Federal bank regulators will urge a bankruptcy court today to quash requests for secret reports on their examinations of two big banks that would help finance A.H. Robins Co. compensation of victims of the Dalkon Shield.
Lawyers for women harmed by the intrauterine contraceptive device say they need to see the bank examiners' reports on Manufacturers Hanover Trust Co. and Chemical Bank of New York to determine if the banks are strong enough financially to carry out the plan.
Robins, which has been in bankruptcy for nearly two years, has filed a reorganization plan in which it would put up $75 million of its own money for a trust to compensate Dalkon Shield victims. Its proposal calls for it to draw the remaining $1.67 billion on a letter of credit from a syndicate of banks led by Manufacturers and Chemical. As a result, the committee representing victims of the IUD said in court papers, the women awaiting compensation would have an "absolute dependence" on the two banks.
At today's hearing, the Federal Reserve System and the Federal Deposit Insurance Corp. will urge the U.S. Bankruptcy Court in Richmond to quash committee subpoenas for the reports and related documents. The Fed and the FDIC oppose disclosure even though the Dalkon Shield Claimants' Committee seeks a court confidentiality or protective order to assure the documents never become public.
The information is "not relevant" to the purpose for which the committee seeks it and is "readily available elsewhere," the Justice Department argued for the agencies in a recently filed brief.
"Requiring disclosure could result in a financial panic affecting the stability of MHT and Chemical if information disclosed was misunderstood by the public," the government asserted.
"Moreover," the government said, "any such run on these multinational money center banks could reverberate throughout the nation's banking system and the world economy."
John J. Walsh, lawyer for the claimants' committee, responded that "the publicly available information does not permit the committee to make the critical assessments of MHT's and Chemical's financial adequacy over the next five to 10 years, or the meaningful risks regarding their ability to perform over that time period."
Walsh also contended that "the parade of horribles conjured up" by the government in "emotional and unfounded arguments" vanishes "because the committee does not seek to disclose the documents to the public."
Also set for argument today is a contempt-of-court order that U.S. District Judge Robert R. Mehrige Jr. issued on July 2 against Prudential-Bache Securities Inc., its law firm in Falls Church, Hartke & Hartke, and former senator Vance Hartke (D-Ind.) and his son Wayne.
In a friend-of-the-court brief filed without the knowledge or authority of the court, the Wall Street brokerage house and its counsel set out a recapitalization proposal that, they said, would pay Dalkon Shield claimants at least $250 million more than Robins' plan, while preserving the company as a family controlled, independent entity.
Robins asked the court to punish Prudential-Bache and its counsel for violating Bankruptcy Code provisions barring anyone but the debtor -- Robins, in this case -- from filing a reorganization plan during the so-called period of "exclusivity." Mehrige has extended that period indefinitely for Robins.
The judge struck the Prudential-Bache brief from the docket and ordered the firm and its counsel to appear today to show cause why they should not be held in contempt. Yesterday, however, Wilmer, Cutler & Pickering, a leading Washington law firm, moved to head off a possible contempt citation.
Prudential-Bache has concluded that the filing resulted from "a genuine misunderstanding" between one of its officials, who wasn't named, "and the other entities with whom it had been discussing a possible financing proposal," Wilmer, Cutler said.
"PBS at no time intended to circumvent any order of this court or any provision of the Bankruptcy Code," the law firm said. "In fact, PBS ceased to have any involvement with the financing proposal in early June, immediately after Robins filed its plan," and "has no intention of pursuing any further efforts on this matter."
The dispute over the bank records, including communications between them and the Fed and the FDIC, began on May 26, when Cadwalader, Wickersham & Taft, counsel to the claimants' committee, tried to subpoena the records directly from the banks.
The attempt failed at a June 5 court hearing at which Manufacturers accused the committee of wanting "information that's none of their business," while Walsh charged that Manufacturers' "enormous loans" to countries such as Brazil and Mexico could put it out of business.
Walsh then issued subpoenas to the agencies, which filed a motion to quash them, noting that Congress and the courts have long recognized the confidentiality or "privilege" of bank-examination reports