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A CORPORATE POISONER TWO-STEPS OUT OF TOXIC LIABILITY  
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Katya Schwenk
May 28, 2024
The Lever
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_ A Koch-owned company is exploiting bankruptcy law to avoid
responsibility for their asbestos assets and rewrite judicial
precedent. _

, AP Photo/Rick Bowmer

 

The United States Supreme Court just handed the oil and gas
conglomerate Koch Industries — and its subsidiary, Georgia-Pacific,
a paper and building material manufacturer — a major victory when it
allowed the company to avoid paying damages to people who claim they
were poisoned by the company’s products.

Georgia-Pacific has faced tens of thousands of legal claims
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from people who unknowingly suffered asbestos exposure from building
materials the company sold in the 1960s and 1970s and have since faced
serious health issues. And for the last seven years, the company has
used a novel legal maneuver to evade those claims, leaving victims and
their families in limbo.

In 2017, Georgia-Pacific invented the so-called Texas two-step, a
legal scheme to skirt liability for consumer harms like widespread
asbestos exposures or the opioid crisis. That year the company quietly
reincorporated itself in Texas and used a Texas law to split itself
into two entities. One, the new Georgia-Pacific, received almost all
of the company’s assets and carried on business as usual as a
multibillion-dollar company
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The other company — Bestwall, LLC — was saddled with all of
Georgia-Pacific’s asbestos liabilities, which included tens of
thousands of legal claims from people who lost loved ones to deadly
asbestos-related cancers like mesothelioma, and people who were sick
themselves. Bestwall then promptly filed for bankruptcy, trapping
these legal claims in bankruptcy court.

In the time since, victims have seen little movement on their claims.
Earlier this month, the Supreme Court declined to take up the
Georgia-Pacific case, letting a lower-court ruling in
Georgia-Pacific’s favor stand. The decision will give the company
more time to avoid paying up for its asbestos poisoning, attorneys
working with asbestos victims say.

“The Koch brothers are getting billions of dollars from
Georgia-Pacific while this is pending,” said Michael Shepard, a
Boston-based attorney who represents victims of asbestos poisoning
seeking damages, including in the Georgia-Pacific case. “Victims are
getting zero dollars. It benefits Georgia-Pacific the longer this
takes.”

Georgia-Pacific and its Koch parent company are just one of several
companies that are trying the two-step bankruptcy tactic. Sequestering
the claims in bankruptcy court, which offers companies protections
that the civil court system does not, allows otherwise thriving
companies to offload their liability and avoid compensating victims.
Other companies following suit include Trane Technologies
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and Saint-Gobain, two major manufacturing companies that both have
asbestos liabilities, as well as Johnson & Johnson, a pharmaceutical
company whose talc products, including its baby powder, contained
asbestos for decades
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The Supreme Court’s decision in the Georgia-Pacific case comes at a
critical moment for this legal strategy, as the courts decide whether
to greenlight the Texas two-step and let companies continue to use it
to escape liability.

“The courts are split as to whether this is going to be allowed,”
said Joanne Doroshow, the executive director of the Center for Justice
and Democracy, a legal group that advocates for consumers and victims
seeking damages in court from companies like Georgia-Pacific.

The Supreme Court is expected to soon issue a ruling in _Harrington v.
Purdue Pharma_, a case involving Purdue Pharma, the company whose
aggressive marketing of OxyContin
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and other narcotics accelerated the opioid epidemic. Purdue filed for
bankruptcy in 2019 and has used bankruptcy court to shield its owners
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the Sackler family, from any personal liability for the harms of the
opioid crisis. The court’s decision in that case will have
ramifications on Georgia-Pacific and the Texas two-step.

“A Win For Georgia-Pacific”

Beginning in 1965, Georgia-Pacific manufactured drywall and other
building materials that contained asbestos
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due to its strength and heat resistance, despite the mounting evidence
at the time that the substance was a dangerous carcinogen
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Over the years, drywall workers and consumers renovating their homes
were exposed to dangerous levels of asbestos when they used the
materials. The company removed asbestos from its products in 1977,
only after the U.S. Consumer Product Safety Commission announced a
federal ban on the material.

By the early 2000s, Georgia-Pacific was facing
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$1 billion in claims of damages from asbestos exposure and paying out
settlements to victims. These payouts stopped when the company
pioneered the Texas two-step in 2017, and spun its liabilities off
into Bestwall. By that time, the company had settled more than 400,000
claims
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worth nearly $3 billion in total.

