The full 4th US Circuit Court of Appeals will not rehear a bankruptcy case involving asbestos liability once tied to Georgia-Pacific. The decision bloThe full 4th US Circuit Court of Appeals voted 8-6 not to rehear a North Carolina bankruptcy case that could impact 56,000 asbestos-related lawsuit plaintiffs.cks as many as 56,000 plaintiffs from proceeding with asbestos-related claims in state and federal courts.
The court split, 8-6, in its decision Thursday not to hold a full en banc hearing. A dissent labeled the case a “sham” bankruptcy involving a 2017 corporate restructuring labeled the “Texas Two-Step.”
All six “yes” votes for a rehearing came from appellate judges appointed by Democratic presidents. Three judges appointed by Democrats joined five colleagues appointed by Republican presidents to vote “no.”
“This appeal should have been accorded en banc consideration because these proceedings not only ‘involve … questions of exceptional importance,’ but because the panel decision conflicts with Article I of the Constitution,” wrote Judge Robert Bruce King.
“Regrettably, by a narrow 8-6 vote, our Court has left intact the panel’s erroneous ruling concerning the bankruptcy court’s subject-matter jurisdiction in Bestwall LLC’s sham Chapter 11 bankruptcy. For the sake of the Constitution and the thousands of asbestos claimants seeking their day in court, I regrettably dissent,” King added.
“The corporate misconduct underlying these so-called ‘bankruptcy’ proceedings is not some big secret,” King noted.
Because of “extensive” use of asbestos in its products, “Georgia-Pacific has faced — and continues to face — thousands of asbestos-related personal injury lawsuits since at least 1979, the vast majority of which have been filed by individuals suffering from the scourge of asbestosis and mesothelioma,” the dissent explained.
Georgia-Pacific is “one of the most frequently sued defendants in this Country’s tide of asbestos litigation,” King wrote. The company has spent $2.9 billion defending this type of lawsuit.
“Georgia-Pacific has acknowledged that thousands of additional asbestos-related claims will be filed against it each year for decades to come,” the dissent added. “All those liabilities notwithstanding, Georgia-Pacific has remained a fully-solvent, multibillion-dollar business leader in the pulp and paper industry.”
In 2017, using a “novel and provocative corporate sleight-of-hand maneuver,” Georgia-Pacific reorganized under Texas law, King wrote. The restructuring placed nearly all of the company’s asbestos liabilities under a new firm called Bestwall. The new Georgia-Pacific “was entrusted with the lion’s share of the legacy Georgia-Pacific assets, along with non-asbestos-related liabilities.”
Georgia-Pacific returned to Delaware, its previous corporate home. Bestwall moved to North Carolina. “Stunningly, Bestwall and New Georgia-Pacific were Texas business entities for less than five hours,” King wrote.
“As was the plan all along, Bestwall did not hire any employees, did not engage in any new business ventures, nor did it do much of anything else following its relocation to the Old North State,” King added. “Rather, in November 2017 — some three months after its ‘inception’ — Bestwall filed for Chapter 11 bankruptcy in the Western District of North Carolina, a favored judicial forum for massively profitable companies seeking to execute a Texas Two-Step ‘bankruptcy.’”
Despite its bankruptcy filing, Bestwall is “not at all a debtor in distress,” King explained. Bestwall can “fully pay” the old Georgia-Pacific company’s asbestos-related liabilities “through a so-called ‘funding agreement’” with the new version of Georgia-Pacific.
Bestwall’s bankruptcy petition led to a stay and injunction that applies to both new companies. “As a result, thousands of pending civil suits in courts across our Country — initiated by plaintiffs who are dying from mesothelioma and other diseases caused by the asbestos-riddled products of Georgia-Pacific — are at a screeching halt,” King wrote. “In effect, a financially-healthy and fully-solvent corporation (that is, New Georgia-Pacific) has placed its asbestos-related tort liabilities involving thousands of American workers behind the firewall of bankruptcy protection.”
“Yet critically, New Georgia-Pacific is not undergoing the scrutiny, transparency, and risk that a Chapter 11 bankruptcy petition should entail,” the dissent argued.
“The sacred right of the New Georgia-Pacific and Bestwall asbestos claimants to pursue justice through the tort system of America’s civil courts — deeply rooted in the laws and constitutional fabric of our Nation — has been placed on hold by a solvent profitable enterprise called Bestwall, acting through a manufactured sham bankruptcy,” King wrote.
King argued that the full 4th Circuit should have addressed whether a bankruptcy court could hear a case “involving fully-solvent corporate entities who lack any semblance of financial distress.”
“To frame that issue in a slightly different way, can ultra-wealthy corporations — like New Georgia-Pacific and its stooge subsidiary, Bestwall — utilize a bankruptcy court and a sham Chapter 11 bankruptcy proceeding to restructure this Country’s civil justice system, trample on fundamental principles of federalism, and blatantly ignore the jurisdictional limitations placed on bankruptcy under Article I of the Constitution?” King asked.
Hearing the case as a three-judge panel, the majority ruled that a bankruptcy court did have jurisdiction to hear Bestwall’s petition. The full court’s 8-6 allows that decision to stand.
“Such a result is repugnant to our Country’s history and tradition, neither of which support the unconstitutional extension of bankruptcy protections to solvent tort defendants who seek a strategic advantage over their creditors and victims,” King wrote.
Nearly 25,000 asbestos plaintiffs have died since the corporate restructuring in 2017, King wrote.
“Perhaps most distressing, not even one of the estimated 56,000 active plaintiffs has been able to pursue his pending tort claim against New Georgia-Pacific or Bestwall in the State and federal courts, on account of the automatic stay favoring Bestwall and preliminary injunction extending those protections to New Georgia-Pacific,” King added. “Meanwhile, New Georgia-Pacific and Bestwall have secured the protections of Bestwall’s Chapter 11 bankruptcy, all while New Georgia-Pacific is reaping substantial and stable profits.”
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