## Facts

- A.H. Robins Co. filed for Chapter 11 amid extensive tort claims tied to the Dalkon Shield intrauterine device.
- The district court (acting in the bankruptcy case) entered a consent order barring Robins from paying pre-petition debts without prior court approval.
- Robins made unapproved payments on pre-petition obligations, including executive benefit payments, certain payments through subsidiaries, payments under unassumed executory contracts, and settlement of a pre-petition employee lawsuit; it also caused subsidiaries to make prohibited charitable contributions and certain investments.
- The Committee of Dalkon Shield Claimants moved for appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a), asserting the trustee was necessary to protect creditors from further misconduct.
- After a hearing, the district court found Robins in civil contempt for violating the consent order and bankruptcy-law requirements, with sanctions to be set later.
- The district court denied the trustee request and instead appointed an examiner to investigate and report on the debtor’s conduct, stating contempt was not equivalent to “cause” for a trustee.
- The Committee appealed the denial of a trustee to the Fourth Circuit.

## Issues

1. Whether a civil contempt finding for violating a bankruptcy consent order automatically establishes “cause” requiring appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a)(1).
2. Whether the bankruptcy court abused its discretion in declining to appoint a trustee under § 1104(a)(1) or § 1104(a)(2) and appointing an examiner instead.

## Decision

- The Fourth Circuit affirmed the order denying appointment of a Chapter 11 trustee.
- The court held that violations of a consent order and a civil contempt finding do not, by themselves, mandate a trustee under § 1104(a).
- The court concluded the district court acted within its discretion in finding no fraud, dishonesty, incompetence, or gross mismanagement warranting displacement of management.
- The court approved the district court’s use of an examiner, along with contempt findings and forthcoming sanctions, as adequate protection for creditor interests while preserving debtor-in-possession control.

## Legal Principles

- Appointment of a Chapter 11 trustee under 11 U.S.C. § 1104(a) requires a case-specific determination of either (i) “cause” (including fraud, dishonesty, incompetence, or gross mismanagement) or (ii) that a trustee is in the interests of creditors, equity holders, and other estate interests.
- A civil contempt finding and violations of bankruptcy-related court orders do not automatically satisfy § 1104(a)’s “cause” requirement; the court retains discretion to evaluate severity and fit with statutory categories.
- Chapter 11 generally presumes debtor-in-possession management; a trustee is an extraordinary remedy that may be denied where it would likely hinder reorganization and lesser oversight measures can address misconduct.
- Appointment of an examiner may be an appropriate alternative to a trustee to provide independent investigation and oversight without displacing current management.

## Conclusion

The Fourth Circuit held that, despite serious violations leading to civil contempt, the bankruptcy court was not compelled to appoint a Chapter 11 trustee and did not abuse its discretion in keeping Robins as debtor in possession while appointing an examiner and reserving sanctions to address the misconduct.


Comm. of Dalkon Shield Claimants v. A.H. Robins Co., 828 F.2d 239 (4th Cir. 1987)