“Every single one of the victims who hasn’t gotten a nickel would
already have their case through the court system by now if
Georgia-Pacific hadn’t used the Texas two-step to go into bankruptcy
court,” said Shepard, the attorney for asbestos victims.

After Bestwall filed for bankruptcy, a federal bankruptcy judge halted
tens of thousands of claims pending against Georgia-Pacific, ruling
that the claims had to stay in bankruptcy court and could only move
against the Bestwall shell company created by the Texas two-step, not
the original company. 

Last June, the Court of Appeals for the Fourth Circuit affirmed that
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decision and allowed the injunction to stay in place, keeping the
victims in bankruptcy court. Such an injunction is critical to the
Texas two-step — without it, the newly created companies would both
face the claims.

Georgia-Pacific’s asbestos victims appealed the Fourth Circuit’s
ruling to the Supreme Court. The high court could have intervened and
struck down the injunction, forcing Georgia-Pacific to once again face
asbestos claims from victims. But the court declined to look at the
issue.

Laura Coordes, a law professor at Arizona State University who
co-authored an amicus brief
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in the ongoing Purdue case, wrote in an email to _The Lever _that the
Supreme Court’s decision to decline the case indicated the court
“is taking a wait-and-see approach for now.”

“It is, however, a win for Georgia-Pacific, because it looks like
Bestwall will continue to go forward in bankruptcy and Georgia-Pacific
won’t be sued by cancer victims while that happens,” she
continued.

Shepard said he was not surprised by the Supreme Court’s decision.
He anticipated that the court was instead planning to use the Purdue
case to weigh in on these issues, which could have major ramifications
for Georgia-Pacific.

Purdue Pharma did not use the Texas two-step maneuver to split into
two — but like Georgia-Pacific, the company is using bankruptcy
court to shield its owners from liability. If the Supreme Court rules
against Purdue and the Sacklers, it could also be a blow to
Georgia-Pacific.

But while the justices appeared torn
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when the case was heard in December, it’s difficult to predict which
side they will ultimately favor.

“My hope is that a sane appellate court judge will look at the
totality of what is going on here and say, ‘That is neither the
purpose of the bankruptcy courts nor a proper use of the bankruptcy
courts,’ and throw it all out,” Shepard said.

Until then, victims of asbestos exposure and their families are still
waiting for justice.

“Quick To Give Companies A Break”

As the courts deliberate, corporate America is lobbying to support the
use of the Texas two-step by Georgia-Pacific and others. The U.S.
Chamber of Commerce — the biggest lobbying group in the country —
intervened to submit amicus briefs in both the Georgia-Pacific case
and the ongoing Purdue case, pushing the courts to allow the companies
to use bankruptcy court to limit their liability.

The Chamber of Commerce is joined in its support for the Texas
two-step by the American Tort Reform Association, which Doroshow
described as “basically a front group for major corporations in
America that want to take rights away from everyday people and protect
corporations from being sued when they commit wrongdoing.”

The group has fought for decades to limit the damages companies must
pay out when they knowingly expose people to dangerous chemicals or
engage in other harmful practices. And it has thrown its support
behind Purdue Pharma, Johnson & Johnson, and other companies that have
fled to bankruptcy court to avoid paying out claims to victims.

The U.S. Chamber of Commerce spends tens of millions of dollars a year
lobbying lawmakers, reporting spending $23.4 million in just the first
quarter of 2024
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Meanwhile, Shepard emphasized, “There’s no lobbying group for
widows, for people who have lost loved ones to opioid addiction or
asbestos.” 

In their amicus briefs and statements on the issue, both groups often
claim that keeping claims in bankruptcy court is better for the
victims — allowing for a more “efficient” resolution for
victims, as the Chamber of Commerce wrote in an amicus brief
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before the Fourth Circuit in the Georgia-Pacific case.

Shepard called those claims “insulting.”

“It’s a complete fiction that’s authored by the companies that
caused these harms in the first place,” he said. 

Still, he worried that the courts were often swayed by powerful
business interest groups like the Chamber of Commerce. “I’m
concerned that courts are quick to give companies a break when it
comes to victims and tort liability,” he said.

_Editor's Note: This story was updated after publication to properly
reflect Doroshow's description of the American Tort Reform
Association._

Time and again, The Lever has shown that independent journalism
empowered by everyday people, rather than billionaires and massive
global corporations, can move the needle. Our reporting led to
legislation being introduced in Congress, has been referenced in
presidential speeches, and is driving national conversations across
the political spectrum.

* corporate power
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* Supreme Court
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* asbestos
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