Similarly, a "release" is "the act of giving up a right or claim to the person against whom it could have been enforced." Id. In effect, then, the Plan would have the Court make a finding that the holders of claims affected by § 8.3 have opted not to pursue those claims.

This brings us to the question of just which claim holders are in fact "affected." According to the literal terms of § 8.3, the waiver/release covers "all [such p]ersons," without distinction. However, an alternative construction is suggested by § 8.1, which provides that "any Claim [against the Debtor is discharged] . . ., whether or not . . . the holder of such Claim has accepted this Plan." Plan § 8.1 (emphasis added). Section 8.3, which begins on the same page as § 8.1 and is part of the same Article Eight, contains no such language. Thus the implication is that Plan acceptance — while irrelevant to the scope of the discharge — does have a bearing on whether a person is to be deemed by the Court to have waived or released her claim. Cf. Gozlon-Peretz v. United States, 498 U.S. 395, 404 (1991) ("Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." (citation omitted)). And as will be seen, a narrow construction of § 8.3 makes sense for other reasons.

"[I]n the interpretation of a promise or agreement[,] . . . an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect[.]" Restatement, Second, Contracts § 203(a). See also, e.g., Armstrong Paint Varnish Works v. Nu-Enamel Corp., 305 U.S. 315, 333 (1938) ("[T]o construe statutes so as to avoid results glaringly absurd has long been a judicial function."); Williamson v. Kay (In re Villa West Assocs.), 146 F.3d 798, 803 (10th Cir. 1998) (Under Kansas law, "`[r]easonable rather than unreasonable interpretations of contracts are favored,' and `[r]esults which vitiate the purpose or reduce the terms of a contract to an absurdity should be avoided.'" (citations omitted)); Cole v. Burns Int'l Sec. Servs., 105 F.3d 1465, 1468 (D.C. Cir. 1997) ("[A]mbiguity should be resolved in favor of a legal construction of the parties' agreement. . . ."); Catalina Enters. Incorporated Pension Trust v. Hartford Fire Ins. Co., 67 F.3d 63, 66 (4th Cir. 1995) (""It is axiomatic under Maryland law that a court should avoid reading a contract in a way that produces an absurd result, especially when a reasonable interpretation is available."); id. (citing a case for the proposition that "when [a contract] provision is susceptible to more than one meaning, a fair and reasonable construction . . . should always be favored over one that leads to [a] harsh and unreasonable result"); Sporting Club Acquisitions, Ltd. v. Federal Deposit Ins. Corp., No. 94-1567, 1995 WL 694128, at * 3 (10th Cir. Nov. 24, 1995) (unpublished) ("[U]nder a long-standing principle of construction, FDIC's interpretation of the contract, [if] . . . unlawful, should be rejected in favor of the legal alternative proposed by SCA." (citing Colorado case law)); United States v. Fidelity Deposit Co., 10 F.3d 1150, 1154 (5th Cir. 1994) ("Any other construction [of the bond] would be nonsensical under federal law, as such constructions would require us either to rewrite the bond or to make the bond conflict with federal law."); id. at 1154 n. 14 (citing cases for the proposition that "contractual language is interpreted whenever possible to uphold the validity of the contract," and "that reasonable doubt about the construction of a contract should be resolved in favor of legality"). For the reasons explained below, the scope of §§ 8.3 and 8.4 must be limited to accepting creditors if these provisions are to be given "reasonable, lawful, and effective meaning." Restatement, Second, Contracts § 203(a).

1. Consistency with the Code

As noted, § 1123(b)(6) requires a finding that the provision in question is "not inconsistent with" the Code. With that requirement in mind, we consider § 524(g).

A product of the Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, § 524(g) outlines the circumstances under which "a court that enters an order confirming a plan of reorganization under chapter 11 may issue . . . an injunction . . . to supplement the injunctive effect of [the debtor's] . . . discharge." 11 U.S.C. § 524(g)(1)(A). This injunction "may bar any action directed against" non-debtor parties to recover certain claims that, under the terms of the plan, are to be paid by a trust. 11 U.S.C. § 524(g)(4)(A)(ii); see 11 U.S.C. § 524(g)(1)(B). Thus it is clear that the relief which would be afforded the Released Parties by §§ 8.3 and 8.4 of the Plan is substantially the same as the relief available under § 524(g). Cf. American Hardwoods, Inc. v. Deutsche Credit Corp., (In re American Hardwoods, Inc.), 885 F.2d 621, 626 (9th Cir. 1989) (rejecting the debtor's "semantic distinction" between "a permanent injunction against the enforcement of a judgment . . . [and a bankruptcy] discharge").

This fundamental sameness is significant because § 524(g) spells out very detailed requirements which must be met before a "supplemental injunction" can issue. See 11 U.S.C. § 524(g)(2)(B). Those requirements obviously are not satisfied here. Yet there clearly is no conflict with § 524(g) if the reach of §§ 8.3 and 8.4 is limited to accepting creditors because § 524(g) describes the conditions which must be met before an unwilling creditor can be enjoined from pursuing non-debtor parties. It does not by its terms preclude a creditor from agreeing to forgo its right of recovery against such parties. And since those creditors who accepted the Plan have in substance done just that, see infra p. 29-30, §§ 8.3/8.4 do not contravene § 524(g) if narrowly construed. Cf. In re Arrowmill Dev. Corp., 211 B.R. 497, 506 (Bankr.D.N.J. 1997) ("A voluntary, consensual release is not a discharge in bankruptcy."); Judith R. Starr, Bankruptcy Court Jurisdiction to Release Insiders from Creditor Claims in Corporate Reorganizations, 9 Bankr. Dev. J. 485, 487 (1993) ("A discharge is an involuntary release of creditor claims against an entity (both asserted and unasserted) enforced by the court." (emphasis added)).

On the other hand, a broad construction of §§ 8.3 and 8.4 would seem to be at odds with § 524(g). After all, confirmation of a plan so construed would mean that the Proponents were able to obtain the (non-consensual) "supplemental injunction" which § 524(g) permits, without satisfying that statute's prerequisites. Ordinarily, courts would reject this as a blatant attempt to circumvent the statute. Cf., e.g., Moran v. Aetna Life Ins. Co., 872 F.2d 296, 301 (9th Cir. 1989) ("Congress has expressly limited the persons who may be sued under [29 U.S.C.] section 1132(c). We cannot make an end run around the statute by creating an additional class of persons liable. . . .").

It seems, however, that we are not dealing with an "ordinary" statute. Along with § 524(g), Congress enacted a "Rule of Construction" which states that "[n]othing in [§ 524(g)] . . . shall be construed to modify, impair, or supersede any other authority the court has to issue injunctions in connection with an order confirming a plan of reorganization." Pub.L. 103-394 § 111(b) (uncodified). The legislative history sheds light on this rather odd rule: Section 111(b) . . . make[s] clear that the special rule being devised for the asbestos claim trust/injunction mechanism is not intended to alter any authority bankruptcy courts may already have to issue injunctions in connection with a plan [of] reorganization. Indeed, [asbestos suppliers] Johns-Manville and UNR firmly believe that the court in their cases had full authority to approve the trust/injunction mechanism. And other debtors in other industries are reportedly beginning to experiment with similar mechanisms. The Committee expresses no opinion as to how much authority a bankruptcy court may generally have under its traditional equitable powers to issue an enforceable injunction of this kind. The Committee has decided to provide explicit authority in the asbestos area because of the singular cumulative magnitude of the claims involved. How the new statutory mechanism works in the asbestos area may help the Committee judge whether the concept should be extended into other areas.

Vol. E., Collier on Bankruptcy, at App. Pt. 9-78 (reprinting legislative history pertaining to the 1994 Code amendments).

Thus the rule "was apparently intended to prevent a negative implication from being drawn from the fact that the amendments deal only with asbestos-related cases." Id. Vol. 4, at 6524.07[2]. So while the text of § 524(g) indicates that the statute governs all chapter 11 reorganizations, it seems that the congressional "Rule of Construction" obliges us to regard § 524(g) as irrelevant to non-asbestos cases. See P. Meltzer, Getting Out of Jail Free: Can the Bankruptcy Plan Process Be Used to Release Nondebtor Parties?, 71 Am. Bankr. L.J. 1, 31 (Winter, 1997) ("Getting Out of Jail") ("In view of the [Rule of Construction] . . ., it can certainly be argued that the enactment of § . . . 524(g) . . . provides no guidance as to issues not involving asbestos liability. . . ."). On the strength of the rule, then, we conclude that the Plan is not inconsistent with § 524(g) even if §§ 8.3 and 8.4 apply to non-accepting creditors. Whether broadly or narrowly construed, §§ 8.3 and 8.4 do not run afoul of § 524(e). This statute provides that, with an exception not relevant here, the "discharge of a 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). Some courts assert that § 524(e) prohibits judicial extension of the discharge to non-debtor parties. See, e.g., Resorts Int'l, Inc. v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394, 1401 (9th Cir. 1995); In re Future Energy Corp., 83 B.R. 470, 486 (Bankr.S.D.Ohio 1988).

Support for this assertion is provided by § 524(g), which as indicated earlier allows for entry of what amounts to a discharge of asbestos-related claims against a non-debtor. The Code informs us that such a discharge may enter "[n]otwithstanding the provisions of section 524(e)." 11 U.S.C. § 524(g)(4)(A)(ii). This clause suggests that, except as authorized by § 524(g), a non-debtor discharge is precluded by § 524(e).

