The committee representing women who claim they were harmed by the Dalkon Shield contraceptive device joined the government yesterday in again asking a judge to appoint a trustee to run A. H. Robins Co. and to punish the bankrupt pharmaceutical manufacturer for contempt.
"The only way to avoid continuing embarrassment to this court and to the bankruptcy system is the appointment of a trustee," the Dalkon Shield Claimants' Committee told U.S. District Judge Robert R. Merhige Jr.
"Unless a trustee is appointed, Robins will continue to dissipate its assets and will continue to maintain a position on reorganization which is dedicated primarily to protecting the Robins' family interests," committee counsel Murray Drabkin said in a court paper in Richmond.
Earlier, Assistant U.S. Attorney S. David Schiller urged Merhige to reconsider his opposition to a trustee; otherwise, Schiller said, the company could continue "out of control because the executives at the helm appear to care nothing about the law . . . where compliance with the law is inconvenient." Robins "cannot be fully trusted again," and its executives' "arrogance, deception and subterfuge" have "served to rot the system from within," Schiller said.
Drabkin and Schiller stated their views in response to Merhige's request to counsel for all of the creditors' committees for advice on sanctions. Schiller represents the Internal Revenue Service in a $62 million dispute with Robins. A sanctions hearing is set for Aug. 5.
Merhige ended a three-day hearing on June 14 by holding Robins in civil contempt for paying out millions of dollars in knowing violation of court orders.
But the judge, rejecting pleas by Schiller and Drabkin for a trustee, said instead he would name an examiner with investigatory powers. A trustee is "not necessary or desirable" because of Robins' favorable cash flow, he said.
Then at a creditors' hearing July 11, President E. Claiborne Robins Jr. and three other senior managers admitted payments were made to a money-losing subsidiary after the company was held in contempt. Schiller said the payments were the same kind as those that the judge had "specifically condemned . . . as subterfuges designed to flout the law."
Claiborne Robins -- who signed the Chapter 11 bankruptcy petition last Aug. 21 -- also testified at the July 11 hearing that he didn't know the amount of the company's reserve for Dalkon Shield claims ($600 million) or whether assets exceeded liabilities or vice-versa (liabilities exceeded assets by $268 million). He and the other senior managers denied knowing who had authorized post-bankruptcy bonuses of $1.8 million to 18 present and former executives.
The recommendations to Merhige on what contempt penalties to impose differed sharply, particularly because any financial penalties paid out of the estate would diminish the amount available for creditors.
For the government, Schiller urged Merhige to order Robins to identify the officials responsible for improper conduct, to fire those responsible for it, and to pay to the U.S. Treasury "a sum equivalent to the amounts the executives sought to obtain for themselves."
For the unsecured creditors, Harold S. Novikoff calculated the cost of Robins' "contemptuous conduct" at $17.3 million. He asked Merhige to order Robins to issue 1.5 million shares of common stock to be held by a custodian for the benefit of all unsecured creditors until a reorganization plan is confirmed.
For future claimants, Stanley K. Joynes III asked that former president William L. Zimmer III be ordered to show cause why he should not be held in contempt. Zimmer was chairman of the directors' compensation committee that authorized post-bankruptcy bonuses and who himself received $250,000 in deferred compensation in February.
For the shareholders committee, Robert M. Miller urged Merhige to impose no penalties "which may adversely affect the ability of robins to . . . earn profits."