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Judge Says Transactions Looked Questionable

June 6, 1986

RICHMOND, Va. (AP) _ A federal judge said Friday the A.H. Robins Co. acted suspiciously by having its subsidiaries make transactions that Robins itself was barred from doing because of bankruptcy proceedings.

″It looks like subterfuge,″ U.S. District Judge Robert R. Merhige Jr. told a top Robins official on the second day of testimony involving efforts by the government to have Robins cited for contempt of court.

Federal prosecutors have alleged that Robins made about $25 million in unauthorized payments on debts incurred before the company filed last Aug. 21 for Chapter 11 protection from creditors in the wake of mounting Dalkon Shield claims.

Federal rules prohibit companies that have entered voluntary bankruptcy proceedings from paying previously incurred debts without court approval.

Robins has acknowledged that unauthorized payments were made but said its actions resulted from faulty communications between company officials and bankruptcy lawyers.

H. Carlton Townes, a Robins vice president and the firm’s treasurer, was asked about a $120,000 loan made by a Robins subsidiary to a communications division and about another subsidiary’s payment of a $78,000 pledge made by Robins to a Richmond charity. Robins’ subsidiaries were not part of the company’s Chapter 11 filing.

″Robins could do it under ordinary circumstances, but because of the order you’re having someone else do it,″ Merhige told Townes. ″You’re not just responsible to your stockholders now.″

Townes said he acted on his understanding of bankruptcy rules. He testified that attorneys for a private law firm hired by Robins to handle its case emphasized exceptions to the rule on making pre-Chapter 11 debt payments.

″I was told exceptions, and I wasn’t the only one who was told exceptions,″ he said. ″ ... I wish I had known Aug. 22 what I know now.″

Robins dismissed the law firm, Murphy, Weir & Butler of San Francisco, in March after the government sought the contempt order and the appointment of a trustee to oversee Robins’ operations.

Testimony in the case is expected to continue through the weekend.

Merhige, who is hearing the Robins case along with U.S. Bankruptcy Judge Blackwell N. Shelley, also heard testimony Friday on a motion by lawyers for four groups of potential Dalkon Shield plaintiff to extend the notification deadline for women who claimed injuries from using the birth control device.

About 300,000 claims had been filed by the April 30 deadline.

Robins sold the Dalkon Shield in the mid-1970s but withdrew it from the market as claims mounted alleging infections and other injuries by women who used the IUD.

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