U.S. District Judge Robert Merhige Jr. today refused to approve a settlement between A. H. Robins Co. and the U.S. Attorney's Office that would have turned over to an outsider negotiations on the company's bankruptcy reorganization plan.
Saying he was troubled by the notion of naming an outside director to the company's board because the director might become the object of lawsuits, Merhige vetoed the proposed agreement. At the same time, however, he held open the possibility of appointing some kind of liaison between the pharmaceutical company and the court to provide him with direct information about progress in devising a plan for paying off creditors. "I'm just not getting enough input. I just don't know what's going on," the judge said.
Merhige also kept open the possibility of appointing a trustee to run the company if Robins' top management is found to have approved $6.8 million in improper payments to former company executives and others. The payments were made after the company filed for reorganization under Chapter 11 of the federal bankruptcy law, which requires suspending payments to creditors except with court approval.
Merhige's action came at the end of a three-hour hearing in which several of the parties in the complicated proceedings indicated that progress has begun to be made in devising a plan to pay off the company's creditors and women who have filed claims against Robins for damages from the Dalkon Shield intrauterine device. More than 300,000 women have filed claims.
Merhige told Assistant U.S. Attorney S. David Schiller to continue his investigation into who authorized the improper payments. Disclosure of the payments triggered legal efforts to hold Robins in contempt of court and name a trustee to run the company.
Merhige said it is critical to find out "how did this troubled situation develop? Who authorized the payments?" He said he would set a date at a hearing on other issues on April 28 to hear evidence gathered in the investigation and to hear from Robins officials and others about who approved the payments.
On Sunday, the Richmond Times-Dispatch reproduced a memo written by W. A. Forrest Jr., who was general counsel of Robins until March 21, when the company announced he would take early retirement. The memo suggests that an attorney for the San Francisco law firm that previously represented Robins in the bankruptcy proceedings advised the company that it should pay salary awards made before the company petitioned for protection from its creditors.
According to that story, a lawyer for the attorney, Penn Ayers Butler, said that Butler never received a copy of the memo and gave no such advice.
Merhige, who said that he believed that Butler had been treated unfairly by what has been printed, said he would decide who was telling the truth about the payments. "I guess that decision is ultimately going to be the court's," the judge said. "That's the old-fashioned way."
Several parties to the bankruptcy proceedings, including attorneys for shareholders and for creditors, objected to the agreement between the U.S. Attorney's Office and Robins. Robert Miller, who said he represents equity security holders, said that Robins management, not an outsider, should negotiate the reorganization plan.
"If the company is proceeding in good faith, they should be allowed to negotiate a plan," said Murray Drabkin, a bankruptcy specialist who advises the judge. Drabkin recommended that the issue of whether to appoint a trustee be deferred in the meantime.