1. This case presents important questions about the scope of federal
bankruptcy jurisdiction. In 2017, Georgia-Pacific — a profitable manufacturing
behemoth — hatched a scheme to evade liability for exposing people to dangerous
asbestos. The company was the first to use a maneuver under Texas law, now
commonly called the "Texas Two-Step," to shift all of its asbestos liabilities and
almost no assets into a new entity, Bestwall, which it promptly placed in
bankruptcy. Georgia-Pacific simultaneously placed almost all of its business assets
but no meaningful liabilities into another new entity, New GP, which it kept outside
of bankruptcy and away from bankruptcy court supervision. To complete the
maneuver, Bestwall then asked the bankruptcy court to enjoin not only all litigation
against itself as the newly created debtor, but also all asbestos litigation against
non-debtor New GP and its other non-bankrupt affiliates. The bankruptcy court
granted that request and froze thousands of asbestos lawsuits around the country
against those solvent defendants, permitting New GP to gain a critical bankruptcy
benefit without incurring any corresponding bankruptcy burden.
The Fourth Circuit affirmed, providing a roadmap for solvent corporations to
abuse the bankruptcy system through the same contrivance. Indeed, the Fourth
Circuit has now become a haven for manipulation of the Bankruptcy Code among
forum-shopping companies deploying the same divisive mergers and seeking the
same broad injunctions shielding non-debtors from tort litigation. The first four
Texas Two-Step bankruptcies in U.S. history all commenced in the Fourth Circuit,
despite the companies lacking real ties to any State within it. In each case, a
sweeping non-debtor injunction — like the Fourth Circuit upheld here — was the
linchpin of the scheme. If its decision is allowed to stand, the Fourth Circuit will
become an even greater magnet for future cases like this one.
2. The injunction the Fourth Circuit blessed here depends on bankruptcy
jurisdiction that Georgia-Pacific manufactured in violation of bot
Whether a bankruptcy court's channeling injunction that channels asbestos personal injury claims to a trust can be upheld as a permissible reorganization mechanism under Chapter 11