A court hearing on a government motion for a trustee to run the insolvent A. H. Robins Co. was told today that former Robins general counsel William A. (Skip) Forrest Jr. "specifically requested" outside bankuptcy lawyers "not to put anything in writing."
"He was afraid it would be discoverable in the Dalkon Shield litigation," Margaret Sheneman testified in U.S. District Court.
The Dalkon Shield is the intrauterine contraceptive device blamed for serious injuries in thousands of women whose lawsuits for damages led Robins to file for voluntary reorganization Aug. 21.
Robins retained Sheneman's San Francisco law firm, Murphy, Weir & Butler, as special bankruptcy counsel in preparation for entering Chapter 11.
Two days before Robins filed for bankruptcy-code protection, Forrest instructed her to put nothing on paper, Sheneman testified on cross-examination.
"Ever?" asked Dennis J. Drebsky, Robins' attorney.
"Yes," Sheneman replied.
Robins abruptly dismissed Murphy, Weir on March 21, the same day Forrest resigned as general counsel for what the company said were personal reasons. The company then replaced Murphy, Weir with Drebsky's New York firm, Skadden, Arps, Slate, Meagher & Flom.
The March 21 moves came shortly after the government filed the motion to have a trustee appointed to run the company and to have Robins held in contempt for making millions of dollars of improper payments after filing for bankruptcy.
Sheneman testified that Forrest also was afraid that putting things in writing could cause problems in the bankruptcy case.
Referring to her Murphy, Weir colleagues, who numbered as many as eight at times, as well as to herself, she said, "He also asked us not to take any personal notes." She said Forrest applied his edict "to all memoranda," including memos written from one attorney to another, whether the attorneys were Robins employes or outside counsel.
Drebsky asked how the lawyers could give advice to Robins if none was taking notes.
Sheneman replied that for about three hours each evening, she and her associates gathered in a hotel room to discuss the advice each had given. But, she said, she surreptitiously took "cryptic notes to remind us of what we had done that day" -- just enough "to trigger our memory of what we had said." The Forrest mode of operation was not Murphy, Weir's, but was "what the client Forrest requested," Sheneman said.
Drebsky, in an opening statement in which he opposed appointment of a trustee and urged "a second chance for Robins," conceded to Judge Robert R. Merhige Jr. that Robins had made the improper payments, which violated court orders barring postbankruptcy outlays to pay prebankruptcy debts.
This has been "well documented" by Assistant U.S. Attorneys Robert W. Jaspen and S. David Schiller, he said.
But the cause was that Robins' officers were "not very well schooled in the world of bankruptcy," he said. "The payments were made by people who believed they were complying with the law. That's all it is."
He said the evidence produced by a thorough investigation shows "a tragic failure," rather than cause for blaming one or another executive or one or another law firm.
But this contention came under heavy attack by the government, which took testimony from 10 witnesses from Robins and one of its law firms, Mays, Valentine, Davenport & Moore of Richmond, in an eight-hour hearing that resumes Friday.
The testimony produced inconsistencies between what witnesses said today and what they had testified in recent depositions, and inconsistencies among Robins executives and among the outside lawyers.
An example involved the company's Executive Salary Continuation Plan (ESCP), under which 25 percent of executives' salaries continue after retirement. The beneficiaries after the bankruptcy filing included director and former president William L. Zimmer III, chairman of the executive compensation committee of the board of directors, and director and former senior vice president George E. Thomas. They and an executive who retired in February received a total of about $75,000 in what the government called "insider" payments.
Before the Chaper 11 filing, Murphy Weir lawyers advised Robins officers, including President and Chief Executive Officer E. Claiborne Robins Jr., that ESCP payments were among those that were improper and must cease.
In turn, in meetings and in an employe newsletter signed by President Robins, the executives passed the word that prepetition debts could not be paid without court approval.
After making inquiries of attorneys for Murphy, Weir, Steven D. Kirkham, the director of employe benefits, was convinced that the monthly ESCP payments must halt in September.
But, he testified, superiors up the chain of command told him that Forrest and others wanted the payments to continue. For Kirkham, who has a law degree, the idea that there could be a legal basis for continuing the payments was "inconceivable," he testified.
Kirkham testified he relentlessly, but futilely, objected to the payments, which continued through March.
At one point, senior financial officer G. E. R. Stiles advised Kirkham to send a memo through the chain of command to "senior management." Kirkham said he translated the phrase to mean President Robins and Executive Vice President Robert G. Watts, because they were the only executives empowered to order that the payments be stopped.
On Sept. 9, Kirkham testified that he put the issue to attorneys at Mayes, Valentine, which has represented Robins in Dalkon Shield matters for nearly a decade.
A day or two later, the firm's Wallace M. Stark phoned Kirkham to say that senior management had been advised not to continue the payments, but decided to proceed with them, anyway.
In one of the day's many surprises, Assistant U.S. Attorney Jaspen produced Stark's notes on the instruction he had from William R. Cogar, a partner with Mayes, Valentine, as to what to tell Kirkham. One passage in the notes said that the "final call on the decision to continue the payments had been made by Robins Sr. Chairman E. Claiborne Robins and Jr. and is irreversible." The final word was underlined in the notes.
Next to the passage, however, were the words, "not done," meaning that Stark did not relay this portion of the instruction to Kirkham.
Although Cogar had imputed the "final call" to the elder and junior Robins, he testified that he had never talked to either of them about the matter. Instead, he said, he surmised or was told that the decision had been made by "senior management," which he defined as Watts, Stiles and Vice President and Treasurer H. Carlton Townes.
Cogar testified that he "assumed" that Robins Jr. would not be involved in such a matter, and that Robins Sr. would not be involved because of delicate health.
Earlier, the company revealed that it is paying the elder Robins an annual fee of $100,008 for advising the sales and marketing forces, for "community and employe relations activities," and for conferring and corresponding with employes "in matters ranging from outstanding performance to bereavement."
Jaspen and Schiller developed numerous other examples of executives authorizing improper payments after being advised by Murphy, Weir not to make them. One cited by Jaspen was a $125,000 payment to the Richmond Festival Market. The payment, made through a Robins subsidiary, showed "disrespect for the court," Jaspen said.