The Justice Department wants to force the A. H. Robins Co. to recover the approximately $7 million it paid to selected creditors in what the government calls "utter arrogance" and "willful and knowing" violation of a consent order signed by the pharmaceutical manufacturer after it filed for voluntary bankruptcy last Aug. 21.
If Robins can't get the money back, U.S. District Judge Robert R. Merhige Jr. should try to collect it from those who authorized the payments, Assistant U.S. Attorney S. David Schiller wrote in a memo filed in federal court in Richmond late Wednesday.
He denounced as "outrageous" Robins' refusal to investigate or even to consider seeking recovery of the preferential payments.
Robins spokesman Roscoe E. Puckett Jr. said the company stood by a Wednesday statement that "the actions of those involved were in no way intended to violate the order."
The Schiller memo was filed in support of Wednesday's surprise request by U.S. Attorney Justin W. Williams for appointment of a trustee to take over management of Robins. Williams said that the company should be found in contempt of court for making the payments after filing for bankruptcy.
The questioned payments included $1.2 million in deferred compensation to executives, which Schiller called "a raid on the estate's assets by corporate insiders [that] cannot be tolerated."
The company has claimed that the payments to executives were authorized by a court order approving payment of August wages to hourly employes. This defense "only highlights the callous indifference [Robins] has accorded the court's orders," Schiller responded.
Robins officials and possibly counsel also should face contempt charges for having "arrogantly and systematically flouted a clear, unambiguous order of this court," Schiller wrote.
Robins "is out of control and only appointment of a trustee can set it back on course," Schiller contended. "Robins should not be violating an order designed to protect the very creditors toward whom it has a fiduciary obligation. Such conduct is both fraudulent and dishonest."
The creditors are mainly 5,100 women who have sued Robins because they say they were harmed by the company's Dalkon Shield intrauterine contraceptive device. Their lawsuits were frozen by the bankruptcy filing.
A hearing on the Justice Department's effort to have Robins declared in contempt and a trustee appointed is set for April 21. A hearing is scheduled today on the company's reorganization under Chapter 11 of the federal bankruptcy law. One issue is an effort by Robins to sell a pharmaceutical plant -- the only fixed asset of its British subsidiary -- without notifying the court.
Robins pledged in the consent order to use none of its assets to pay "any creditor for any debt . . . incurred prior to the filing of its petition . . . except upon order of the court." Senior Vice President and Chief Financial Officer G. E. R. Stiles and Vice President H. C. Townes are among the executives who "have testified that they understood the prohibition on payment of pre-petition debt without . . . court authorization," Schiller said.
He also wrote that a large share of $6.8 million in payments was made "in knowing violation of the consent order because Robins needed to stay in the good graces of its suppliers." Yet in its "deceptive" monthly financial statements, he continued, "nowhere is the lack of court approval mentioned."