bankruptcy courts

Sham Burger King Franchisee Bankruptcy Stuns, but Avoids Harm

A “fraudulent” bankruptcy petition submitted on behalf of a major Burger King franchisee caught lawyers by surprise but showcased the ability of bankruptcy courts to quickly root out shady conduct.

Carrols Corp., the largest Burger King franchisee in the US, had at least five bankruptcy petitions submitted in its name over the past week by an individual with an apparent history of frivolous legal actions. The company quickly said the bankruptcy petitions were fake, and its general counsel said it’s “not a financially troubled company.”

Though abuse of the bankruptcy system isn’t unheard of, the Carrols case was notable for the audacity of the filer, who could face ramifications for his actions.

“I feel like I’ve seen some pretty insane things, but this is new to me,” said Stacy A. Lutkus, a McDermott Will & Emery restructuring partner who worked as a clerk to the judge who oversaw the Lehman Brothers bankruptcy.

Faking Bankruptcy

The Carrols petitions, filed under Chapter 15 of the US bankruptcy code, appear to have been mailed in by Robert W. Johnson of Buffalo, N.Y. Johnson appears to have a prolific history of submitting pro se lawsuits, including against Donald Trump, Meta Platform Inc.‘s Facebook,

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NJ among states seeking Supreme Court review of controversial bankruptcy tactic

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A bipartisan group of 25 attorneys general, including New Jersey’s Matthew Platkin, is urging the United States Supreme Court to stop well-off companies from using bankrupt shell companies to resolve lawsuits.

In a Jan. 22 amicus brief, the AGs asks for the reversal of a June 2023 ruling from the 4th U.S. Circuit Court of Appeals that allowed pulp-and-paper maker Georgia-Pacific to avoid litigating tens of thousands of asbestos lawsuits while the company’s subsidiary, Bestwall, remains in bankruptcy.

The 2-1 decision upheld a key element of a controversial legal tactic known as the Texas two-step, in which a corporation spins off liabilities into a newly created subsidiary and then files that unit for bankruptcy.

Georgia-Pacific, one of the world’s largest manufacturing firms, pioneered the strategy in 2017, which paused 64,000 lawsuits claiming the company’s plaster construction products contained cancer-causing asbestos.

In the brief, the AGs contend that Georgia-Pacific is abusing the U.S. bankruptcy system, using it to shield assets from people who have been harmed by preventing lawsuits from moving forward without subjecting the entire company to bankruptcy.

“Wealthy companies that engage in wrongdoing should not be able to get off the hook by cheating the

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Bankruptcy Courts Are Good At Adjudicating Tort Claims

Economists tend to view tort law differently than lawyers—or state attorney generals—and this difference explains both the advent of bankruptcy trusts in adjudicating class action liability claims and the complaints by the latter group concerning this development.

Tort law covers someone who was injured because of an action or omission that harms another. Its purpose is to change the essential cost-benefit calculus for a firm so that it does all that is feasible to prevent this from happening.

A classic example of the application of tort law is the manufacture of the Ford Pinto. Engineers placed the gas tank in the very rear of the car as a cost expedient measure even though they knew it would leave the car more vulnerable to a fire or explosion in an accident. They concluded that the liability costs would be less than re-engineering the car to place the tank elsewhere.

The courts found this calculus appalling and contrary to the public interest, and Ford’s liability ended up being many times greater than if it had addressed this vulnerability to begin with.

However, these days tort liability is invariably driven less by a desire to incentivize proper decisions and more by the

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