The bankruptcy trial of Tehum Care Services Inc., a troubled prison health-care provider, will test a controversial legal maneuver known as the Texas Two-Step to settle mass tort liabilities. The company was created as a shell entity to absorb the legal liabilities of Corizon Health Inc., the former largest prison healthcare provider in the nation. Tehum is seeking court approval for a settlement that would eliminate the right of prisoners and others to sue parties involved in Corizon’s bankruptcy and takeover. However, a committee representing personal injury plaintiffs has moved to dismiss Tehum’s Chapter 11 case, calling the company a “legal fiction” created for fraudulent purposes.
The outcome of the trial, scheduled to begin on Friday in the US Bankruptcy Court for the Southern District of Texas, will have significant implications for the treatment of mass tort claimants in bankruptcy. The Texas Two-Step maneuver, used by companies like Johnson & Johnson and Georgia Pacific LLC, has drawn scrutiny for its attempts to settle personal injury claims through bankruptcy proceedings. The Tehum case represents a challenging test for this legal technique.
The settlement proposed by Tehum has been criticized by tort claimants for allegedly shielding company insiders and settling claims at a fraction of their value. The Department of Justice’s bankruptcy monitoring arm and several senators have supported calls to reject the settlement. The case has stirred controversy over the manipulation of the bankruptcy code and concerns about mistreatment of incarcerated creditors.
Overall, the trial is expected to shed light on how bankruptcy courts interpret the use of the Texas Two-Step and its impact on claimants. The complex legal proceedings highlight the challenges faced by claimants seeking justice and the need for equitable treatment of creditors in the tort system.