Committee of Dalkon Shield Claimants v. A.H. Robins Co.

A.H. Robins Company (Robins) (debtor), the manufacturer of the Dalkon Shield birth-control device, filed a Chapter 11 bankruptcy petition after women who had allegedly been injured by the device began bringing claims against the company. Pursuant to a consent order entered by a federal district court, Robins was not allowed to pay prepetition debts without the court’s prior approval. Notwithstanding that order, Robins made payments on several prepetition claims without the court’s knowledge or approval. The Dalkon Shield Claimants’ Committee (the committee) moved under 11 U.S.C. § 1104(a) for the appointment of a trustee to run Robins’s business and prevent Robins from further abusing its creditors. After a hearing on the motion, the court found Robins in civil contempt of the consent order. However, the court denied the committee’s motion to appoint a trustee and instead appointed an examiner to investigate Robins. The court stated that a finding of civil contempt was not the same as finding cause to appoint a trustee under § 1104(a). The court explained that trustees are needed if debtors commit fraud or mismanagement, but Robins had committed neither. The court further stated that Chapter 11’s philosophy requires giving debtors a second chance to correct their past mistakes. The court found that Robins’s management was capable of and interested in compensating Robins’s claimants and further found that appointing a trustee was neither necessary nor desirable and could negatively impact Robins’s reorganization efforts. The committee appealed, arguing that the district court had erred in not appointing a trustee.