Summary:
The Fourth Circuit, by an 8–6 vote, declined to rehear Bestwall LLC v. Official Committee of Asbestos Claimants en banc, leaving intact the panel’s decision upholding bankruptcy jurisdiction for a solvent debtor created through the notorious “Texas Two-Step.” Judge King issued a fiery dissent (taking the surprising step of naming by name the position of each of his fellow judges), calling the case a “manufactured sham Chapter 11” that allows a multibillion-dollar corporation to use bankruptcy as a shield against accountability to dying asbestos victims.
Background: Georgia-Pacific’s Texas Two-Step
Georgia-Pacific, long a defendant in asbestos litigation, used a Texas divisional merger to split itself into two entities:
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Bestwall LLC, which inherited nearly all asbestos liabilities but few assets or operations, and
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New Georgia-Pacific, which retained the profitable businesses and the billions in assets.
After a brief five-hour Texas reincarnation, both companies relocated—Bestwall to North Carolina—and three months later Bestwall filed for Chapter 11. Although completely solvent thanks to a “funding agreement” from its parent, Bestwall obtained the automatic stay under §362 and a companion injunction halting all asbestos suits nationwide.
As Judge King described, this maneuver was “a concerted boardroom effort designed to pause active civil tort litigation, consolidate thousands of asbestos-related claims, and extract more favorable settlement terms from their suffering and dying victims through litigation delay.”
Constitutional Argument: What Does It Mean to Be “Bankrupt”?
Judge King’s dissent framed the issue as a constitutional one under Article I, Section 8—the Bankruptcy Clause—which grants Congress power to enact “uniform Laws on the subject of Bankruptcies.” Drawing from Founding-era history and early English and American law, he argued that “bankruptcy” was meant only for those who are truly insolvent or honest but unfortunate, not for corporations with “billions in assets seeking a tactical litigation advantage.”
“The Constitution,” he warned, “does not permit Congress or the courts to authorize bankruptcy as a strategic weapon of the powerful.” By treating financial distress as “irrelevant,” the Fourth Circuit majority, he wrote, “rewrites the Constitution to suit the needs of a profitable tortfeasor” and “strips tens of thousands of asbestos victims of their Seventh Amendment right to a jury trial.”
An Oversight: Solvency Does Not Equal Security
Yet Judge King’s otherwise eloquent dissent misses an important nuance familiar to every consumer bankruptcy practitioner: solvency on paper does not always mean financial stability in practice.
Thousands of Chapter 13 debtors across the Fourth Circuit are technically solvent—they own homes with equity, maintain retirement accounts, and even have positive disposable income. They seek bankruptcy not because they are “insolvent” in a balance-sheet sense, but because they face unmanageable liquidity crises, judgment collections, medical bills, or foreclosure threats.
Congress, in crafting modern bankruptcy law, deliberately moved away from the rigid insolvency test that once defined bankruptcy under the 1800 Act. Financial distress—not insolvency—became the touchstone, recognizing that even solvent individuals and businesses may need court protection to reorganize debts, preserve assets, or ensure fair distribution among creditors.
Thus, while Judge King’s historical appeal to the “honest but unfortunate” debtor is emotionally and morally powerful, it risks overstating the constitutional bar against solvent debtors, sweeping in those ordinary families who use Chapter 13 precisely to avoid collapse rather than to exploit it.
Still, the contrast between an honest wage-earner struggling to save a home and a conglomerate like Georgia-Pacific—profitable, tax-advantaged, and litigation-savvy—underscores the dissent’s essential moral point: there is a difference between using bankruptcy to survive and using it to manipulate.
The Human Toll
Since Bestwall’s 2017 filing, nearly 25,000 asbestos claimants have died, including more than 10,000 from mesothelioma, without ever reaching trial. All litigation remains frozen while Bestwall, which has no employees or business operations, and its parent continue to profit. “The sacred right of the asbestos claimants to pursue justice through the tort system…has been placed on hold by a solvent profitable enterprise called Bestwall,” King lamented.
Echoes from 1983: Bankruptcy as an “Escape Chute”
King cited Judge Young’s warning in Furness v. Lilienfield (D. Md. 1983) that solvent corporations were abusing Chapter 11 “to evade pending litigation.” Forty years later, King wrote, that “gross abuse” has metastasized: corporations now create shell entities like Bestwall to halt tort suits while continuing to operate and profit. “Chapter 11 was designed to give those teetering on the verge of a fatal financial plummet an opportunity to reorganize—not to give profitable enterprises an opportunity to evade liability.”
Commentary:
Judge King’s dissent may stand as the most forceful moral indictment yet of the Texas Two-Step—but it paints with a brush too broad for the realities of modern consumer and small-business bankruptcy. Financial distress, not insolvency, is the real dividing line between legitimate reorganization and abuse.
That said, the dissent’s central warning is unassailable: when billion-dollar corporations use bankruptcy courts to shield assets and suffocate victims’ claims, they transform a system built for mercy into one for manipulation.
If the “honest but unfortunate” debtor has long symbolized bankruptcy’s redemptive purpose, then Bestwall represents its inversion—the use of bankruptcy not to start fresh, but to stay rich.
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