We believe, however, that the cases cited read too much into § 524(e). This statute simply provides in effect that a third party's liability is not discharged by virtue of a discharge of the debtor's liability. It does not by its terms preclude a court from discharging the liability of a third party. The better view, then, is that entry of a non-debtor injunction — regardless of whether it is consensual — is not incompatible with § 524(e). See, e.g., In re Specialty Equip. Cos., 3 F.3d 1043, 1045-47 (7th Cir. 1993); In re Digital Impact, 223 B.R. 1, 10 (Bankr.N.D.Okla. 1998); In re West Coast Video Enters., 174 B.R. 906, 910-11 (Bankr.E.D.Pa. 1994); In re Heron, Burchette, Ruckert Rothwell, 148 B.R. 660, 687 (Bankr.D.D.C. 1992). Section 524(g)'s "notwithstanding" clause is therefore unnecessary, and probably reflects nothing more than an excess of caution on the part of its drafters. Cf. Western Union Tel. Co. v. FCC, 665 F.2d 1126, 1138 (D.C. Cir. 1981) ("Congress may have added the proviso merely [for] . . . clarif[ication]. . . . It is true that such a proviso was not absolutely necessary, but clarifying language is never absolutely necessary.").

For the reasons stated, neither § 524(e) nor § 524(g) precludes a court from granting non-debtor discharges. And there is no other Code provision which speaks to the issue. Accordingly, we conclude that §§ 8.3 and 8.4 are not inconsistent with the Code even if they apply to creditors who did not accept the Plan. But as explained in Part 2 below, these provisions are inconsistent with other law if they encompass non-accepting creditors.

Of course, preconfirmation claims against the Debtor are discharged in any event. See 11 U.S.C. § 1141 (d)(1); Plan § 8.1. Thus, insofar as the waiver/release pertains to such claims, it is not just compatible with the Code; it is rendered superfluous by it.

2. Compliance With Non-Bankruptcy Law

We could not confirm the Plan unless § 8.3 is "appropriate" for purposes of § 1123(b)(6). See, e.g., State of Maryland v. Antonelli Creditors' Liquidating Trust, 123 F.3d 777, 785 (4th Cir. 1997). In essence, then, "propriety" turns on whether these provisions are compatible with non-Code law. See Energy Resources, 495 U.S. at 550 ("Even if consistent with the Code, . . . a bankruptcy court order might be inappropriate if it conflicted with another law that should have been taken into consideration in the exercise of the court's discretion.") As will be explained, a Plan provision which would require the Court to "deem" that non-accepting creditors have released their claims is contrary to basic legal principles, and is therefore inappropriate. The verb "deem" is often used to establish what amounts to a legal fiction. See generally Black's Law Dictionary (7th ed. 1999) ("[D]eem" . . . [means t]o treat (something) as if (1) it were really something else, or (2) it has qualities that it doesn't have"). But a non-fact cannot properly be transformed into a fact simply to suit a litigant's wishes. Rather, there has to be some foundation for pretending that which is not, is (or vice versa): [W]hen we engage in a fiction, we redefine reality to comport with existing law as a method of changing the law to meet new realities. . . . This method of adapting the law to changing circumstances and perceptions is saved from absurdity by its underlying rationality. . . . [W]hen used properly the legal fiction is a rule of law embodying an unconcealed falsehood at one level and a deeper truth at another more important level. The falsehood is often made necessary because of the pre-existing structure of the law, and is justified (if it is justified) by the deeper underlying truth contained within the falsehood.

John A. Miller, Liars Should Have Good Memories: Legal Fictions and the Tax Code, 64 U. Colo. L. Rev. 1, 26 n. 109 (1993) (emphasis added). See also Pettibone Corp. v. Easley, 935 F.2d 120, 123 (7th Cir. 1991) ("Even legal fictions have their limits.").

Such a "foundation" exists insofar as accepting creditors are concerned. By voting in favor of the Plan, these creditors have manifested an intention to accept the rights granted to them under the terms of the Plan in lieu of whatever rights they may have against the Released Parties. See Specialty Equip., 3 F.3d at 1047 ("[A] consensual release . . . binds only those creditors voting in favor of the plan of reorganization."); In re Zenith Electronics Corp., 241 B.R. 92, 111 (Bankr.D.Del. 1999) (A release of third parties "cannot be accomplished without the affirmative agreement of the creditor affected."); West Coast Video, 174 B.R. at 911 ("[E]ach creditor bound by the terms of the release must individually affirm same, either with a vote in favor of a plan including such a provision, or otherwise."). But see, e.g., Star Phoenix Mining Co. v. West One Bank, 147 F.3d 1145, 1147 (9th Cir. 1998) ("[A] creditor's approval of the plan cannot be deemed an act of assent having significance beyond the confines of the bankruptcy proceedings." (quoting In re Sandy Ridge Dev. Corp., 881 F.2d 1346, 1351 (5th Cir. 1989), which was in turn quoting Union Carbide Corp. v. Newboles, 686 F.2d 593, 595 (7th Cir. 1982) (per curiam), overruled by Specialty Equip., 3 F.3d at 1045-47); Arrowmill Dev., 211 B.R. at 507 ("[I]t is not enough [to establish the validity of a creditor's release in favor of a non-debtor party] for [the] . . . creditor . . . to simply vote `yes' as to a plan."). So even though there has been no formal release or explicit waiver, there is a reasonable basis for "deeming" otherwise. With respect to non-accepting creditors, however, that basis is lacking. Certainly a creditor who affirmatively voted to reject the Plan cannot fairly be characterized as having "voluntarily" relinquished her rights against the Released Parties. See generally Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 92 (1934) ("[L]egal fictions have an appropriate place in the administration of the law when they are required by the demands of convenience and justice." (emphasis added)); In re Chalasani, 92 F.3d 1300, 1303 (2d Cir. 1996) ("A legal fiction assumes as fact, for purposes of justice, that which does not exist." (emphasis added)). And even the inaction of those creditors who cast no vote on the Plan is too ambiguous to warrant the inference that substantive rights have been surrendered. See Arrowmill Dev., 211 B.R. at 507 (The "creditor . . . did not vote for the plan and clearly did not manifest any assent to have his claim against [the non-debtor party] . . . released."); see generally, e.g., People's Bank Trust Co. of Madison County v. Aetna Cas. Surety Co., 113 F.3d 629, 638 (6th Cir. 1997) ("Kentucky cases have recognized the rule found in other states that a finding of implied waiver requires a `clear, unequivocal, and decisive act showing an intention to relinquish the right.'" (citations omitted)); United States v. Amwest Surety Ins. Co., 54 F.3d 601, 602-03 (9th Cir. 1995) ("An implied waiver of rights will be found where there is `clear, decisive and unequivocal' conduct which indicates a purpose to waive the legal rights involved." (citation omitted)). Put simply, then, non-bankruptcy law recognizes a basis for "deeming" only that accepting creditors have agreed to give up their rights against the Released Parties. The extension of this "legal fiction" to creditors who did not accept the Plan would be unreasonable and, as to creditors who affirmatively rejected the Plan, patently absurd and unjust. It is also unlawful, and therefore of no effect. See Specialty Equip., 3 F.3d at 1047 (quoted supra p. 29); West Coast Video, 174 B.R. at 911 ("[T]he releases of non-debtors included in the Plan cannot be enforced against the Movants. Clearly, the Movants did not cast a vote in favor of the Plan or otherwise affirmatively agree to release the Debtor's principals in connection with this case."). This whole issue of consent would arguably be moot if we had the power to enjoin creditors (against their will) from pursuing claims against the Released Parties. And there is support for the view that courts have such authority under § 105(a), which states: "The court may issue any order . . . that is necessary or appropriate to carry out the provisions of th[e Code]. . . ." 11 U.S.C. § 105(a). See, e.g., Munford, Inc. v. Munford (In re Munford, Inc.), 97 F.3d 449, 454-55 (11th Cir. 1996); Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694, 701-02 (4th Cir. 1989) ("Robins I"); In re Johns-Manville Corp., 837 F.2d 89, 93-94 (2d Cir. 1988); In re Optical Technologies, Inc., 216 B.R. 989, 994 (Bankr.M.D.Fla. 1997); In re Master Mortgage Inv. Fund, 168 B.R. 930, 934 (Bankr.W.D.Mo. 1994); Heron, 148 B.R. at 685. It is clear from the text of § 105(a), however, that a court's authority thereunder must derive from whatever (other) Code provision the § 105(a) order is designed to "carry out." As explained by the Fifth Circuit, § 105(a) "does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity." United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986) (footnote omitted). See also In re Richard Potasky Jeweler, Inc., 222 B.R. 816, 825 (S.D.Ohio 1998) ("[Section] 105, standing alone, cannot serve as a source of authority for granting a permanent injunction [barring creditors from pursuing claims against a non-debtor]."); In re Sybaris Clubs Int'l, Inc., 189 B.R. 152, 155 (Bankr.N.D.Ill. 1995) ("Section 105 . . . is merely a vehicle to carry out the otherwise provided powers of the bankruptcy court."); Meltzer, Getting Out of Jail, 71 Am. Bankr. L.J. at 18 ("[Section] 105(a) . . . should be construed . . . narrowly, namely as a limited grant of power to bankruptcy judges to take only those actions which are in furtherance of a specific provision already in the Code."). The Supreme Court implicitly recognized the ancillary nature of § 105(a), stating that "whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code." Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988).

Thus if there is authority to in effect grant a discharge of debts owed by a non-debtor party, it must be found not in § 105(a) but elsewhere. This search has led courts to various Code provisions. See, e.g., Johns-Manville, 837 F.2d at 93-94 ( 11 U.S.C. § 363(f)); Potasky, 222 B.R. at 826 n. 16 and accompanying text ( 11 U.S.C. § 1123(b)(3)(A) and/or 1141(c)). However, none of these provisions is on point — an obvious fact which is only reinforced by comparison with § 524(g), a statute which is on point. See Vol. E., Collier on Bankruptcy, at App. Pt. 9-78 (reprinting legislative history pertaining to § 524(g)) ("The Committee expresses no opinion as to how much authority a bankruptcy court may generally have under its traditional equitable powers to issue an enforceable injunction of this kind. . . . How the new statutory mechanism [established by § 524(g)] works in the asbestos area may help the Committee judge whether the concept should be extended into other areas." (emphasis added)); cf. City of Chicago v. Environmental Defense Fund, 511 U.S. 328, 338 (1994) ("[T]his [statutory] provision `shows that Congress knew how to draft a waste stream exemption . . . when it wanted to.'" (citation omitted)).

