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Attorney General Josh Stein Asks Supreme Court to Stop Companies from Abusing Bankruptcy Law

For Immediate Release:
Tuesday, January 23, 2024

Contact: Nazneen Ahmed

(RALEIGH) Attorney General Josh Stein led a bipartisan group of 24 other attorneys general that filed a brief with the United States Supreme Court asking the court to review a lower court’s decision that will affect states’ authorities to enforce laws to protect their residents.

“Wealthy companies that engage in wrongdoing should not be able to get off the hook by cheating the legal system,” said Attorney General Josh Stein. “We ask that the Supreme Court take up this case and put an end to this abusive practice.”

The case in question is Official Committee of Asbestos Claimants vs. Bestwall LLC and concerns a controversial corporate tactic known commonly as the “Texas Two-Step.” Under the scheme, wealthy companies that are being sued for wrongdoing can limit liability for their lawbreaking. First, a wealthy company creates a new corporate affiliate then assigns that corporate affiliate its liability for wrongdoing. Then, that new company files for bankruptcy and seeks an order from a bankruptcy court stopping people and governments from filing lawsuits. By using this tactic, wealthy companies gain leverage to resolve liability on favorable terms through a years-long bankruptcy process, without actually having to enter bankruptcy themselves.

In their brief, the attorneys general explain the Supreme Court needs to review the case because the court of appeals’ decision declining to block this abuse of the bankruptcy process potentially opens the door for any company nationwide to engage in this scheme.

Attorney General Stein is joined in filing this brief in the Supreme Court by the Attorneys General of Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, South Dakota, Vermont, Washington, Wisconsin, and the District of Columbia.

A copy of the brief is available here.


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