I. Introduction

The history of the Dalkon Shield spans more than thirty years and is charged with controversy at every turn. Many legal scholars and journalists have written on the subject. What follows is a very brief overview of the Shield from its creation and marketing, through tort litigation and bankruptcy, to the trust settlement of more than 200,000 claims in just over ten years.

II. Production and Sale of the Dalkon Shield, 1968-1974 The Dalkon Shield, a contraceptive intrauterine device (IUD), was invented in the late 1960s at a time when women and their physicians were looking for a safe and simple alternative to the birth control pill. This particular model of IUD was the creation of Dr. Hugh Davis, a professor of gynecology at Johns Hopkins University Medical School, and Irwin S. Lerner, an engineer and inventor. Davis, who for several years had been testing other IUDs on patients at a family planning clinic, began to test his own device there in 1968. Davis, Lerner, and a lawyer, Robert E. Cohn, partners in a pharmaceutical laboratory, named the new IUD the Dalkon Shield. The word "Dalkon" apparently came from letters of the partners' last names, and "Shield," from the shape of the device. By 1970, in hopes of wider marketing, they looked for a purchaser of the Shield and found the A.H. Robins Company in Richmond, Virginia.

A.H. Robins (AHR), a family-run pharmaceutical company more than a hundred years old, was, by the late 1960s, the well-respected manufacturer of popular, over-the-counter products such as Robitussin cough medicines, Chapstick lip balm, Sergeants Flea & Tick Collars, and Dimetapp cold remedies. AHR purchased the Dalkon Shield in June of 1970 and began production in early 1971. Thanks to a vigorous sales campaign, the Shield sold well in the U.S. and abroad. Within four years, 3.6 million Dalkon Shields had been used by women worldwide.

III. Dalkon Shield Litigation, 1974-1985

By 1972, physicians began reporting problems with the Dalkon Shield. Besides the fact that the device had a higher failure rate as a contraceptive than Dr. Davis and AHR had touted, some users of the Shield were suffering other health complications, the most serious being spontaneous septic abortion. In the spring of 1973 two women who had become pregnant while using the Shield died of severe infection.

As early as 1971 an AHR employee had discovered that the multifilament material used for the tail string of the Shield was capable of serving as a wick and, thus, of introducing bacteria from outside the body into the sterile environment of the uterus. In the summer of 1974, when the Food and Drug Administration held hearings on IUDs and septic abortion, AHR argued that the Dalkon Shield posed no more risk that other devices, but a physician reported that his research indicated the Shield's tail string was capable of wicking bacteria. That summer, AHR suspended domestic sales of the Dalkon Shield. By the time foreign sales were suspended some months later, fifteen Shield users had died of septic abortions; 245 other women had suffered septic abortions and survived. Other problems Shield users reported included severe cramping and bleeding, ectopic pregnancies, birth defects in children carried to term, and pelvic inflammatory disease. Some complications led to sterility.

In late 1974, the first lawsuit against AHR began in a Kansas court. The plaintiff, Connie Deemer, had suffered a perforated uterus after becoming pregnant while using the Shield. The jury awarded a relatively small amount, $10,000, in compensatory damages, but awarded $75,000 in punitive damages. Over the next six years AHR often settled cases out of court and prevailed about half the time at trial, but by 1980, when hundreds of new claims were being filed, the company was faced with punitive damages and settlements of high six- or seven-figures. Both plaintiff groups and AHR had made attempts to consolidate this litigation, but the only success in this regard was for pre-trial hearings for federal cases before the Judicial Panel on Multi-district Litigation.

In 1980, AHR sent a letter to about 200,000 physicians suggesting they remove the Shield from any women who had been using it for more than three years. In the fall of 1984, with about 3,500 claims yet to settle, the company sent another letter to doctors offering to pay for removal of the Shield from any women still using it. More claims poured in. The following spring, another Kansas jury awarded $1.75 million in compensatory damages and $7.5 million in punitive damages to Loretta Tetuan, a childless young woman whose Dalkon Shield injuries had led to a hysterectomy. Faced with more than 5,000 unresolved claims, AHR filed on August 21, 1985, for federal bankruptcy protection.