A non-statutory theory advanced in support of this kind of injunction is based on "the ancient but very much alive doctrine of marshalling of assets." Robins I, 880 F.2d at 701. The Fourth Circuit explained: "A creditor has no right to choose which of two funds will pay his claim. The 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." Id. This theory is flawed on two levels. Assuming for the sake of argument that the non-debtor injunction really is "analogous" to a marshaling injunction, id., then restrictions associated with use of the latter form of injunction would presumably also be applicable to the former. One such restriction is that the party to be enjoined cannot be prejudiced by the injunction. See In re Atlas Commercial Floors, Inc., 125 B.R. 185, 188 (Bankr.E.D.Mich. 1991) and cases cited therein. Yet where liability is capped, as in this case, see Plan § 6.11.3; Amended Joint Disclosure Statement 6 1.1(E), the enjoined creditors are prejudiced because, as the Nevada Claimants perhaps irrationally fear, there is some, albeit slight, possibility that they will not obtain full recovery from the Reorganized Debtor.

It could be argued in response that this incremental risk of less-than-full recovery is insignificant. See supra pp. 8-13. But whatever the level of risk, the equitable solution (and marshaling, of course, is grounded in equity) would be to grant only a provisional injunction — one which terminates if and when the "primary" fund is exhausted. Indeed, that is precisely what a marshaling injunction would do. See C.T. Dev. Corp. v. Barnes (In re Oxford Dev. Ltd.), 67 F.3d 683, 687 (8th Cir. 1995) (Under the "federal marshaling doctrine," the enjoined party "may be required to exhaust the fund available to him exclusively before proceeding against the [second] fund." (emphasis added; citation omitted)). An injunction which permanently bars creditors from seeking compensation from the "secondary" payment source is neither equitable nor consistent with the objectives of a marshaling injunction.

As indicated, the foregoing criticism is based on the assumption that a marshaling injunction serves as a suitable analogy to the non-debtor injunction at issue in this and similar cases. That assumption, however, does not withstand analysis.

Stated more fully, "[t]he equitable doctrine of marshalling . . . rests upon the principle that a creditor having two funds to satisfy his debt, may not by his application of them to his demand, defeat another creditor, who may resort to only one of the funds." Meyer v. United States, 375 U.S. 233, 236 (1963) (emphasis added) (citation omitted). That is manifestly not the purpose of a non-debtor injunction: Courts issuing such an injunction are not doing so to protect a subset of creditors whose only recourse is against the non-debtor obligor.

In an apparent attempt to supply the element of creditor protection, and thereby shore up its marshaling-doctrine analogy, the Fourth Circuit explained that the non-debtor injunction serves to prevent recalcitrant creditors from "interfer[ing] with the reorganization and thus with all the other creditors." Robins I, 880 F.2d at 702. This objective may be commendable, but of course it is not even remotely similar to the policy underlying the marshaling doctrine. Like Robins I, other courts have defended the non-debtor injunction as a means of facilitating the plan negotiation/confirmation process. See, e.g., Johns-Manville, 837 F.2d at 93-94; see generally Ralph Brubaker, Bankruptcy Injunctions and Complex Litigation: A Critical Reappraisal of Non-Debtor Releases in Chapter 11 Reorganizations ("Bankruptcy Injunctions"), 1997 U. Ill. L. Rev. 959, 1009 (1997) ("[T]he paramount concern of courts that approve non-debtor releases is a stated policy favoring reorganizations."). But even if one accepts the premise that confirmation really is the "congressionally preferred" outcome in chapter 11, it does not follow that a court has the authority to invent equitable solutions designed to achieve that objective. Cf. Meltzer, Getting Out of Jail, 11 Am. Bankr. L.J. at 18 ("[T]here is no mandate in the Code telling bankruptcy judges to do whatever is necessary to confirm plans, or giving them freewheeling authority to try and maximize the number of Chapter 11 cases that result in confirmed plans.").

To the contrary, the circumstances under which a federal court can "play the equity card" are precisely (and rather narrowly) defined:

[E]quity is flexible; but in the federal system, at least, that flexibility is confined within the broad boundaries of traditional equitable relief. To accord a type of relief that has never been available before . . . is to invoke a "default rule," [citation to dissenting opinion] . . ., not of flexibility but of omnipotence. When there are indeed new conditions that might call for a wrenching departure from past practice, Congress is in a much better position than we both to perceive them and to design the appropriate remedy.

. . .

[R]esolving . . . [the arguments for and against recognition of the equitable relief at issue] in this forum is incompatible with the democratic and self-deprecating judgment we have long since made: that the equitable powers conferred by the Judiciary Act of 1789 did not include the power to create remedies previously unknown to equity jurisprudence.

. . .

"If . . . a Court of Equity in England did possess the unbounded jurisdiction, which has been thus generally ascribed to it, of correcting, controlling, moderating, and even superceding [sic] the law, and of enforcing all the rights, as well as the charities, arising from natural law and justice, and of freeing itself from all regard to former rules and precedents, it would be the most gigantic in its sway, and the most formidable instrument of arbitrary power, that could well be devised. It would literally place the whole rights and property of the community under the arbitrary will of the Judge, acting, if you please, arbitrio boni judicis, and it may be, ex aequo et bono, according to his own notions and conscience; but still acting with a despotic and sovereign authority."

Grupo Mexicano de Desarrollo v. Alliance Bond Fund, Inc., 527 U.S. 308, 144 L.Ed.2d 319, 333, 339 (1999) (emphasis added; quoting J. Story, 1 Commentaries on Equity Jurisprudence § 19, at 21).

Grupo Mexicano distinguished one of the Court's prior decisions on the grounds that the plaintiff was seeking equitable (rather than legal) relief, and another of its decisions because a public (rather than strictly private) interest was implicated. See id. at 335. On the basis of these distinctions, it could be argued that bankruptcy courts can be more "creative" in fashioning equitable remedies than could a federal court presiding over a legal, private dispute. See generally Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 71 (1982) (plurality opinion) ("[T]he restructuring of debtor-creditor relations, which is at the core of the federal bankruptcy power, . . . may well be a `public right'. . . ."); see also, e.g., In re Jarvis, 53 F.3d 416, 419 (1st Cir. 1995) ("Bankruptcy courts . . . are courts of equity, traditionally governed by equitable principles.").

That proposition, however, cannot easily be reconciled with pronouncements of the Supreme Court and Sixth Circuit on the subject of a bankruptcy judge's equitable discretion. See Ahlers, 485 U.S. at 206 (quoted supra p. 32); In re Granger Garage, Inc., 921 F.2d 74, 77 (6th Cir. 1990) (paraphrasing Ahlers and adding that "[a] bankruptcy court does not have unfettered equity powers"). Therefore, unless and until either of these courts rules otherwise, we assume that the mode of analysis in Grupo Mexicano applies with equal force in the bankruptcy realm.

In our view, the ground rules laid down by Grupo Mexicano preclude the granting of a non-debtor injunction. Absent creditor consent, such an injunction is tantamount to forcing that creditor to accept terms that she considers to be unacceptable. See Brubaker, Bankruptcy Injunctions, 1997 U. Ill. L. Rev. at 966 (describing this injunction as a "nonconsensual settlement"). It is an "extraordinary" remedy, one which is "unheard of in any other context." Id. By no means, then, can such an injunction be described as a form of "traditional equitable relief." Grupo Mexicano, 144 L.Ed.2d at 333. Resort to this "remedy" therefore constitutes the exercise of a power which federal courts simply do not possess. See id. at 339-40; see also Brubaker, Bankruptcy Injunctions, 1997 U. Ill. L. Rev. at 1010 (The proposition that "a bankruptcy judge can unilaterally override legitimate policies embodied in nonbankruptcy law that would place liability upon the released non-debtors . . . is hard to square with the inherent limitations of the judicial process and Congress' primary role in making such policy determinations in the bankruptcy context.").

For these reasons, we conclude that a bankruptcy court has no authority, statutory or otherwise, to issue a non-consensual permanent inunction in favor of non-debtor parties. Thus the absence of legitimate grounds for inferring that a creditor has consented to entry of such an order cannot be dismissed as "harmless error."

3. Sections 8.3 and 8.4 are Permissible Because They Apply Only to Accepting Creditors

As explained above, §§ 8.3 and 8.4 are not inconsistent with § 1123(b)(6) only if construed as applying solely to creditors who voted to accept the Plan. A broader construction of these provisions, besides contravening § 1123(b)(6), would produce results which are at best unreasonable (if applied to nonvoting creditors) and at worst absurd and unjust (if applied to creditors who actively opposed the Plan). These facts counsel against a broad construction of §§ 8.3 and 8.4.

Of course, we could not reject such a construction if it were plain from the terms of the Plan. Under such circumstances, we would have no choice but to deny confirmation of the Plan. See 11 U.S.C. § 1123(b)(6), 1129(a)(1); see also supra Part 2. It is not clear, however, that §§ 8.3 and 8.4 apply without distinction to all persons holding claims of the type described therein. Indeed, it is entirely plausible that the provisions relate solely to those persons who accepted the Plan. See supra pp. 21-24. The latter construction is the more sensible, and the one which we adopt. So construed, §§ 8.3 and 8.4 are "appropriate" and "not inconsistent with" the Code. 11 U.S.C. § 1123(b)(6). See supra Parts 1 and 2. Therefore, inclusion of these provisions in the Plan does not constitute grounds for denying confirmation.

