Matt Levine is a treasure. You can get past the paywall by signing up for the newsletter, it’s the same as the column.
I don't even care if he thinks it's a "valid" approach to take.
I do care that he, and the law firm that basically handles every one so far, condescends to tell us that "really, this is in the best interests of the plaintiffs suing these companies", and that it "makes their lives easier, and is fairer to them", and why can't we just understand that and believe them?
1. Why are these defendants so willing to bend over backwards to "assist the plaintiffs and make their lawsuits go more easily", when the potential downside to them is liability judgments in the tens of billions? Oh, because they'll never actually pay that. They'll "pledge" to fund their little spin off to the full value of liabilities, but will generally throw a couple of hundred million in, shut up shop and say "So sad, too bad", as happened in effectively each of the largest Texas Two Step bankruptcies.
Don't treat your readership like they're idiots, Matt. We know that these companies are not "choosing" to make it easier for them to be sued into oblivion for decades of lies and injuries - we're not naive. They're choosing to do it because they've already donned their parachute and slashed the lines on everyone else's.
In that specific case, are you suggesting that the 3rd circuit got it wrong, and that the spin off didn't have access to that money?
> On January 30, 2023 the 3rd Circuit Court of Appeals ruled after an appeal that LTL's bankruptcy should be dismissed on the grounds that LTL was not in financial distress, reversing a previous ruling by the Bankruptcy Court. On April 4, 2023, LTL filed for a second bankruptcy. On July 28, 2023, Chief Judge Michael Kaplan of the U.S. Bankruptcy Court in New Jersey dismissed the second bankruptcy.
This is common to how it has played out before. Promises of funding, pledges, that then evaporate.
The entity that J&J spun off has attempted multiple times to declare bankruptcy, only to be thwarted some. When the Third Circuit made their ruling, they stated that "the time was not right" and questioned the amount of funding.
LTL re-filed for bankruptcy three hours after this ruling. (Why, was the time right, in the afternoon?)
Georgia Pacific did the same with Best Wall. Stood there in court and said they'd "fully fund" the liabilities into Best Wall, and that they'd put an initial $1B into seeding that entity. Court ruled, and things moved forward. At which point GP said "Actually, we meant $175M. And we meant that's all we'll ever fund."
St Gobain did the same thing. Faced with an estimated $50B+ in liabilities, they spun off another company, and promised to fully fund it. They ended up putting less than $100M in.
So audacious was St Gobain that they were laid into by the court:
> Gross testified that Saint-Gobain repeatedly misrepresented its intent in creating the subsidiary that eventually filed for bankruptcy, calling executives’ testimony and other statements “misleading” and “not truthful.” U.S. Bankruptcy Judge Craig Whitley followed Gross’s testimony last August with factual findings that included his own blistering critique of the executives’ statements as “contrary to the evidence,” saying the company’s story “strains credibility.”
When only four firms have tried this, and three of them have had the same outcome (which drastically protected those companies), and the fourth is using the same playbook (because all four used the same law firm), we (and Matt) need to forgive a healthy skepticism over "fully funded, for reals this time" when it comes to the Texas Two Step.
My question was, do you think the 3rd circuit got it wrong, and that the spin off didn't have access to that money when it initially tried to file for bankruptcy? That is not in progress, and we have as much information as we ever will have. J&Js finances, the text of the funding agreement, and the text of the 3rd circuit's opinion are in the public record!
> The entity that J&J spun off has attempted multiple times to declare bankruptcy, only to be thwarted [...] they stated that "the time was not right" and questioned the amount of funding.
Right, they were thwarted because they had TOO MUCH money. The time wasn't right because with an $60b+ blank check from J&J, they weren't bankrupt. Which is a pretty plausible argument!
> LTL re-filed for bankruptcy three hours after this ruling. (Why, was the time right, in the afternoon?)
This is hardly a mystery. They refiled with a different (and less generous) funding agreement, which (rather obviously) brought them closer to being technically bankrupt but (as the 3rd circuit ruled) didn't come close enough.
> Georgia Pacific did the same with Best Wall
Can you provide any support for this claim? Because I think you've got the sequence of events backwards - specifically I believe they promised $175m in the initial funding agreement, and then later raised it to $1b, which (so far) they haven't walked away from.
Happy to learn more about the details though.
> St Gobain did the same thing
Again, what did the original funding agreement promise, and what did they deliver?
> When only four firms have tried this
I am legitimately curious - have any of those four firms failed to deliver on the funds promised in the funding agreement of the spun off holding company? Because I'm not aware of this occuring, and some quick internet searching didn't come up with any results either.