RICHMOND, JULY 10 -- A federal judge excoriated bank regulators today while refusing to quash subpoenas for secret reports on examinations of the two banks that play a crucial role in the plan of the bankrupt A.H. Robins Co. to reorganize.
U.S. District Judge Robert R. Merhige Jr. said the Federal Reserve System and the Federal Deposit Insurance Corp. were "asinine" to have taken a position that encouraged a perception "that there may be something wrong with" the financial soundness of the two banks, Manufacturers Hanover Trust Co. and Chemical Bank of New York.
"Oh, come on, there's no danger of a run," Merhige told Justice attorney William R. Irvin, who was representing the Federal Reserve and the FDIC. "The only danger of a run is your attitude," which, he said, created the problem and was "incredible."
Merhige also told the Justice Department lawyer that "it's ridiculous for you to suggest" the possibility of a run on the banks if he privately looks at the secret examination reports.
Merhige made the remarks at a hearing at which he conditionally denied the government's motion to quash the subpoenas, which were issued by the committee representing nearly 330,000 women who say they may have been injured by the Dalkon Shield. The shield was the intrauterine contraceptive device Robins sold in the early 1970s.
Merhige said that he and Bankruptcy Judge Blackwell N. Shelley, who presides with him in the two-year-old Chapter 11 case, will review publicly available material on the financial stability of Manufacturers Hanover and Chemical. They head a syndicate of banks that would provide a letter of credit for $1.675 billion, which would be available to fund a trust for Dalkon Shield claimants. Robins itself would put up $75 million.
If the public material persuades the court of the soundness of the two banks, Merhige said, the court will then be able to act on the Robins plan for reorganization or on a similar plan growing out Robins' intended merger with Rorer Group Inc.
If those materials are insufficient, however, Merhige said the court will ask the Federal Reserve System and the FDIC for the secret reports and related documents, which he and Shelley would review in chambers.
Government lawyer Irvin argued that a disclosure of the secret papers to anyone was unacceptable.
Merhige responded heatedly that this meant that the government, which "doesn't trust Congress, now doesn't trust the courts."
"You don't seem to understand. The court needs this information," Merhige said.
Irvin stood fast. "Anything short of a whole-hearted endorsement" of the reorganization plan after the judges had seen the reports would have a "potential for fueling speculation that would start a run on multinational banks," he said.
"I do not accept your statement" that if the judges look at the papers in private it could start a run, Merhige said.
"It's what would happen if you would look at it and turn down the plan for any reason," Irvin said.
If the judges conclude that lawyers for the claimants' committee should see portions of the papers, Merhige said, the judges will then decide how to proceed, but still in strict secrecy.
Manufacturers Hanover attorney William Manning said his client didn't object to the judges seeing the papers, but "would prefer to withdraw" before allowing anyone else to see them.
In a separate proceeding, Merhige fined former senator Vance Hartke (D-Ind.), his son Wayne, and their Falls Church law firm $7,500 for violating the bankruptcy code by filing a proposal in the case without court permission.
The plan was set out by Prudential-Bache Securities Inc., which said it had dropped the proposal by the time the law firm had filed it with the court. It said the court filing was a misunderstanding.