Official Committee of Equity Security Holders v. Mabey

Pharmaceutical company A.H. Robins Co. (Robins) (debtor) manufactured an intrauterine device (IUD) called the Dalkon Shield in the 1970s and early 1980s. In 1985, Robins filed bankruptcy under Chapter 11 because a multitude of women had sued Robins alleging the device made them infertile. Approximately 325,000 women filed claim notices alleging injuries. Robins was a publicly traded company with more than 20 million shares of common stock outstanding. The district court appointed an Official Committee of Equity Security Shareholders (equity committee) (plaintiff) to represent the public shareholders’ interests. A year later, in August 1986, the court appointed Ralph Mabey (defendant) as an examiner to suggest a reorganization plan. Robins proposed a plan and disclosure statement in April 1987, but no action was taken because another pharmaceutical company proposed a merger that would compensate Dalkon Shield claimants from a $1.75 billion fund and pay all other creditors’ claims in full, which would require a revised plan and disclosure statement. Meanwhile, Mabey, Robins, the Dalkon Shield claimants committee, and the future claimants’ representative moved to establish a $15 million emergency-treatment program. The fund would provide tubal reconstructive surgery and in vitro fertilization for infertile women who used the IUD. Only claimants under 40 were candidates for the $10,000–$15,000 surgery, which restored fertility 30–60 percent of the time. On May 21, 1987, the district court approved and ordered the fund established without mentioning the source of its authority to do so. However, in denying the equity committee’s motion for a stay, the court cited expansive equity powers under Bankruptcy Code § 105(a), explaining that the dire circumstances required it “to invoke its power under § 105(a) and take those steps needed to treat these claimants equitably,” citing a Supreme Court decision in support. The equity committee appealed.