Senators, states ask US Supreme Court to curb 'two-step' bankruptcy abuse

3M Co

23/01/2024 21:43

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      Supreme Court asked to review Georgia-Pacific unit's
bankruptcy
    

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      4th Circuit has paused asbestos lawsuits against
Georgia-Pacific
    

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      Lawmakers say the ruling makes "mockery" of congressional
intent
    

  
    By Dietrich Knauth
       Jan 23 (Reuters) - Three U.S. senators and 24 state
attorneys general have urged the U.S. Supreme Court to stop
well-off companies like Georgia-Pacific from using bankrupt
shell companies to sidestep lawsuits. 
    Senators Dick Durbin of Illinois, Sheldon Whitehouse of
Rhode Island and Josh Hawley of Missouri asked the court in an
amicus brief on Monday to reverse a June 2023 decision from the
4th U.S. Circuit Court of Appeals, which stopped tens of
thousands of lawsuits alleging that Georgia-Pacific products
contained asbestos and caused cancer from proceeding while its
subsidiary Bestwall remains in bankruptcy. 
    "Bestwall has created a legal stratagem that radically
expands the authority of bankruptcy courts and makes a mockery
of congressional intent," the senators said in a Tuesday
statement. 
    Attorneys general for 24 states and Washington, D.C., also
urged the Supreme Court in a separate amicus brief to stop what
they called bankruptcy "abuse," noting the 4th Circuit's
decision undermines the states' "authority to enforce their
state laws to protect their people."
    Georgia-Pacific, a unit of industrial conglomerate Koch
Industries, pioneered a legal strategy known as the "Texas
two-step" in 2017, spinning off its asbestos liabilities into a
newly created subsidiary, Bestwall, which then filed for
bankruptcy in North Carolina. At the time of the filing, the
company faced 64,000 asbestos lawsuits.
    The amicus briefs contend that Georgia-Pacific, a company
worth tens of billions of dollars, is abusing the U.S.
bankruptcy system by using it to shield its assets from people
who have been harmed by its products by preventing lawsuits from
individuals and states from moving forward, without having to
file for bankruptcy itself.
    Georgia-Pacific declined to comment. 
    The Supreme Court has not yet weighed in on the "Texas
two-step," but it is already considering how far bankruptcy
courts can go to protect non-bankrupt company owners in an
appeal of Purdue Pharma's bankruptcy plan. It has not yet
signaled whether it will take up the Georgia-Pacific case. 
    North Carolina, which has become a venue of choice for
two-step cases in the wake of the Bestwall filing, wants to
discourage potential copycats from creating shell companies in
North Carolina so they can file "abusive" bankruptcies in the
state, according to the states' brief. 
    "Wealthy companies that engage in wrongdoing should not be
able to get off the hook by cheating the legal system," North
Carolina Attorney General Josh Stein said in a Tuesday
statement.
    Unlike other courts that have tossed two-step bankruptcies,
including Johnson & Johnson's and 3M's, U.S. bankruptcy judges
in North Carolina have declined to dismiss Texas-two step
bankruptcies.
    Attorneys representing asbestos victims suing
Georgia-Pacific petitioned the Supreme Court in December, saying
that the 4th Circuit's decision would give bankruptcy courts
"virtually boundless power to halt litigation against
non-bankrupt companies."
    In its June 2023 decision, a divided 4th Circuit panel ruled
that blocking lawsuits against Georgia-Pacific, which is not
bankrupt, would give Bestwall a better chance to reorganize in
bankruptcy.
    The majority opinion largely blamed the years-long pause in
litigation on plaintiffs' lawyers who refused to settle their
asbestos claims in Bestwall's bankruptcy, while a dissenting
opinion blamed Georgia-Pacific and Bestwall for attempting a
"corporate shell game" to avoid the lawsuits. 
    The case is Official Committee of Asbestos Claimants v.
Bestwall LLC, U.S. Supreme Court, No. 23-675.
    For the senators: Deepak Gupta and Greg Beck of Gupta
Wessler
    For the states: North Carolina Attorney General Josh Stein
    For the asbestos plaintiffs committee: David Frederick of
Kellogg Hansen Todd Figel & Frederick; and Natalie Ramsey of
Robinson+Cole
    For Bestwall: Noel Francisco of Jones Day
   
    Read more
    Asbestos plaintiffs fail to knock Trane companies out of
bankruptcy
    J&J effort to resolve talc lawsuits in bankruptcy fails a
second time
  
    Georgia-Pacific may maintain bankruptcy pause on lawsuits,
court rules
  

 (Reporting by Dietrich Knauth in New York)