4. Permanent Injunctive Relief

As indicated earlier, holders of claims against the Released Parties are to be "permanently enjoined" from collecting those claims. Plan § 8.4. The basis for this relief is the "deemed" waiver or release of such claims pursuant to § 8.3. See id. Thus the reach of § 8.4 is coextensive with § 8.3 — both provisions apply only to those creditors who accepted the Plan. Since creditors who accepted the Plan have essentially agreed to relinquish their claims against the Released Parties, one could certainly question the need for an injunction. See generally, e.g., Kallstrom v. City of Columbus, 136 F.3d 1055, 1068 (6th Cir. 1998) ("[T]o obtain . . . a . . . permanent injunction, plaintiffs must demonstrate that failure to issue the injunction is likely to result in irreparable harm."). But as these creditors also implicitly consented to the granting of injunctive relief, we assume that they have waived whatever arguments might be made in opposition to such relief.

5. Postscript

The Court is mindful of the fact that the release/injunction provisions are perceived by the Debtor and affiliated parties as being of critical importance. In that regard, it is well to bear in mind that, by their own voluntary act, the overwhelming majority of personal-injury claimants are barred from bringing or pursuing claims against the Released Parties.

Nor is there any reason to assume that the Released Parties will be unduly burdened by those claims which are not barred. For one thing, the absolute number of such claims is small in comparison to what the Debtor and the Released Parties faced pre-petition. Moreover, the vast majority of non-barred claims are already pending before Judge Hood in the Eastern District of Michigan. From a practical standpoint, the consolidation of these claims into a single forum greatly simplifies the task of defending against them. And if Judge Hood sees fit, trial could be deferred until Litigation-Facility proceedings have concluded, thereby providing the Released Parties with the functional equivalent of a temporary (but potentially very lengthy) injunction. Alternatively, actual injunctive relief may be warranted if administration of the Plan is unduly burdened by continued prosecution of the non-barred claims. Cf. Lindsay v. O'Brien, Tanski, Tanzer and Young Health Care Providers of Connecticut (In re Dow Corning Corp.), 86 F.3d 482, 494 (6th Cir. 1996) ("The potential for Dow Corning's being held liable to the non-debtors in claims for contribution and indemnification . . . establish[es] a conceivable impact on the estate in bankruptcy. Claims for indemnification and contribution . . . obviously would affect the size of the estate and the length of time the bankruptcy proceedings will be pending, as well as Dow Corning's ability to resolve its liabilities and proceed with reorganization."). On the subject of injunctions, it should also be remembered that the highly-prized (or much-dreaded) adjective "permanent" is something of a misnomer. As the Eight Circuit noted, "[i]t is well settled that a district court retains authority under . . . [F.R.Civ.P.] 60(b)(5) to modify or terminate a continuing, permanent injunction if the injunction has become illegal or changed circumstances have caused it to operate unjustly." Association for Retarded Citizens of North Dakota v. Sinner, 942 F.2d 1235, 1239 (8th Cir. 1991). See also In re Hendrix, 986 F.2d 195, 198 (7th Cir. 1993) ("[A] court can modify an injunction that it has entered whenever the principles of equity require it do so."); cf. King-Seeley Thermos Co. v. Aladdin Indus., Inc., 418 F.2d 31, 35 (2d Cir. 1969) ("[T]here is power to modify an injunction even in the absence of changed conditions. . . ."). So, even if this Court had granted the Proponents an injunction against non-consenting creditors, the Court would retain the discretion to terminate the injunction so that involuntarily-shortchanged creditors can recover any deficiency from one or more of the Released Parties if the Litigation Facility proved to be inadequately funded. See United States v. Swift Co., 286 U.S. 106, 114 (1932) (Even a consensual injunction may be "modif[ied] . . . in adaptation to changed circumstances."). And if this were to happen, whatever incremental benefit the Released Parties would have derived from an all-encompassing injunction would of course be nullified.

Finally, we point out that we previously made factual findings which some courts regard as pertinent to the validity of a non-debtor injunction. See Findings of Fact and Conclusions of Law Regarding Confirmation of the Joint Plan of Reorganization, at 66 21-25. See In re A.H. Robins Co., 880 F.2d 709, 749 (4th Cir. 1989); Robins I, 880 F.2d at 702; Johns-Manville, 837 F.2d at 94; Drexel Burnham Lambert, 960 F.2d at 293; Master Mortgage, 168 B.R. at 935; Heron, 148 B.R. at 685, 689. doing so is to obviate the need for remand in the event we are reversed on appeal with regard to the scope and permissibility of the release/injunction provisions. Another alternative is present. This Court demurs from entry of a broader injunction solely out of a belief that the law will not permit it. Judge Hood may be persuaded to withdraw the reference as to this issue and decide the matter differently. In such a case, the broader injunction may issue from the District Court as an original matter.

According to the cases upon which the Proponents rely, a court may enter a permanent post-confirmation injunction if these factors exist: (i) the third party has made an important contribution to the reorganization; (ii) the release and injunction are essential or important to the reorganization; (iii) a large majority of the impacted creditors has approved the plan containing the release and injunction; (iv) there is a close connection between the claims against the third party and the claims against the debtor; and (v) the plan provides for payment of substantially all of the claims affected by the release and injunction. Given all that precedes this, though, it is obvious that this Court believes that the factors more-or-less invented by these courts are irrelevant. If a court has no power to grant a form of relief, there are no factors which can justify it. Moreover, a couple of these findings seem largely pointless.
One, the "important-contribution" factor, see Findings of Fact at 6 21, is too vague to be useful. It also begs the more appropriate question, which is whether the "contribution . . . approximate[s] the value of the released claims." Brubaker, Bankruptcy Injunctions, 1997 U. Ill. L. Rev. at 992.
The other dubious factor goes to whether the non-debtor injunction is "important" to the reorganization effort. Memorandum of Dow Corning Corporation and the Official Committee of Tort Claimants in Support of Confirmation and in Response to Objections to Confirmation, filed June 1, 1999, at 3 (citing Drexel Burnham Lambert, 960 F.2d at 293). Again, this adjective is virtually meaningless because it can be so easily manipulated. Courts have unsurprisingly already slid down the slope to liberalize this "standard." See Brubaker, Bankruptcy Injunctions, 1997 U. Ill. L. Rev. at 1021-22 nn. 226-227. Indeed, "[i]f the reorganization policy is reduced to a simple estate-maximizing principle, then all that is required for approval of non-debtor releases is some contribution to the estate by the released non-debtor." Id. at 1019. A better formulation, and one which this Court adopted, see Findings of Fact at 6 22, would consider whether the injunction is "essential to reorganization." Master Mortgage, 168 B.R. at 935 (emphasis added).

B. Objections of the Pennsylvania Breast Implant Claimants

Jacqueline M. and Mark S. Toledo and Azure and Gary Verruni, as representatives of a group of claimants they refer to as "the Pennsylvania Claimants," objected to confirmation of the Plan. These objections related to the release provisions referred to above but specifically as they affect the lawsuits of the Pennsylvania Claimants against Pennsylvania physicians and other health care providers.

These objections were timely filed in April. But they were unaccompanied by a brief. On February 18, 1999, the Court had fixed April 26, 1999 as the deadline for the filing of memoranda in support of all objections. See Scheduling Order No. 1 Regarding Confirmation Hearing. The Pennsylvania Claimants filed no pre-trial memorandum at all, and they did not participate at the confirmation hearing. On September 8, 1999, over a month after the close of proofs and closing arguments, the Pennsylvania Claimants filed their "Memorandum of Law of the Pennsylvania Breast Implant Personal Injury Claimants in Support of Objections to Confirmation of the Amended Joint Plan of Reorganization." Clearly, this brief was untimely, and ought to be disregarded. One could also conclude that their failure to prosecute their objections was tantamount to a waiver. But their memorandum argued nothing new or different from what they asserted originally. And inasmuch as the arguments are unavailing in any event, we will consider them now.

It is difficult to cubbyhole their objections. In one breath they seem to be making an argument similar to that of the Nevada Claimants — that they are special because they have rights that personal injury claimants in other states lack. See Memorandum of Law of the Pennsylvania Breast Implant Personal Injury Claimants at 11 ("Pennsylvania law on informed consent differs significantly from those states which base their informed consent claims on negligence principles."). But they do not argue that the Plan misclassifies their claims. Furthermore, the memorandum fails to show that none of the other 49+ American jurisdictions shares Pennsylvania's allegedly peculiar notion of implied consent.

In the next breath, the Pennsylvania Claimants assert that the Plan's treatment in §§ 1.101, 8.3 and 8.5 "impermissibly and unfairly limits the rights of the Pennsylvania

Section 1.101 as defined in the Amended Joint Plan:

"Malpractice Claims" means Claims that are not affected by the releases of Settling Physicians and Settling Health Care Providers under the Plan. Solely for purposes of Section 8.3 and 8.5 of the Plan, "Malpractice Claim" shall have the meaning given to that term by applicable non-bankruptcy law, except that it shall exclude those Claims by Personal Injury Claimants against Settling Physicians and Settling Health Care Providers that are based on, related to, arising out of, or derived from injuries, illnesses or conditions allegedly resulting from (i) characteristics or alleged characteristics (as defined below) of Breast Implants or Other Products (including component parts thereof), silicone or other implant materials; (ii) failure to warn, make disclosure or provide adequate information to obtain informed consent, regarding the characteristics or alleged characteristics of Breast Implants, Other Products, silicone or other implant materials; or (iii) failure to use an alternative breast implant or other product, or sale, provision, distribution or selection of Breast Implants, Other Products, silicone or other implant materials, where the Claim is based on the characteristics or alleged characteristics of Breast Implants or Other Products. For the sole purpose of interpreting and applying this definition, the following are the "alleged characteristics" of Breast Implants and Other Products.

