Koch Industries’ Georgia-Pacific can use a corporate affiliate’s bankruptcy case to shield itself against asbestos-related litigation, a federal appeals court said yesterday, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Fourth Circuit upheld an injunction in the chapter 11 case of Georgia-Pacific affiliate Bestwall that has prevented some 64,000 asbestos-related injury claims from proceeding against the pulp and paper manufacturer. Yesterday’s ruling backed the use of chapter 11 to resolve mass lawsuits through an emerging corporate restructuring strategy that has offered solvent corporations including Georgia-Pacific, Johnson & Johnson and France’s Compagnie de Saint-Gobain some of the protections of bankruptcy. They shifted legal liabilities to new subsidiaries before filing them for chapter 11, shifting more than a quarter-million injury lawsuits to bankruptcy court for resolution without the parent companies needing to enter chapter 11 themselves. Courts have taken varying views of the bankruptcy strategy, known in legal circles as the Texas Two-Step. Plaintiffs’ attorneys and other critics have argued the companies are misusing the chapter 11 system to sidestep jury trials and pressure injury victims into a favorable settlement for the firms.
