The bankruptcy trial of a troubled prison healthcare provider is set to test a controversial legal strategy used to settle mass tort liabilities. This maneuver, known as the Texas Two-Step, has led to outrage from federal officials and civil rights groups.
Tehum Care Services Inc. was established as a shell company to handle the legal liabilities of the former prison healthcare giant, Corizon Health Inc. Tehum is seeking court approval for a settlement that would prevent prisoners and others from suing the parties involved in Corizon’s takeover and subsequent bankruptcy filing. On the other hand, a committee representing personal injury plaintiffs is advocating for the dismissal of Tehum’s Chapter 11 case, denouncing it as a fraudulent scheme benefiting the company’s owners.
The outcome of the trial, scheduled to start on Friday, will impact how bankruptcy courts handle mass tort claimants and the use of the Texas Two-Step maneuver. The controversial legal tactic has been used by major corporations like Johnson & Johnson and Georgia Pacific LLC to resolve personal injury lawsuits. The Tehum case represents a critical test for this strategy.
Various parties, including the Justice Department’s bankruptcy monitoring arm, the US Trustee, have expressed concerns about the proposed settlement, arguing it aims to shield company insiders and resolve significant injury claims at reduced amounts. Despite this, Tehum defends its settlement offer as fair and equitable.
The case has garnered the attention of Senate Democrats, led by Elizabeth Warren, and the American Civil Liberties Union, who have criticized the manipulation of the bankruptcy code and the treatment of incarcerated claimants. The trial will shed light on the interpretation of the Texas Two-Step in bankruptcy proceedings and its implications for all stakeholders involved in the case.
Ultimately, the outcome of the trial will have far-reaching implications for bankruptcy law and mass tort litigation. It remains to be seen whether the settlement proposed by Tehum will be approved, or if the case will be dismissed, allowing claimants to pursue justice through other legal avenues.