Section 8.5 of the Amended Joint Plan, in relevant part, says:

Channeling Injunction for Certain Claims. Claims, if any, asserted by Non-Settling Personal Injury Claimants against the Settling Physicians and the Settling Health Care Providers (other than Malpractice Claims) shall be subject to the channeling injunction provisions of this section 8.5 in the event that jurisdiction over such Claims is transferred, as Claims "related to" this Case, to the District Court. If such transfer is not effected, the relief provided in this section is not effective as to Claims that are not transferred, and such Claims shall be resolved by the procedures applicable in the courts where actions based on such Claims have been (or may be) filed. In the event that any such Claims against a Settling Physician or Settling Health Care Provider are transferred to the District Court for liquidation, they shall be subject to the following Claims resolution procedures. . . .

(1) that gel can bleed or leak through the shell of the Breast Implant;

(2) that gel can migrate within the body;

(3) that Breast Implant or Other Product materials will degrade or deteriorate;

(4) that Breast Implants can break or rupture even though they are not subjected to significant trauma, surgical or otherwise;

(5) that Breast Implants impede detection of other diseases, including, without limitation, breast cancer; and

(6) that Breast Implants, Other Products, silicone or other implant materials cause diseases or combinations of conditions, symptoms or injuries, or are otherwise inherently defective.

Notwithstanding any of the foregoing, Malpractice Claims will not exclude claims for any injuries, diseases, illnesses or conditions allegedly resulting from or claimed as an element of damages in connection with (x) leakage or rupture of a Breast Implant or other complication or injury resulting from performance of implant surgery or other medical procedures in breach of the applicable standard of care; (y) express misrepresentation of the risks disclosed in the applicable product inserts; provided, however, nothing herein shall be interpreted to imply that misrepresentation of risks disclosed in applicable product inserts necessarily constitutes a breach of the applicable standard of care or a failure to obtain informed consent; or (z) the implantation of loose silicone gel by the Settling Physician.

Claimants. Although they do not assert that their rights are different than those possessed by citizens of other states, the Pennsylvania Claimants also argue that the Plan impermissibly prejudices their causes of action against Pennsylvania-based Settling Physicians and Settling Health Care Providers for negligent selection of a defective product. In essence, the Pennsylvania Claimants assert that the Plan's provisions for releases of their claims against Settling Physician Claimants is illogical, and there is no "rational basis for their inclusion in the Amended Plan." Memorandum at 21.

Defined at § 1.162 of the Plan as "the Physicians in Class 12 who timely elect to settle their Claims against the Debtor, together with those Physicians who do not timely elect to litigate the allowability of their Claims against the Debtor."

Defined at § 1.159 of the Plan as "the Health Care Providers in Class 13 who timely elect to settle their Claims against the Debtor, together with those Health Care Providers who do not timely elect to litigate the allowability of their claims against the Debtor."

The objection is devoid of citation to any provision of the Bankruptcy Code which is allegedly violated by the parts of the Plan found offensive by the Pennsylvania Claimants. So we are left to guess at what, aside from their simple displeasure with the Plan, the legal issue is. The closest to a legal objection is that the Plan does not satisfy § 1129(a)(1). But, as stated above, those Pennsylvania Claimants who accepted the Plan have also accepted the Plan's terms about releasing claims against Settling Physicians. And, since those Pennsylvania Claimants who rejected the Plan have not released the Settling Physicians, it seems that they have nothing about which to complain.

The Pennsylvania Claimants' assertions that Pennsylvania law is somehow peculiar or idiosyncratic adds nothing to the issue of the validity of the releases or the power of the Court to enforce them by injunction. Accordingly, the Court's more generic comments regarding the scope of the release and injunction provisions suffice.

C. Objections of the Official Committee of Unsecured Creditors 1. Section 502

The U/S CC, objected to confirmation of the Plan on a variety of grounds. This part of the opinion deals solely with the Committee's argument that permitting the Debtor, pursuant to provisions of the Plan, to settle and pay personal injury tort claims without the Court first ruling on the Committee's objections to these claims deprives it of its statutory right to object to claims in violation of § 502. According to the U/S CC this means, says the Committee, that the Plan does not comply with applicable provisions of title 11 and so does not satisfy § 1129(a)(1). Relying on National Boulevard Bank v. Drive-In Dev. Corp. (In re Drive-In Dev. Corp.), 371 F.2d 215, 219 (7th Cir. 1966); Schreibman v. Walter E. Heller Co., 446 F. Supp. 141, 144 (D.P.R.), aff'd sub nom. Las Colinas Dev. Corp. v. Schreibman, 577 F.2d 723 (1st Cir. 1978); In re Charter Co., 68 B.R. 225, 228 (Bankr.M.D.Fla. 1986); and In re Levy, 54 B.R. 805, 807-08 (Bankr.S.D.N.Y. 1985), the Committee asserts that § 502 gives it the right, as a "party in interest," to object to the personal injury claims filed in this case and to have the Court rule on its objections, even though the Debtor, as the debtor-in-possession, filed omnibus objections to these claims upon which it has even moved for summary judgment. As explained below, under the particular circumstances of this case, the U/S CC did not have the right to file objections to the product liability claims in the first place. It, therefore, does not have a right to have the Court rule on those objections before payments are made on these claims. Section 502 provides, in relevant part:

(a) A claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, including a creditor of a general partner in a partnership that is a debtor in a case under chapter 7 of this title, objects.

(b) Except as provided in subsections (e)(2), (f), (g), (h) and (i) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount. . . .

11 U.S.C. § 502(a)-(b).

While the U/S CC is a "party in interest" under § 502 with the right to object to other creditors' claims, it is well-settled that the right nevertheless has limits. Even the cases cited by the U/S CC in support of its position recognize that

[m]ost courts . . . have limited the right of a general creditor to object to the claim of another creditor in certain instances in order to promote a more orderly administration of the estate, i.e., in cases where a trustee has been appointed to represent the interests of all general unsecured creditors.

Charter, 68 B.R. at 227 (citing Schreibman, 446 F. Supp. at 144 ("It is a well settled rule that creditors cannot object to the claims of other creditors in straight bankruptcy proceedings. This is so because in such proceedings it is the duty of the trustee to represent all the creditors and object [to] the allowance of such claims as may be improper. Under such a situation a creditor would lack standing to object to such claims.") (citations omitted); and Drive-in, 371 F.2d at 219 ("The rule requiring that the trustee initially object to the allowance of a claim in ordinary bankruptcies is a procedural rule evolved by the courts. Since the trustee is the representative of the creditors, it is a rule developed for the orderly administration of estates.")). A respected authority on bankruptcy echoes this rule:

There is no doubt that the phrase "parties in interest" in section 502(a) applies to those who have some interest in the assets of the debtor being administered in the case. Under such definition, the debtor's creditors are the primary parties in interest. In fact, the right of a creditor to object to the allowance of another creditor's claim should be undisputed on principle. Yet the needs of orderly and expeditious administration do not permit the full and unfettered exercise of such right . . . [I]t is the trustee who acts as the spokesman for all creditors in discharge of the trustee's duty unless the trustee refuses to take action.

4 Collier on Bankruptcy, 6 502.02[2][d], at 502-15 (emphasis added) (relying in part on Fred Reuping Leather Co. v. Fort Greene Nat'l Bank, 102 F.2d 372, 372-73 (3d Cir. 1939)). The Advisory Committee Note to F. R. Bank. P. 3007, which covers the procedure for objecting to claims, likewise speaks of limiting creditors' role in the claims objection process: While the debtor's other creditors may make objections to the allowance of a claim, the demands of orderly and expeditious administration have led to a recognition that the right to object is generally exercised by the trustee. Pursuant to § 502(a) of the Code, however, any party in interest may object to a claim. But under § 704 the trustee, if any purpose would be served thereby, has the duty to examine proofs of claim and object to improper claims.

Id. at 502-15 n. 17; see also Charter, 68 B.R. at 227; In re Simon, 179 B.R. 1, 7 (Bankr. D. Mass. 1995). ("If every creditor were entitled to challenge the claim of another creditor filed in a particular case, an orderly administration could degrade to chaos.") (citing Norton Bankruptcy Code Pamphlet, Editor's Comment to Fed.R.Bankr.P. 3007 (1994-95)). For this policy reason, most courts, including those cited by the U/S CC, hold that where a trustee is charged with administering a bankruptcy estate, a creditor can object to the claim of another creditor only if, upon demand, the trustee refuses to do so and the court grants the creditor the right to act on behalf of the trustee. See, e.g., Fred Reuping, 102 F.2d at 372-73; Charter, 68 B.R. at 227; Simon, 179 B.R. at 6-7; Kowal v. Malkemus (In re Thompson), 965 F.2d 1136, 1147 (5th Cir. 1992). Cf., e.g. Canadian Pacific Forest Prods. Ltd. v. J.D. Irving, Ltd. (In re Gibson Group, Inc), 66 F.3d 1436 (6th Cir. 1995) (A creditor has only derivative standing to pursue a preference or fraudulent transfer action.); Louisiana World Exposition v. Federal Insurance Co., 858 F.2d 233, 247 (5th Cir. 1988) (requiring a creditors' committee to show that the claim is colorable, that the debtor-in-possession refused unjustifiably to pursue the claim, and that the committee first received leave from the bankruptcy court to sue). See also In re Valley Park, Inc., 217 B.R. 864, 866-69 (D.Mont. 1998); Unsecured Creditors Committee v. Farmers Savings Bank (In re Toledo Equipment Co.), 35 B.R. 315, 320 (Bankr.N.D.Ohio 1983); In re Colfor, Inc., No. 96-60306, 1998 WL 70718, at *1 (Bankr.N.D.Ohio Jan. 5, 1998); Official Committee of Unsecured Creditors of the Florida Group, Inc. v. First Union National Bank of Florida (In re Florida Group, Inc.), 124 B.R. 923, 924-25 (Bankr.M.D.Fla. 1991); Chemical Separations Corp. v. Foster Wheeler Corp. (In re Chemical Separations Corp.), 32 B.R. 816, 818 (Bankr.E.D.Tenn. 1983). The result is, of course, the same in a chapter 11 case where the debtor fills the role of trustee. 11 U.S.C. § 1107(a).