IV. Bankruptcy Proceedings, 1985-1989 Presiding over the AHR bankruptcy case were U.S. District Judge Robert R. Merhige, Jr., and Bankruptcy Judge Blackwell N. Shelley. In late fall 1985, Merhige ordered a worldwide notification via newspaper and television for all persons claiming injury from the Shield to file claims with the court by April 1986. By that date the court had received over 300,000 claims from the U.S. and abroad. The court then mailed a questionnaire to claimants, to be returned by summer of 1987. After that deadline the claims numbered 197,000.

AHR, assuming that just a few thousand outstanding claims remained, had entered bankruptcy hoping that after reorganization the company could settle its obligations with claimants and resume operations as before. However, the number of claims filed in 1986 led to an effort to locate a company which could pay off these claims in exchange for ownership of the business. Simultaneously, work began to determine a fair value of the outstanding claims. The judges appointed an examiner, Ralph Mabey, to oversee the management of AHR and to assist in handling the difficult negotiations in this complex bankruptcy and mass tort settlement. The largest group of creditors consisted of claimants represented by a number of plaintiffs' attorneys. Other creditors included banks and businesses, as well as AHR shareholders. Once bidding for the company began, potential purchasers also became involved in the settlement negotiations.

The court appointed Francis E. McGovern, a law professor who specialized in mass torts, to examine and report on a sample of resolved cases, as well as a sample of outstanding claims, so that other experts could determine the extent of AHR's liability. The experts' estimates ranged from $1.2 to $7 billion. After hearing their reports in late 1987, Merhige estimated AHR's liability to be $2.475 billion. In early 1988, American Home Products (AHP), a large manufacturer of health care products, agreed to put up about $2.3 billion to fund the Dalkon Shield Claimants Trust and in the process acquire the A.H. Robins Company. The remainder of the fund came from other sources, including Aetna, which insured AHR, and the Robins family. In addition, AHP paid $700 million to AHR shareholders, of which over $300 million went to the Robins family.

As soon as this deal was struck, five trustees were appointed to commence the work of the Trust. By spring 1988, AHR's Sixth Amended and Restated Disclosure Statement for its reorganization was mailed to claimants and other parties for approval. After approval by the requisite majority of claimants and other creditors, and after a hearing on July 28, 1988, Judge Merhige confirmed the plan. Some claimants opposed the plan, however, and a long appeal process began. The U.S. Supreme Court denied petitions for review in November 1989, and the following month the reorganization plan was consummated.

V. Dalkon Shield Claimants Trust, 1989-2001Administration The Dalkon Shield Claimants Trust, located in Richmond, Virginia, began work under the direction of five trustees appointed in mid-January 1988, and an executive director hired that August. Even before consummation, the plan provided for a start-up fund of $100 million. Consequently, in the fall of 1988 the Trust was able to offer claimants the first and simplest of several options. Under Option 1, a woman merely had to sign an affidavit affirming injury from the Dalkon Shield, and she would be paid $725. If her husband or injured child chose, he (or she) could also file under this option and receive $300. During the pre-consummation period the Trust could also pay liquidated claims. By the time the Disclosure Statement was consummated in December, the Trust had settled 85,000 Option 1 claims for about $60 million.

The Disclosure Statement laid out the basic principles under which the Trust was to operate. The purpose of the Claims Resolution Facility (CRF) was to "provide all persons full payment of valid claims at the earliest possible time consistent with the efficient design and implementation of the claims resolution facility. This purpose [was] to be achieved by (1) providing an efficient economical mechanism for liquidating claims which [favored] settlement over arbitration and litigation, thereby reducing transaction costs, (2) providing claimants with an attractive alternative to trial by jury where settlement [was] not achieved, (3) providing fair and equitable compensation based upon historic values . . . to persons injured by the Dalkon Shield."

