Lawyers for women who say they were harmed by the Dalkon Shield intrauterine contraceptive device have asked a federal judge in Richmond to lift a nationwide stay on litigation against the A. H. Robins Co., which made the IUD.
The plaintiffs told U.S. District Judge Robert R. Merhige Jr. that Robins' filing for reorganization under the federal bankruptcy code -- which prompted him to issue the stay -- "was unnecessary and in bad faith."
They also claimed that the pharmaceutical firm engaged in "national forum-shopping" to put the case on its "home turf" of Richmond.
Company attorneys flatly denied the allegations, saying the record "clearly demonstrates Robins' good faith."
The allegations grew out of what is called the Shield multi-district litigation (MDL). The MDL is the large group of cases that a panel of federal judges consolidated a decade ago for pre-trial discovery under Judge Frank G. Theis in Wichita, Kans.
On Nov. 7, the petition to lift the stay was filed with Merhige by three lawyers chosen by Theis to represent plaintiffs' interests: Bradley Post of Wichita, Douglas E. Bragg of Denver, and Robert E. Manchester of Burlington, Vt.
They accused Robins of creating "a false financial picture . . . to support the Chapter 11 bankruptcy filing," of preventing "the discovery and production of damaging documents," and of the forum-shopping.
The company, the petition alleged, "unnecessarily paid out up to $67 million from Jan. 1, 1985, until the bankruptcy papers were filed in order to claim a serious cash shortage" and "voluntarily followed a pattern of unnecessary and illogical Dalkon Shield settlements and payments in order to create a cash shortfall position or the appearance of one.
"No real effort was made to pledge adequate security to borrow money to avoid a cash shortage," Post, Bragg and Manchester said. "Robins also continued to pay out and increase dividends each year through December 1984."
In a Dec. 17 reply, Robins said the lawyers had made no "real showing of cause" for lifting the stay. Moreover, the company said, the lawyers desired "a rekindling of the burdensome discovery of Robins, the expense of which contributed to the financial stress occasioning this Chapter 11 case," and had no legal standing to seek relief from the stay.
The claim of bad faith rests "on a fundamental misunderstanding of the good faith requirement," attorneys for the company asserted. The evidence "clearly demonstrates Robins' good faith," the company contended. "Robins was totally inundated with tort litigation resulting in enormous expense" and "had a negative net worth at the time of the filing."
Another allegation by the plaintiffs lawyers was that Robins made the filing while two special masters appointed by Judge Theis were reviewing normally privileged documents in the offices of Robins' two litigation law firms in Richmond: McGuire, Woods & Battle, and Mays, Valentine, Davenport & Moore.
The lawyers called the bankruptcy filing a stratagem to halt the "crucial" MDL discovery "to escape contempt, sanctions, and the production of damaging documents which will likely prove civil conspiracy, crime, and fraud . . . "
Company attorneys said the discovery was "harassing, disruptive and expensive. The special masters alone have charged thousands of dollars for their services in this undertaking."
The plaintiffs' lawyers' petition for lifting the stay said the discovery by the masters named by Judge Theis pertained not only to the liability of Robins, but also to the potential liability of other defendants, including Aetna Life & Casualty Co. for "advising Robins not to undertake a product recall from 1974 [when Robins halted domestic Shield sales] through October 1984." Aetna was the Shield product-liability insurer.
In an interim cost-sharing pact signed in March 1977, Aetna agreed to pay all awards that compensated Shield wearers for their injuries, including those arising from "expected or intended bodily injuries," and awards made "on account of Robins' failure to disclose relevant information and the supplying of false and misleading information." Robins agreed to pay all awards for punitive damages.
By the time of Robins' Chapter 11 filing in Richmond in August, about 15,000 U.S. women had sued or filed claims, mainly for pelvic infections and related loss or impairment of the ability to bear children. Robins and Aetna had paid out a reported $520 million to settle approximately 10,000 of them and for legal expenses.
Merhige took charge of all key aspects of the filing -- a highly unusual action, according to bankruptcy-law experts who asked not to be named. Almost always, they said, district judges leave bankruptcy cases to bankruptcy judges.
Later, Merhige signed an order that transferred to him more than 5,000 Shield IUD product-liability cases which had been pending in courts all over the country. Plaintiffs' lawyers appealed to the Fourth U.S. Circuit Court of Appeals, contending that the order denied due process of law to litigants who want to try their lawsuits close to home.
In addition, lawyers who are suing Aetna and other codefendants protested that they should not be prevented from proceeding with discovery against the non-Robins defendants. A further complaint was that Merhige had given insufficient notice of the hearing he held on the order.
A three-judge panel of the Fourth Circuit heard argument Dec. 3.
Originally, Merhige gave Robins four months -- until Dec. 19 -- to file a reorganization plan that would settle all claims, but the company won a delay until March 31. Merhige had expressed hope that settlement checks would go out by September 1986, but he indicated recently in a courtroom hearing that this forecast was optimistic. He has authorized Robins to spend about $5 million to notify potential claimants worldwide that the deadline for filing a claim is April 30.