Therefore, despite §§ 1109(b) and 1103(c)(5), for the U/S CC to have the right to object to the breast-implant claims, it had to have made a demand of the Debtor to object to these claims which the Debtor refused. That is clearly not the case here. The Debtor filed an omnibus objection to the breast-implant claims on its own initiative. Later, the U/S CC filed its own objection to these same claims on the same basis. The Plan expressly preserves these objections. Under these circumstances, no useful purpose would be served in allowing the U/S CC to pursue its own objections to these claims. Conversely, allowing such a course of action would waste judicial resources and delay administration of the bankruptcy estate to its and its creditors' detriment with no corresponding benefit to the estate. This would undermine the articulated policy concern of an orderly and efficacious administration of the bankruptcy estate. Accordingly, the Court holds that the U/S CC's objections to the personal injury claims are not properly before it, and require no further action. As a result, this objection to confirmation is overruled.

The U/S CC also argues that "given the structure of the Plan, no court will ever pass on whether these "settlements" satisfy the requirements of Rule 9019. And according to the Committee, this is contrary to established law that (i) settlements of claims must be evaluated by the court under the "fair and equitable" standard embodied in Rule 9019, whether the settlement is separate from or incorporated into a plan of reorganization; (ii) the parties proposing the settlement bear the burden to establish that the Rule 9019 standards are met; (iii) the court has an independent obligation to review the proposed settlement and exercise independent judgment as to whether it meets the applicable standards; and (iv) the settlement must be "fair and equitable" for nonsettling parties. Memorandum of U/S CC in Support of Its Objections to Confirmation, at 25.

The Committee asserts, incorrectly, that a bankruptcy court must independently review each settlement contained within a plan of reorganization for fairness and equity. Its sole support for this argument is Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424-54 (1968). That case is not on point. Although TMT Trailer involved the approval of a compromise which formed part of a reorganization plan, the statute then in effect (Chapter X of the Bankruptcy Act, 11 U.S.C. § 101, et seq., repealed) required the bankruptcy court to determine that the plan was fair and equitable in every case. Under the current chapter 11, the requirement that a court examine the fairness and equity of each particular settlement bound up in a reorganization plan has been omitted. Under the Code, the court looks into the fairness and equity of a plan only when a class of claims or interests has rejected it. See 11 U.S.C. § 1129(b). Inasmuch as Class 4 has rejected the Plan, it is this Court's duty to examine whether the Plan's treatment overall is fair and equitable as to claims in that class. This we have done in a separate opinion. Accordingly, the Committee's objections that the Plan improperly permits a settlement of personal injury claims without a separate fair-and-equitable determination is overruled.

2. Delay in Paying Claims

The U/S CC also argued that the Plan does not comply with the applicable provisions of the Bankruptcy Code because of the "potential for impermissible delays in distributions [to Class 4 claimants] under [the] Plan." Objections of the Official Committee of Unsecured Creditors Under § 1129(a) of the Bankruptcy Code to Confirmation of the Amended Joint Plan of Reorganization at 11. However, the U/S CC's memorandum in support of its objections lacked any argument on this issue. Accordingly, for the reasons noted previously, we conclude that the Committee waived its right to challenge confirmation based on this issue. Once again, though, even were we to consider the objection on the merits, the result would not change. Section 1129(a)(1) requires that the Plan comply with all applicable Code provisions. Therefore, to state a cognizable violation of § 1129(a)(1), the U/S CC must delineate a provision of the Bankruptcy Code with which the Plan fails to comply. The U/S CC has failed to do so. The U/S CC does not specify, (and the Court is unaware of), any Bankruptcy Code provision that is violated by plan terms that require distributions only on allowed claims and that permit the withholding of payments on claims subject to a legitimate dispute and ongoing litigation until a final determination on the allowance of the claims. To the contrary, this is standard practice in the litigation context both inside and outside of bankruptcy. Accordingly, this § 1129(a) objection to confirming the Plan is overruled.

D. Objection of the Texas Comptroller of Public Accounts

The Texas Comptroller of Public Accounts ("Texas Comptroller") argues that the Plan does not comply with § 1123(a)(5)(G), which requires that a plan provide adequate means for implementation, because it does not specify what remedies the Comptroller will have in the event the Reorganized Debtor defaults on its priority tax obligations.

The frivolous and nonsensical nature of the Texas Comptroller's "failure to provide a remedy in the event of default" objection was recently addressed by this Court in Xofox, supra p. 3. That case involved an identical objection by the State of Michigan's Department of Treasury. The Court observed that, pursuant to § 1141(a), the confirmation of a plan creates a legally binding agreement. Id. The terms of that agreement can be enforced in any court of competent jurisdiction. As a result, it is unnecessary for a plan to state that a taxing authority has the ability to enforce a debtor's plan obligations in a state court of competent jurisdiction. For these reasons, the Texas Comptroller's objection is overruled.

E. Objection of Certain Brazilian Claimants

Without specifying that § 1129(a)(1) was their focus, certain Brazilian Claimants argued that the Plan's treatment of attorney's fees of settling personal injury claimants is improper. The Court can conceive of no other place to consider this than in an opinion on whether this term "complies with the applicable provisions of . . . title [11]."

The Brazilian Claimants worry that this provision could "drive a wedge between claimants and their attorneys." They state that they "are very concerned about this intrusion upon their legal representation." Objection of the Brazilian Claimants at 8-9.

These claimants have nothing to fear in this regard. They have two options. First, if they wish, they can always honor their retainer agreements notwithstanding the protection that the Plan seeks to afford them. Second, they can factor this complication into their decision on whether to resolve their claims in the Litigation Facility or the Settlement Facility. Each claimant will have a myriad of factors to consider on this important choice; whether a rift might open with her counsel if she chooses the Settlement Facility is just one of them.

As for the actual merits of the objection, the Brazilian Claimants fail to cite any case law in support of their position. More importantly, they fail to identify a Bankruptcy Code provision that would be violated by such a limit on attorneys fees. Consequently, this provision does not support a denial of confirmation.

For what it is worth, it appears that federal courts do have the authority to modify contingency fee agreements. See Green v. Nevers, 111 F.3d 1295, 1302-03 (6th Cir. 1997).

F. Objection of Certain Spouses of Breast-Implant Claimants

Attorney Alan B. Morrison, representing several spouses of breast-implant claimants, asserts that the Plan's provisions for their claims violates several sections of title 11. The Plan provides that personal injury claimants may liquidate their claims by suing the Litigation Facility. Plan, § 5.4.2; see also Litigation Facility Agreement. Claims for loss of consortium by spouses of implant claimants would also be litigated in the same manner as they would outside of bankruptcy. These claimants make no objection to this provision.

However, they do object to the Plan's treatment of their claims in the event that their spouses opt out of the Litigation Facility and settle their claims in the Settlement Facility. The Plan provides that the "option to settle Consortium Claims shall be controlled by and be subject to the election of the Breast Implant Claimant." 6 1.1(B)(5)(a). It further states that "any and all Consortium Claims related to that Primary Claimant shall be deemed settled and discharged for no additional compensation regardless of whether the [spouse] elects or would have elected to litigate his or her Consortium Claim separately." Id. The Plan explains the underlying rationale for this provision by saying that the monetary award received by the settling implant claimant is "intended to cover both the primary claimant and the related consortium claims." Id. These objectors flail about, arguing that the provision is "fundamentally unfair" to them and that the Plan ought to be written differently. Objections to Reorganization Plan of Breast Implant Claimants Rita Altig and Others, ("Morrison Objections") at 9. No doubt had they been the drafters of the Plan, it would have been written differently. But the Plan was painstakingly negotiated over a lengthy period by bitter adversaries, and this Plan is what resulted. The issue is whether the provisions in question comply with title 11. Unfortunately, the objectors cite no provision of title 11 (but for § 1129(b)'s absolute priority principle) allegedly violated by this Plan term.

Section 1129(b) does not apply to their claims because the classes in which their claims are classified overwhelmingly accepted the Plan.

The Plan provides for the payment of consortium claims. If the primary implant claimant chooses to litigate, if there is also a loss-of-consortium claim, it, too, will be tried. And consortium claims will be paid in full if a plaintiff's judgment results. Consortium claims will also be paid by the Settlement Facility.

These objectors would prefer a model whereby the husband and the wife can make independent decisions about settlement. Morrison Objections, at 7-8, 11-12. But that ivory-tower model doesn't exist even outside bankruptcy. A defendant is unlikely to settle part of a lawsuit: If both the wife-plaintiff and the husband-plaintiff do not agree to settle, there will be no settlement. The Plan — proposed by the TCC as well as the Debtor — takes the reasonable and efficient view that the family should divide the award the way it sees fit. And it makes eminently good sense for the bankruptcy estate and the Reorganized Debtor to stay out of the marital affairs of the hundreds of thousands of claimants. While these objectors may prefer their model, the Plan's methodology is not prohibited by title 11. Accordingly, the Plan complies with the applicable provisions of the Code.

While these objectors parade hypothetical horrible examples which might arise from the Plan's methodology, see Morrison Objections at 7-8, they overlook the horribles which their own scheme might produce. They posit a plan in which the husband and the wife can separately decide to settle or not. They neglect to recognize that such a plan would not likely contain (as this one does) a standing, open offer to implant claimants who qualify for a fixed benefit to simply come and get it. As noted in text, the plan would more likely propose a settlement only if both spouses agree so that one cannot settle while the other goes and litigates. In that world, an estranged or ex-husband of a primary claimant can extort the primary claimant by simply being recalcitrant. Or, in a fit of spite, he might simply veto any settlement no matter how reasonable to him or to the primary claimant just to make her suffer years of litigation hell.