The Trust's responsibility was to the claimants as a collective whole, and all claimants were to be treated equally and fairly. Also the Trust was non-reversionary, which is to say that any funds remaining at the end would not revert to AHP, but instead would be distributed among the claimants. Nor would the Trust award punitive damages to certain claimants, as in tort litigation, but instead would pay out whatever funds remained at the end on a pro rata basis to all claimants with documented injuries. One of the most important purposes of the plan was to establish "global peace." That is, the plan stipulated that any and all claims involving the Dalkon Shield would be resolved once and for all by the Trust, and therefore AHR, its purchaser AHP, Aetna, doctors, clinics, and hospitals would no longer be liable for Dalkon Shield injuries.

The plan also provided general guidelines for evaluating claims. For example, both represented and unrepresented claimants were to be treated equally and without regard to where they might sue on their claims. In addition, the plan outlined the injuries for which claimants would be compensated. Subsequently, the Trust devised an elaborate review process for the most serious injuries, insuring as nearly as possible the fair and consistent treatment of every claim. Furthermore, the Trust's offers would be "best and final," and not subject to negotiation before litigation. If claimants were dissatisfied with their offers, they were encouraged to choose from several methods of settlement in order to avoid a costly trial.

The CRF laid out four claims options. Option 1, described above, was ultimately chosen by 133,000 users and their relatives. Option 2 was for claimants who had proof of Shield use as well as proof of injury, but no documentation of a connection between the two. Relatively few claimants (18,000) chose this option, which paid between $850 and $5,500 in fixed allotments based upon type of injury. Option 3 was the category where the most money was paid and the most thorough documentation of injury was required. Here the claimant had to produce medical records showing that her use of the Shield was the direct cause of her documented injuries. Payments in this category went as high as $4 million, although the average was $31,000. Each case was carefully evaluated, and the award was assigned based upon the nature of the individual's circumstances. About 47,000 claimants chose Option 3. Finally, Option 4 allowed claimants to defer their choice if they were not yet certain of the extent of their injuries. Spouses as well as injured children could file their own claims in any of the three categories based upon the nature of the user's injury and medical records.

During the bankruptcy proceedings, efforts were made to notify all claimants worldwide and get them to submit their claims during 1986. However, late claims came in, and the court and the Trust ultimately honored legitimate claims filed between the April 1986 deadline and September 1989. A class action suit filed against Aetna for its alleged compliance in AHR's liability was settled by establishing a fund to pay late claims. Named the Breland Insurance Trust (BIT) (Glenda Breland was the first-named claimant in the class action), this fund was created from the proceeds of two $50 million insurance policies and was intended first to supplement the Trust if necessary. But if that were not necessary, the BIT would be used to pay late claimants and persons whose claims had been reinstated after initially being disallowed. The BIT began making payments in 1994 when it became clear that the Trust had ample funds. The Breland claims were handled exactly like Trust claims, but dissatisfied Breland claimants were not allowed to take their settlements to litigation.

A second smaller trust, called the Other Claimants Trust, was established with $5 million from the Robins family and $45 million from the sale of AHR. The purpose of the OTR was to cover the financial losses of doctors, hospitals, and clinics as a result of their involvement with the Dalkon Shield.

As soon as the Trust was fully funded at the end of 1989, work began to determine values for Option 3 claims. Trustees and Trust staff, statisticians, and a few plaintiffs' lawyers worked for months examining settlements and awards AHR had paid, as well as the data about the nature of outstanding claims that had been captured in the McGovern survey. Keeping an eye always on the total amount of the Trust's assets, this working group eventually set values on every foreseeable type of injury. Their work was then evaluated by a group of plaintiffs' attorneys who had handled large numbers of Dalkon Shield suits before bankruptcy. The process of establishing evaluation guidelines for Option 3 claims took more than a year.

