Dalkon Shield Company Files for Bankruptcy
Plagued by a continuing flood of lawsuits filed by thousands of women who claim to have been injured by its Dalkon Shield intrauterine device, Richmond, Va.-based A. H. Robins Co. on Wednesday filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
E. Claiborne Robins, the pharmaceutical company’s chairman, said the filing--which listed liabilities of $206 million and assets of $466 million--was prompted “in part by the continuing burden of litigation related” to the shield, which was taken off the market in 1974.
“It was the only choice they had,” said Teneyck T. Wellford, an analyst with the investment firm Branch, Cabell & Co. in Richmond. The litigation “was overwhelming them,” he said.
Under Chapter 11, a company may continue to operate while it attempts to regain its financial health under the supervision of a bankruptcy court. Ordinarily, the company tries to negotiate with creditors to extend payment of debts.
The immediate effect of Robins’ filing, legal experts say, will be to stay or temporarily halt the litigation pending against the pharmaceutical giant outside the bankruptcy proceedings. Legal costs stemming from a decade of Dalkon Shield cases already exceed $100 million, a Robins spokesman said. As of June 30, the company and its insurer have paid awards and settlements totaling $378.3 million in about 9,230 cases, the spokesman added.
The action by Robins recalls Manville Corp.’s controversial Chapter 11 filing in 1982, when the asbestos maker was trying to get out from under the burden of billions of dollars in claims filed by victims of asbestos-related diseases. There had been speculation that Robins would take the same path. Observers are also watching Union Carbide, which may face billions of dollars in claims if victims of its poisonous gas leak in Bhopal, India, succeed in having their cases heard in U.S. courts.
Attorneys Not Pleased
Robins’ action did not please some attorneys for plaintiffs in Dalkon Shield cases.
“I think their strategy is totally unjustified,” said Bradley Post, a Wichita, Kan., lawyer who has represented about 90 plaintiffs and was the first lawyer to win a jury case against Robins 10 years ago. “Here’s a company that is a healthy, expanding corporation . . . that, to avoid paying out those vast earnings to injured plaintiffs, chooses to take Chapter 11.”
Wednesday’s filing came a year after A. H. Robins had set up a $615-million reserve fund to cover injury claims on its Dalkon Shield intrauterine device, which was worn by an estimated 4.5 million women. The establishment of the reserve fund caused Robins to incur a net loss last year of $461.6 million on revenue of $631.91 million.
The lawsuits contend that women who used the device suffered pelvic infections, spontaneous abortions and sterility because of bacteria that traveled into the uterus by way of a hollow string that remained attached to the device.
Despite the mounting litigation tab, Robins posted net income of $35.3 million on revenue of $331.1 million for the first half of this year.
Stock Trading Halted
Trading of A. H. Robins stock was halted on the New York Stock Exchange on Wednesday when it was selling at $8 a share, which was down $2.75 from Tuesday’s close.
“Today’s filing does not mean the company is going out of business or that its assets will be liquidated,” Chairman Robins said, adding that the company’s “businesses remain sound.” He added that the filing applies only to the parent company and does not include any of its foreign or domestic subsidiaries. He said he foresees no layoffs.
About 5,100 cases and claims against Robins are pending, and the company said it expects a substantial number of new cases and claims involving the Dalkon Shield, which Robins manufactured from 1972 through 1974.
Only last winter, Robins lawyers believed that they were nearing the end of the bitter odyssey of litigation as the company instituted a number of measures aimed at settling pending cases and cutting off future litigation.
Robins spent about $4.5 million last October to launch a three-week media campaign urging women still wearing the IUD to see their doctors. The company set up a 24-hour, toll-free hot line that received more than 15,000 calls. The effort seemed successful and, the firm said, appeared to indicate that the problems might not be as extensive as first believed. Robins offered to pay for the removal of IUDs from about 4,500 women.
Dispute Over Insurance
Later in 1984, Robins settled a long-standing dispute with its insurance carrier over coverage. The agreement provided the company with a potential $70 million in additional funds for Dalkon claims.
But Robins’ hopes for a quick end to its legal ordeal soured when the crux of its litigation strategy failed.
Robins went to U.S. District Court in its home city of Richmond and filed a motion to have a nationwide class-action suit for punitive damages cases by Dalkon Shield plaintiffs heard in Richmond. It also sought to have an arbitrator, rather than a judge, settle claims for compensatory damages.
On July 22, however, U.S. District Judge Robert R. Merhige Jr. in Richmond denied the motion--a decision that Robins continues to lament.
“We had hoped that all the parties involved would have joined in an effort to devise a procedure that would have concluded this litigation in a fair and expeditious manner,” Robins spokesman Roscoe E. Puckett Jr. said.
Wichita lawyer Post agreed: “It would have been to Robins’ advantage to have the cases heard here--they would have a very good advantage . . . . But my clients were injured in Kansas, and I wasn’t about to subject them to coming across the country to have their case heard” in Richmond.
One Litigation Forum
Robins lawyers are hoping that the Chapter 11 filing will accomplish the ends their U.S. District Court motion did not.
Wednesday’s bankruptcy filing, legal experts say, will enable Robins attorneys to deal with litigation in one forum, the federal bankruptcy court in Richmond, instead of racing around the country, as they have been doing during the last decade. However, Robins lawyers and legal experts agree that the strategy is risky.
“We all are sort of on the cutting edge of the law in this area,” said James Crockett, an attorney who has represented Robins. “Everybody has to file their (legal) claim here in Richmond,” but their cases will not necessarily be heard there, Crockett noted. “It’s up to the discretion of the bankruptcy court. It’s going to be a brave new world now.”
Times staff writer Ralph Vartabedian contributed to this story.