AMENDED OPINION ON 11 U.S.C. § 1129(a)(9) OBJECTIONS OF THE I.R.S. AND TEXAS COMPTROLLER

The IRS complains that the Plan fails to specify whether priority tax claims will be paid interest at the statutory rate. Objection of IRS at 1. It also argues that the Plan does not afford a reasonable mechanism for determining the amount of its administrative tax claim. The IRS further argues that the Plan is not clear as to how its administrative tax claim, once determined, will be paid. Id. Finally, the IRS asserts that a condition precedent to the Effective Date of the Joint Plan is that the IRS rules on certain tax matters in a manner reasonably satisfactory to the Debtor. According to the IRS, this may never occur and, therefore, the Plan is not really a plan because it may never become effective. Id. at 2.

Like the IRS, the Texas Comptroller argues that the interest rate payable on its priority tax claim cannot be determined from the Plan. It also objects to the Plan's provision for the payment of priority tax claims in six annual installments. Plan § 2.2. According to the Texas Comptroller, payments on such claims must be made at more reasonable intervals (e.g. monthly or quarterly).

The Texas Comptroller's argument that priority tax payments under § 1129(a)(9)(C) must be made monthly or quarterly, as opposed to annually, is without merit. Reorganization plans are routinely confirmed with provisions for such payments on an annual basis and there is nothing in § 1129(a)(9)(C) or anywhere else in the Bankruptcy Code suggesting that this is improper. In re Gregory Boat Co., 144 B.R. 361, 363 (Bankr.E.D.Mich. 1992); In re Sanders Coal Trucking, Inc., 129 B.R. 516, 519-20 (Bankr.E.D.Tenn. 1991). See also, e.g., In re Laramie Assocs., No. 95-19102, 1996 WL 549984, *6 (Bankr.E.D.Pa. June 20, 1996); In re Pierce Packing Co., 169 B.R. 421, 424 (Bankr.D.Mont. 1994); In re Envirodyne Indus., Inc., No. 93 B 310, 1993 WL 566566, *6 n. 4 (Bankr.N.D.Ill. Dec. 13, 1993); In re Energy Resources Co., 59 B.R. 702, 703 (Bankr.D.Mass. 1986), aff'd, 1987 WL 42960 (D.Mass. Aug. 5, 1987), aff'd, 871 F.2d 223 (1st Cir. 1989), aff'd sub nom. United States v. Energy Resources Co., 495 U.S. 545 (1990). The text of § 1129(a)(9)(C) does not require that payments be made more frequently, see Pierce Packing, 169 B.R. at 426, and we decline to read such a requirement into the Code. Cf. Energy Resources, 495 U.S. at 550 ("While [permitting the IRS to decide how tax payments are to be allocated] . . . might be desirable from the Government's standpoint, it is an added protection not specified in the Code. . . ."). This point is also demonstrated by the Senate's recent amendment to S. 625, (a bill to change the Bankruptcy Code). Amendment No. 2758 by Senators Roth and Moynihan passed by voice vote on November 9, 1999. It would provide some of the relief the Texas Comptroller requests. Under its provisions, the part of § 1129(a)(9)(C) the Texas Comptroller dislikes (the part that reads "deferred cash payments") would be deleted and replaced by "regular installment payments in cash." That amendment, obviously offered at the request of governmental taxing authorities like the Texas Comptroller, would do away with balloon payments of priority taxes at the end of a sometimes lengthy period and after other, junior classes of claims have presumably been satisfied. Yet even after this provision would become law, it would mandate nothing more than "regular installment payments," something which certainly allows for annual payments.

But the Texas Comptroller's argument may be off-base for another reason — it may not even have a priority tax claim. Section 501(a) provides, in relevant part, that "[a] creditor or an indenture trustee may file a proof of claim." 11 U.S.C. § 501 (emphasis added). Section 101(10), in turn, provides that a "`creditor' means . . . [an] entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." 11 U.S.C. § 101(10). On this basis, the court in In re Bagby, 218 B.R. 878, 881 n. 2 (Bankr.W.D.Tenn. 1998), stated that "[s]trictly speaking, an entity holding a claim against a . . . debtor that arose after the filing of the petition is not a creditor." The Texas Comptroller cannot, therefore, have a priority tax claim against the Debtor for taxes that arose postpetition. Rather, such taxes would give rise to an administrative expense against the estate. The Texas Comptroller states that its claim for franchise taxes against the Debtor was assessed on April 3, 1996. From this statement, one cannot determine whether the Texas Comptroller has a priority tax claim, an administrative claim, or perhaps one of each. To the extent that its tax claim arose postpetition, the Texas Comptroller has, if it can prove it, a right to payment of an administrative expense for taxes. See 11 U.S.C. § 503(b)(1)(B) (after notice and a hearing, the court shall allow administrative expenses for taxes incurred by the estate); see also United States v. Ginley (In re Johnson), 901 F.2d 513, 517 (6th Cir. 1990) ("[P]ost-petition . . . tax claims . . . fall within the express statutory provision allowing certain taxes as administrative expenses."); In re Unitcast, Inc., 214 B.R. 1010, 1019 (Bankr.N.D.Ohio 1997), aff'd, 219 B.R. 741 (6th Cir. BAP 1998) ("Section 503(b)(1)(B) provides for administrative expense priority for taxes which are incurred by the estate.") The Plan provides the prescribed statutory treatment for administrative expense claims. See Plan, § 2.1. And, as stated above, to the extent that its claim is a pre-petition priority unsecured tax claim, the Plan's proposal to pay it in full in annual installments is appropriate.

We recognize also the possibility that § 502(i) might apply.

As indicated, the IRS contends that it cannot discern the rate of interest payable on its priority tax claim. The Plan provides that such claims will be paid interest at the "Plan Interest Rate." Plan § 2.1. Section 1.134 of the Plan provides that such rate of interest "shall be determined, based upon then-existing market rates, as of the Effective Date." Typically, the interest rate allowed on priority tax claims is the market rate of interest. See 7 Collier on Bankruptcy 6 1129.03[9][c][i] (15th ed. rev. 1999). Thus, the Plan provides the appropriate rate of interest in a general sense. However, the Court agrees that this aspect of the Plan is somewhat vague for it does not specify how the market rate of interest will be determined. This is not a plan-buster however. The Plan states that priority tax claims will be paid either at the Plan Interest Rate "or such other interest rate as the Court may approve." Plan § 2.2. Thus, if the parties cannot agree on what the appropriate market rate of interest is, the matter can be brought before the Court for resolution.

The Plan's treatment of the IRS's administrative tax claim is also appropriate. The Plan need not spell out the claims allowance process with respect to this claim. If the Debtor objects to the claimed amount, there will be a trial. And for whatever amount the IRS's claim is ultimately allowed, it will be paid in full on or about the Effective Date. Finally, the tax ruling which the IRS said may never occur, has, since the close of proofs, in fact been issued and was apparently satisfactory to the Debtor.

For the above stated reasons, the IRS' and the Texas Comptroller's objections to confirmation are overruled.

ORDER CONFIRMING AMENDED JOINT PLAN OF REORGANIZATION AS MODIFIED

Findings of Fact and Conclusions of Law regarding confirmation of the Amended Joint Plan of Reorganization, dated February 4, 1999 (as modified on July 28, 1999 and supplemented on July 30, 1999), proposed jointly by Dow Corning Corporation and the Official Committee of Tort Claimants were entered today. This order is set forth as a separate document as mandated by F.R.Bankr.P. 9021. As stated in the Findings and Conclusions, the Court has determined that the Plan complies with the requirements of § 1129 of the Bankruptcy Code, and therefore,

IT IS ORDERED as follows:

1. The Plan, including its attached and incorporated separate agreements, compromises, settlements, and assumptions and rejections of executory contracts and unexpired leases, is confirmed.

2. Prior to the occurrence of the Effective Date, the Proponents (and following the Effective Date, the Reorganized Debtor) and their directors, officers, attorneys, agents and representatives are authorized and empowered to take all actions necessary or appropriate to consummate the transactions contemplated by the Plan and the Plan Documents, and to perform thereunder. The chief executive officer and any other authorized officer of the Reorganized Debtor (or the Debtor) is authorized and empowered, without the necessity of any further order, to enter into, execute and deliver the Plan Documents in substantially the form submitted, subject to such amendments as may be agreed to by the parties thereto or approved by this Court at the Proponents' request provided such amendments shall be consistent with the Plan.

3. Upon the Effective Date, the Reorganized Debtor is authorized and empowered to operate and conduct its business and to dispose of its property without further approval of this Court, the District Court or the MDL 926 Court, except as otherwise provided in the Plan or the Plan Documents.

4. All objections to Personal Injury Claims, including without limitation the Debtor's Omnibus Disease Objection to Breast Implant Claims, the Debtor's Omnibus Supplemental Objection to Implant Claims, and the Official Committee of Unsecured Creditors' Objection to Personal Injury Claims, upon the Effective Date, are hereby denied with respect to any Settling Personal Injury Claim. The objection of the Unsecured Creditors' Committee is also, upon the Effective Date, hereby declared to be moot with respect to any Settling Personal Injury Claimant. Nothing contained in this paragraph shall waive or modify any of the requirements (including without limitation the eligibility requirements under the Dow Corning Settlement Program and Claims Resolution Procedures ("CRP")) applicable to Settling Personal Injury Claimants under the Plan or the Plan Documents.