Meanwhile claimants were sent packets informing them of the details of Options 2 and 3. Great care was taken to explain the process clearly so that it would not be necessary for claimants to hire an attorney unless they chose to do so. The Trust hired staff to assist claimants in filing claims and to secure medical records for them if their own efforts were fruitless. Another team of staff members checked the claims to be sure they were complete before sending them to reviewers. The Trust hired novices in the claims review process and gave them sixteen weeks of intensive training in evaluating gynecological injuries before they began work. After a value was placed on a claim, a supervisor reviewed the file again before the offer was mailed to the claimant.

For the most part claims were evaluated in the order in which documentation reached completion. Higher priority, however, was afforded the claimants whose suits had been frozen when AHR declared bankruptcy, and those who had participated in the McGovern survey. In addition, claimants with critical health issues were given priority. Couples who were rendered childless because of the Shield could apply right away for funds for in vitro fertilization.

Once a claimant received her settlement offer, which was "best and final," she had to decide whether to accept or reject it. If she was not pleased with the amount and wanted to go to arbitration or litigation, the Trust required her to attend a settlement conference first. There she could discuss her claim with a Trust representative, who would explain how the Trust had reached the figure offered. At this time the claimant was allowed to present new medical evidence that had not been available when she filed her claim. If new documentation was offered, the Trust would re-evaluate her claim. Otherwise, the Trust stood by the original amount offered. If the claimant remained dissatisfied, she could choose to proceed to arbitration or litigation. Another choice was Alternative Dispute Resolution (ADR), a relatively simple and speedy form of arbitration.

The ADR process opened in April of 1993 with an award cap of $10,000. When the cap was raised to $20,000 five months later, ADR became popular with claimants dissatisfied with the Trust's offer. In the end, 6,600 chose ADR. A smaller number chose to go to formal arbitration, and fewer still chose litigation. Because the Trust was committed to keeping costs as low as possible, every effort was made to avoid expensive trials. Of the 47,000 claims that were settled under Option 3, 41,000 were accepted; about 6,000 of them were resolved in ADR; 70 in arbitration; and only 90 went to trial.

Although it was necessary for the CRF to allow settlement by these more traditional tort means, by far the majority of claimants worked directly with the Trust, without aid of an attorney, and accepted the Trust's offer. Those who had legal assistance received slightly larger awards on average, but they then had to pay their attorney's fees out of the award.

By 1995 it became clear that more than enough funds were left to cover the remaining claims. Furthermore, the Trust's investments had earned $800 million and at that point administrative costs were running $200 million lower than had been anticipated. So in that year the Trust made the first of a half-dozen pro rata payments. Claimants who had been paid more than $725 under Option 2 or 3 were eligible for pro rata payments. By the time the Trust closed in the summer of 2001, pro rata payments had totaled about $1.5 billion, and eligible claimants had been paid just over 100% above their initial settlement amounts. By December 1996, 97% of the claims had been settled. The Trust began reducing its staff, and those who remained took care of the small portion of claims that were being appealed.

Legal Department. When the Trust was opened in 1989, staff was hired to handle the anticipated legal issues. General Counsel, Linda Thomason, was assisted by a team of in-house lawyers as well as attorneys in other parts of the country where claims were contested. At the outset the Trust also hired, as outside counsel, Michael W. Smith and Orran L. Brown with the Richmond law firm of Christian, Barton, Epps, Brent & Chappell. Eventually Brown carried on alone in that position, and in the spring of 1993 he established his office in the building where the Trust was located. His principal duties were to interpret the Reorganization Plan and handle injunction enforcement issues on the Trust's behalf. Some of the major interpretation issues included whether claimants could sue for punitive damages and attorney's fees, whether pre- or post-judgment interest would be allowed, whether the Plan forced the Trust to concede product liability, and whether the list of injuries in the CRF could be taken as an admission that such injuries were caused by the Dalkon Shield.

The Reorganization Plan discharged A.H. Robins, and all persons connected with it, as well as American Home Products, of any liability for tort or other claims relating to the Dalkon Shield. The Plan also enjoined claimants from bringing suit against these corporations and persons, or against hospitals, clinics, or physicians. When claimants did attempt such suits, the Trust moved to enforce the injunction.

