U.S. District Judge Robert Merhige Jr. today told A. H. Robins Co. that it must recapture an estimated $6.8 million that the company admits it paid improperly to certain creditors -- including retired senior officers -- after entering voluntary bankruptcy on Aug. 21.
Merhige said the unauthorized payments are "the most serious thing facing this case . . . , I'm really ripping about it." Then he said, "I better not say more."
Assistant U.S. Attorney S. David Schiller cited the improper payments on March 12 when he asked Merhige to hold Robins in contempt and to appoint a trustee to run the company.
"We may have a trustee in this case," Merhige said today in noting that a hearing on Schiller's motion is set for April 28.
Robins' attorney portrayed the creditors as innocent, moderate-income victims of a company error who already have paid taxes on the improper payments and who might suffer hardship if they are forced to refund the money to the bankrupt company's estate.
But a list of the creditors newly supplied by Robins Vice President and Treasurer H. Carlton Townes disclosed that the retirees who received unspecified sums included former president, former chief operations officer and current director William L. Zimmer III and at least three former vice presidents: Frederick A. Clark Jr., C. E. Morton and Oscar Klioze.
Clark, who was vice president for medical affairs, played a central role in acquiring and then supervising use of the Dalkon Shield intrauterine contraceptive device. Massive litigation brought by some users of the IUD led Robins to seek protection under Chapter 11 of the Bankruptcy Code.
In a related development, Schiller moved to expose present and former directors and officers of the family-controlled company to personal-liability claims from shield users, who seek billions of dollars in compensatory and punitive damages.
At another point, Merhige revived an earlier prediction that women with valid claims would start to receive checks in September. "We're on a roll," he said.
Merhige also took under advisement a Robins request for a 90-day extension of the period in which the company alone could file a reorganization plan after Washington lawyer Murray Drabkin, a bankruptcy specialist who advises the judge, said, "Robins for seven months hasn't been able to get its act together."
Drabkin told Merhige that Robins had not met the deadline, which is next Monday, while finding one excuse after another for inaction. He said that he will propose a plan that can compete with one by Robins, if the company advances one.
The Townes document listed about 100 individual and business creditors. But William R. Cogar, an attorney for Robins, said there are probably 300 to 400.
Townes filed the list in support of a Robins motion to credit the improper payments to retirees against sums to be paid to them in future years, rather than to try to seek refunds.
The former officers are principal beneficiaries of $1.2 million in deferred compensation that was paid after the August bankruptcy filing without the knowledge or approval of Merhige. The total of unauthorized payments is estimated at $6.8 million.
Merhige said that, on discovering the improper payments, Robins was required under bankruptcy law to seek recovery immediately. Now -- months later -- Robins must "make demands forthwith," he told Cogar, a lawyer for Robins in the firm of Mays, Valentine, Davenport & Moore. He warned that he may impose financial liability on those in the company who are responsible for the improper payments.
"How did it happen in the first place" that the payments were made? Merhige asked.
"I cannot answer that," Cogar replied.
At a March 6 hearing, Drabkin, who was counsel to the now-dissolved committee of lawyers for shield claimants, asked G. E. R. Stiles, Robins' senior financial officer, if the company intended to try to recoup the improper payments. Stiles refused to consider the idea.
Schiller asked Merhige to void amendments to the corporate charter that the Robins board adopted in April 1984 to indemnify company officials against expenses, judgments, fines and settlements arising out of civil or criminal proceedings.
Schiller said the board adopted the amendments "in direct response to the Dalkon Shield litigation" and "specifically . . . to cover the potential liabilities of" the chairman, E. Claiborne Robins; chief executive officer, president, and director, E. Claiborne Robins Jr.; and director and former president, Zimmer.
Schiller contended that the indemnification amendments "threatened the viability of a reorganization plan" because of the ease with which the protected officials can "remain intransigent and unyielding on the amount and mechanisms for payment of the IUD claims . . . "
In another action, Merhige set aside a contempt finding against Sidney L. Matthew, a Tallahasee, Fla., plaintiffs' lawyer.
Matthew had gone to another judge to seek release of a settlement check that had been issued for his client before the Sept. 11 filing. He told the court today, "I should have come here first."
The judge also denied a motion to reconsider his dissolution of the original lawyers' committee for shield claimants.