5. A. Confidentiality as to the identities of Personal Injury Claimants who filed proofs of claim is hereby maintained pending each Claimant's decision to elect settlement or litigation. The names of all Claimants who elect or are deemed to have elected to participate in the Settlement Facility shall remain confidential, subject to application (on notice to the Claimants' Advisory Committee) to the MDL Court by parties with a demonstrated need to obtain information regarding settling Personal Injury Claimants. The determination as to whether to maintain confidentiality with respect to such application shall be within the sole discretion of the MDL Court. Claimants electing to proceed in the Litigation Facility shall cease to be protected by the Confidentiality Order.

B. By December 24, 1999, the Debtor shall mail to each Personal Injury Claimant a notice: (i) summarizing the provisions of this paragraph 5; (ii) informing them that beneficiaries of the United States Government who received medical care or reimbursement for medical care expenses from certain agencies or programs of the United States Government, such as the Veterans Administration, the Bureau of Indian Affairs, the Department of Defense, and Medicare, may have a duty to notify the Government upon settlement of any claim against the Debtor or the Reorganized Debtor and to share such settlement amount with the Government, and (iii) advising them that Claimants may wish to seek legal counsel or the assistance of the Claimants' Advisory Committee with respect to this issue.

C. Personal Injury Claimants obligated by law to inform the United States Government of a settlement with the Debtor shall notify the Government by letter addressed to: Glenn Gillett, Department of Justice, P.O. Box 875, Ben Franklin Station, Washington, D.C., 20044, within 24 hours of the time that the Claimant and the Settlement Facility agree to a settlement amount.

D. Personal Injury Claimants shall have until February 25, 2000 to withdraw their proofs of claim and to thereby preserve confidentiality as to them. By doing so, however, they forfeit their right to participate in any recovery from the estate or the Reorganized Debtor.

E. Commencing March 1, 2000, the United States of America may examine and copy at its own expense proofs of claim of all Personal Injury Claimants which have not been withdrawn, but subject to the following restrictions with respect to the claims of Personal Injury Claimants who elect to settle within the Settlement Facility: (i) the information contained on proofs of claim shall be available only to those persons within the Government having a need to know; and (ii) the Government may not release such information to any person outside of the Government (whether or not requested under the Freedom of Information Act or other provision of law) except other parties in this case who already have access to the same information. This order shall be deemed to be merely a modification of the existing confidentiality orders of this Court.

6. Non-Settling Claims in Class 11 under the Plan will not be estimated for distribution purposes on or before the Effective Date. Claims in Classes 15 and 17 under the Plan will not be estimated for distribution purposes on or before the Confirmation Date. All such claims are channeled to the Litigation Facility for liquidation, and, if allowed, payment subject to the terms of the Settlement Facility Agreement and the Funding Payment Agreement.

7. Except as provided in (i) the Funding Payment Agreement, (ii) the Insurance Allocation Agreement, (iii) the Settlement Agreement with Hoechst Marion Roussel, Inc. approved by the Court on January 25, 1996, and (iv) certain agreements entered into by the Debtor and certain objectors to the Plan and approved by the Court, resolving objections to confirmation of the Plan, upon the Effective Date, (a) no person or entity shall have or retain any claim or rights in or to amounts paid or payable to Dow Corning by the Settling Insurers (which are identified on Exhibit A to the Notice of Modification of Amended Plan of Reorganization filed on July 28, 1999), and (b) Insurance proceeds and other monies paid by the Depository Trust for the benefit of the Settlement Facility shall be and hereby are deemed to be free and clear of any lien, claim, or encumbrance by any third-party.

8. Except for the matters over which the MDL 926 Court is assigned jurisdiction under the Plan and the Plan Documents (including, without limitation, supervision of the Settlement Facility), the Bankruptcy Court and, as applicable, the District Court shall retain exclusive jurisdiction over all matters specified in § 8.7 of the Plan.

9. The automatic stay under § 362(a) of the Bankruptcy Code remains in effect until the Effective Date and shall terminate automatically, and without any further action by this Court, upon the Effective Date.

10. Notwithstanding the Bar Order establishing the Bar Date, subject to the occurrence of the Effective Date, claims against the Debtor that were not filed on or before the Bar Date are deemed to be timely-filed claims, provided that: (i) such claims are filed on or before the Confirmation Date (or are filed on or before 60 days after the mailing by the Debtor of notice of the provisions of this paragraph in the circumstances described in the immediately following sentence), and (ii) in all other respects, such claims are properly filed in accordance with prior orders and notices of the Court. Each person who has filed on or before the Confirmation Date either a motion or letter to the Court seeking an extension of the Bar Date or leave to file a late claim, or a notice of intent pursuant to F.R.Bankr.P. 3005, shall have 60 days from the mailing by the Debtor to such person of notice of the provisions of this Paragraph 10 within which to file his or her proof of claim. Any claims for which proofs of claim are not so filed shall be forever barred, and the holders of such claims shall have no rights on account of such claims against the Debtor, its estate, the Reorganized Debtor, the Settlement Facility or the Litigation Facility. Claimants who have not (or are not deemed to have) timely filed their claims, shall continue to have the rights provided in Section 2.02(b) of the CRP relating to claims that may have been filed on their behalf under F.R.Bankr.P. 3005, which rights shall remain unaffected by this paragraph.

11. Pursuant to § 6.6 of the Plan, a request for the payment of an Administrative Expense, other than one arising in the ordinary course of the Debtor's business, shall be filed and served as required by the Third Amended Case Management and Administrative Order (as it may be amended) no later than 75 days after the Effective Date. The Administrative Expense of any person who fails to so file a request for payment by such date shall be forever barred. This paragraph does not affect the right of certain parties to submit requests for payment based on a "substantial contribution" to the case, as provided in § 9.02 of the CRP. This Court will establish the procedures and deadlines for making such requests for payment, and will decide them pursuant to 11 U.S.C. § 503(b).

12. Any third-party paying agent charged with making distributions to holders of public debt instruments issued by the Debtor or the Reorganized Debtor (including, if applicable, the Indenture Trustees therefor) shall inform the Reorganized Debtor on a quarterly basis after the Effective Date (or any other periodic basis agreed to by the Reorganized Debtor and such paying agent, or as ordered by this Court) as to the identity of the persons, including the holders of Public Debt Claims, who are entitled to unclaimed distributions with respect to their claims. Based upon such information, the Reorganized Debtor shall file with this Court on the second, third and fourth anniversaries of the Effective Date, a list of persons who are entitled to unclaimed distributions in respect thereof. The ownership and payment of such unclaimed distributions, and the rights of the affected claimant, the Debtor and the Reorganized Debtor with respect thereto, shall be governed by the provisions of § 11.3 of the Plan.

13. Confirmation of the Plan pursuant to this Order shall not modify the treatment of proof of claim number 03754111-00 filed by Hilti, Inc. as provided in the Stipulation and Order Resolving General Unsecured Non-Priority Claims of Hilti, Inc. and Hilti Construction Chemicals, Inc., entered in this case on September 20, 1999 (docket #20624).

14. Not later than 30 days after the Effective Date, the Reorganized Debtor shall file with the Court a certificate confirming that the Effective Date has occurred, with notice thereof to be given as required by F.R.Bankr.P. 2002(f). Such notice shall also state the Interest Rate for the Senior Notes, as determined in accordance with the rate-setting mechanisms provided in the Plan.

In re Dow Corning Corp.

Opinion

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 18

I. Facts

II. Discussion

A. Unfair Discrimination Prong

1. Unfair Discrimination Tests

2. A New Approach

3. Application of the Presumption-Based Standard

B. Fair and Equitable Prong

Conclusion

AMENDED OPINION REGARDING CRAMDOWN ON CLASS 15

I. Overview of Class 15

Plan § 5.13.5.

II. Discussion

A. Unfair Discrimination Test

B. Fair and Equitable Test

III. Conclusion

AMENDED OPINION ON THE CLASSIFICATION AND TREATMENT OF CLAIMS

I. Background

Disclosure Statement § 6.6(G)(4).

II. Classification of Claims Under the Plan A. Standards Governing Classification

B. Comment on Classification Standards

C. Classification Objections of Class 4 Claimant

D. Classification Objections of Class 5 Claimants

E. Classification Objections of Claimants in Classes 6.1 6.2

F. Classification Objections of Class 12 Claimants

III. Within-Class Treatment of Claims Under the Plan

A. Treatment Objections of Class 4 Claimant

B. Treatment Objections of Certain Claimants in Classes 5, 6.1 and 12

C. Treatment Objections by Certain Class 7 Claimants

D. Treatment Objections by Certain Class 15 Claimants

IV. Conclusion

Conclusions of law:

OPINION ON BEST-INTERESTS-OF-CREDITORS TEST, FEASIBILITY, AND WHETHER PLAN AND THE PROPONENTS COMPLY WITH THE APPLICABLE PROVISION OF TITLE 11

I. Section 1129(a)(7)

A. Punitive damages

B. The Sufficiency of the Funding of the Litigation Facility

II. Feasibility

III. Proponents Comply With Applicable Provisions of Title 11

IV. Plan Complies With Applicable Provisions of Title 11 A. The Deemed Waivers and Releases

Discussion

1. Consistency with the Code

2. Compliance With Non-Bankruptcy Law

3. Sections 8.3 and 8.4 are Permissible Because They Apply Only to Accepting Creditors

4. Permanent Injunctive Relief

5. Postscript

B. Objections of the Pennsylvania Breast Implant Claimants

C. Objections of the Official Committee of Unsecured Creditors 1. Section 502

2. Delay in Paying Claims

D. Objection of the Texas Comptroller of Public Accounts

E. Objection of Certain Brazilian Claimants

F. Objection of Certain Spouses of Breast-Implant Claimants

AMENDED OPINION ON 11 U.S.C. § 1129(a)(9) OBJECTIONS OF THE I.R.S. AND TEXAS COMPTROLLER

ORDER CONFIRMING AMENDED JOINT PLAN OF REORGANIZATION AS MODIFIED

In re Dow Corning Corp.

In re Dow Corning Corp.

Case Details

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Citations