Over the last several years, companies plagued with massive toxic tort liabilities have attempted to utilize a statutory process known as the “Texas Two Step,” created under Texas’ Business Organizations Code Section 1.002(55)(A), to effectively divide into two separate legal entities, one of which contains most of the healthy, profitable operations and the other assumes the legacy liabilities while being funded with what some argue are insufficient assets.
Fourth Circuit: Subject-Matter Jurisdiction In Bankruptcy Depends On Statute, Not Debtor Solvency
The Fourth Circuit’s opinion focused on answering the core question presented — whether jurisdiction is determined by statute, rather than by a debtor’s financial condition. It reasoned that since the Constitution grants Article III power over “all cases arising under the laws of the United States” and the Bankruptcy Code is a law under the United States, the petition to reorganize under Chapter 11 of the Bankruptcy Code is clearly within the judicial ambit of the U.S. Bankruptcy Court.
By
Francis J. Lawall and Michael A. Sabino
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