In 1991 the Trust filed a motion with the district court for an order to establish guidelines for arbitration and litigation. Amended Administrative Order Number One set parameters for discovery, and it directed that a document depository be established and made accessible to claimants. The order provided a system to insure that claimants who chose arbitration and litigation followed a prescribed procedure, and it reiterated the CRF's disallowance of trebled, exemplary or punitive damages, or attorney's fees.

The purpose of the Trust, as stated in the CRF, was to provide "an efficient economical mechanism for liquidating claims which [favored] settlement over arbitration and litigation" and to provide "an attractive alternative to trial by jury where settlement [was] not achieved." Once a settlement offer was made, the Trust was willing to discuss the evaluation in a settlement conference but it refused to negotiate. Many claimants dissatisfied with their offers went to ADR. Others choose the more costly options of arbitration or trial in hopes of receiving a much higher award. At this point the playing field changed, and Trust no longer waived various defenses. For example, if the statute of limitations had run out before she filed her claim, the Trust employed that defense. In other words, the Trust did all it could to discourage claimants from choosing expensive methods of resolving disputes, adhering to the principle that if all claims were settled equally and efficiently, there would be a greater amount to be shared among all.

Two decisions of the Trustees aided the settlement process. Raising the cap on ADR awards from $10,000 to $20,000 in 1993 made this process very popular with claimants. Two years later when the pro rata payments commenced for those with offers higher than $725, many claimants who were initially dissatisfied realized their awards would ultimately be more generous than they had thought.

Many legal issues required judicial intervention during the course of the Trust's existence. One controversial issue concerned the Trust's holdback policy. In a case where a claimant was awarded a higher amount in litigation, the Trust reserved the right, upheld by the court, to defer paying the difference between the trial award and the original offer until there was assurance that all claims could be paid. Often when claimants brought their cases in state court, the Trust attempted to have them removed to federal court. There were many questions surrounding how ADR and arbitration would be handled. One case regarding burden of proof in ADR,, was decided in the Trust's favor by the district court but partially overturned by the Fourth Circuit, which said that the claimant only had to provide a "presumption of causation." Plaintiffs were unsuccessful in getting this ruling to apply to arbitration and litigation.

In 1995 when the Trust began making pro rata payments, Judge Merhige on his own initiative issued an order limiting claimants' attorneys from recovering more that ten percent from those payments. One impetus for this ruling was complaints he had heard through the years from claimants whose attorneys had received a large percentage of their initial awards as contingent fees. The judge also knew that since pro rata payments would be made in cases that had been settled, little or no additional work was required of the attorneys. However, this order provoked protest from the plaintiffs' bar, and a group of twenty-nine lawyers appealed the order. The Fourth Circuit, calling "this litigation and appeal . . . wonderful examples of chutzpah," affirmed Judge Merhige's order.

Although Brown spent about ten years representing the Trust, and some of the cases stretched over many of those years, the legal costs were ultimately lower than anticipated. While a couple hundred cases were filed, in the end only about ninety went to trial. Nonetheless, the legal issues and claims that were litigated required the attention of the legal department for about five years after the vast majority of the claims were settled. Pro rata distributions from the remainder of the Trust were issued over time as the number of unresolved cases diminished.

VI. Conclusion The Disclosure Statement had given the Trust twenty years to settle 197,000 claims. With the allowance of late claims, the Trust ultimately paid a little over 218,000 claims and settled the vast majority of them in only seven years. Although the Trust operated particularly cautiously at the outset in order to be sure all claimants could be paid fairly, this extreme care worked to the benefit of the claimants in the end. Thanks in large part to the Trust's diligence, caution, and wise investments, the most seriously injured claimants saw their awards doubled. In terms of fairness and efficiency, the Dalkon Shield Claimants Trust achieved, in the opinion of many, the most successful resolution of a mass tort case in the twentieth century.