For more than a decade, the A. H. Robins Co. has fended off efforts to make it identify executives responsible for certain controversial decisions. Now, however, the federal government is pressing two new attempts to pinpoint individuals responsible for alleged abuses of the company's voluntary bankruptcy.
Robins faces a hearing later this month on a motion by the government to have U.S. District Judge Robert R. Merhige Jr. order the company to identify "all directors, officers, managers, employes and counsel" involved in decisions to make payments to some creditors and officers without court permission.
In addition, the improper payments issue may come up Tuesday at a special hearing for creditors.
The issue of how decisions are made at the pharmaceutical company is an old one. It first arose in the mid-1970s in litigation about the Dalkon Shield, the intrauterine contraceptive device that was the cause of thousands of lawsuits by users who claimed it harmed them.
It arose again last month when Assistant U.S. Attorney S. David Schiller accused Robins of "willful and knowing" violations of a consent order by paying $6.8 million without the court's approval.
Two weeks after Schiller's disclosure, Merhige, who is presiding over the bankruptcy proceeding, asked Robins' attorney, William R. Cogar, how the payments happened to be made.
"I cannot answer that," Cogar replied.
Merhige, visibly angry, told Cogar that the payments were "the most serious thing facing this case" and said he may force repayment to the bankrupt estate -- including interest -- by those responsible.
Schiller also asked the court to hold Robins in contempt, to oust the management and to name a trustee to run the company.
Nine days after Schiller filed his motion, Robins made a surprise announcement, saying Vice President William A. Forrest Jr., the controversial chief counsel who orchestrated the defenses against Shield lawsuits, had voluntarily retired.
A few days later, lawyers reviewing the company's routine monthly financial status report filed with the bankruptcy court were startled by an unexplained line item: the original $6.8 million estimate for the improper payments was $549,000 higher.
The discrepancy involved payments to 84 persons apparently covered by the "Supplemental Compensation Plan for Key Executives." The original filing listed $1.2 million in such deferred compensation payments; the new filing put the figure at $1,749,844.
Another surprise came at a March 6 session during which senior financial officer G. E. R. Stiles testified. Was Robins going to try to recover the improper payments? asked Washington lawyer Murray Drabkin, now counsel for the new committee of Dalkon Shield claimants.
Stiles replied that Robins would neither investigate how the preferential payments had happened to be made nor consider trying to get the money back. It remains unclear whether Stiles' response reflected the advice of Robins lawyers and, if so, which ones.
A week later, Treasurer H. Carlton Townes offered the court a compromise proposal for more than 100 creditors who, he said, had been improperly paid about $2 million. Among them were several participants in a company salary continuation plan. Collins Denny III, an associate of Cogar in the Robins law firm of Mays, Valentine, Davenport & Moore, described them to Merhige as pensioners who were innocent victims of a company mistake and as near-hardship cases.
These individual creditors included current director, William L. Zimmer III, whose seven-year tenure as president and chief operating officer covered the four-year period in which Robins bought rights to the Dalkon Shield and sold it in more than 80 countries; Dr. Frederick A. Clark Jr., the former medical affairs vice president, who played a leading role in the acquisition and medical supervision of the shield, and at least four other present or retired vice presidents.
Under Townes' proposal, the company, rather than retrieving the improper payments, would offset them against sums it would otherwise pay the creditors in later years. Merhige rejected the plan out of hand March 28, telling Robins instead to demand repayment -- plus interest -- of all of the monies wrongfully paid out.
The total to be recaptured stood at about $3.8 million, the court having retroactively approved -- without excusing the violation -- a payment of $3.5 million made under a prebankruptcy contract with another drug company.
Two weeks after filing the first motion attacking the improper payments, Schiller made a second move to inject personal accountability into the company's operations under Chapter 11.
The move concerned extraordinary amendments to the corporate charter, which the board of directors adopted unanimously in April 1984, when Dalkon Shield plaintiffs were seeking billions of dollars in compensatory and punitive damages.
The amendments' main purpose was to immunize present and former officers and directors from personal liability arising from Shield litigation. Specifically, the amendments were designed to indemnify the officials against expenses, judgments, fines and settlement payments arising out of either civil or criminal actions.
Relying on the 1984 annual report, Schiller said the board adopted the amendments "in direct response to the Dalkon Shield litigation," and "specifically . . . to cover the potential liabilities" -- in a subsequently settled class action that alleged material misrepresentations to stockholders -- of three top company officials: Chairman E. Claiborne Robins, 75; his son, chief executive officer and President E. Claiborne Robins Jr., 42, and former president Zimmer, 73, a director since 1948.
"Apparently, the officers and directors believe they possibly share liability and sought to protect themselves," Schiller said in a motion that will be argued later.
"That the amendments were adopted should not be surprising because the persons to be indemnified have a controlling interest" in the company, Schiller said.
The company has seven directors, all of who reside in Richmond. In addition to Robinses Sr. and Jr., who with their families own 42 percent of the company's stock, Zimmer, and former vice president George E. Thomas, 71, there are three "outside" directors: E. Bruce Heilman, 59, president of the University of Richmond. The Robins family has given the university more than $100 million and, in 1969, the university named the elder Robins' three children to its board of trustees. Carroll E. Saine, 51, chairman of Central Fidelity Banks Inc., which includes the elder Robins and Heilman among its outside directors.Stuart Shumate, 70, retired president of the Richmond, Fredericksburg & Potomac Railroad Co.
The amendments "threaten the viability of a reorganization plan" and "appear to hinder progress toward final confirmation of a plan," Schiller contended. "It is easy for the directors and officers to remain intransigent and unyielding on the amount and mechanisms for payment of the IUD claims when any liabilities they might otherwise bear are to be saddled onto the debtor's Robins' assets.
"Removing their indemnification 'shield' would probably do more than any other action to change the debtors' posturing which, after all, is a reflection of the officers' and directors' views," he said.
Meanwhile, Merhige has granted a Robins request for a three-month extension of its deadline, to June 30, for filing a plan for financial reorganization.
It was the litigation generated by the Dalkon Shield, which Robins sold in the United States from January 1971 to the end of June 1974, that led the company to file for financial reorganization.
In pretrial and court proceedings, Robins successfully resisted repeated efforts by lawyers and judges to determine which official had made precisely what contribution to the Shield disaster, in which tens of thousands of women said they suffered severe injury.
Under oath in 1984, Chairman Robins was unable to recall ever having discussed the Shield with his son -- the president -- or with other executives. Senior Vice President Ernest L. Bender Jr., who reported to the younger Robins, testified that, "I've had no conversations with him about the Dalkon Shield." Senior Vice President Carl D. Lunsford was asked if he had "any curiosity" about why the company had recently paid $4.6 million, mostly in punitive damages, to settle seven Shield lawsuits. No, he answered.