## Facts

- A.H. Robins Co. filed for Chapter 11 amid extensive tort litigation involving injuries allegedly caused by the Dalkon Shield intrauterine device.
- The district court appointed an Official Committee of Equity Security Holders to represent public shareholders and later appointed Ralph R. Mabey as examiner.
- While plan negotiations were pending, the examiner, debtor, Dalkon Shield Claimants’ Committee, and a representative for future tort claimants sought court approval of an Emergency Treatment Program.
- The district court ordered Robins to create and fund a $15 million “emergency treatment fund” to pay for certain fertility-related procedures (tubal reconstructive surgery or in-vitro fertilization) for eligible Dalkon Shield claimants.
- The order provided for program administration, medical eligibility review by experts, segregated interest-bearing funds with auditing, payment directly to medical providers, and termination or supersession upon plan confirmation with reallocation of unspent funds under a confirmed plan.
- The order did not identify specific statutory authority; in denying a stay pending appeal, the district court relied on bankruptcy equitable power and 11 U.S.C. § 105(a).
- The Equity Committee objected that the program effectively preferred one subset of unsecured tort claimants over other unsecured claimants and creditors outside a confirmed plan and appealed.

## Issues

1. Whether 11 U.S.C. § 105(a) authorized a court in a Chapter 11 case to compel the debtor, before plan confirmation, to fund a $15 million emergency treatment program for certain tort claimants.
2. Whether the program unlawfully granted preferential treatment to a subset of unsecured claimants over other similarly situated unsecured claimants and general unsecured creditors.

## Decision

- The Fourth Circuit reversed the district court’s order.
- The court held that § 105(a) did not authorize the compelled creation and funding of the program before confirmation of a plan.
- The court concluded the program constituted an unauthorized pre-plan distribution that preferred certain unsecured tort claimants over other unsecured creditors.

## Legal Principles

- Bankruptcy courts’ equitable authority, including § 105(a), must operate within the limits of the Bankruptcy Code and is not an independent source of substantive power to alter statutory distribution rules.
- Courts may not use § 105(a) to create ad hoc, pre-plan preferential distributions to a subset of unsecured creditors.
- Chapter 11’s framework requires comparable treatment of similarly situated creditors through the plan process (classification, disclosure, voting, and confirmation standards), not through court-ordered payments outside a confirmed plan.
- Humanitarian or emergency circumstances do not permit a court to disregard the Code’s priority and distribution scheme.

## Conclusion

The Fourth Circuit invalidated a court-ordered, pre-confirmation emergency medical funding program because it functioned as a preferential distribution to selected unsecured claimants and exceeded the authority conferred by § 105(a) and the Chapter 11 statutory scheme.


Official Comm. of Equity Sec. Holders v. Mabey, 832 F.2d 299 (4th Cir. 1987)