Crypto News: Bw Reads: The rise of the Texas Two-Step

Welcome to Bw Reads, our weekend newsletter featuring one great magazine story from Bloomberg Businessweek. Today Willem Marx writes about a tactic companies use to avoid liability in asbestos lawsuits, and how claimants are fighting back. You can find the whole story online (free!) here.

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As far back as the Stone Age, humans started digging asbestos from cliffs or riverbeds. They mixed the fibrous silicate mineral into clay for pottery that could better withstand heat, and northerners stuffed it between rocks to insulate their shelters against the winter cold. The ancient Greeks and Romans wove asbestos fibers into cloth for garments, tablecloths and wicks that took advantage of the mineral’s ability to handle heat. By the peak of the industrial revolution, thanks to its extraordinary physical properties, asbestos was mined at sites across the US and used widely in daily life—from kitchen tiles to toothpaste, surgical thread to cement pipes. It could resist fire, stretch without breaking and tolerate abrasive or caustic cleaning chemicals.

But around the turn of the last century, British doctors detected evidence of a darker side to the stuff. People who worked with asbestos were developing serious illnesses, particularly mesothelioma, a cancer that can overwhelm the linings around the lungs, abdomen or heart. In the 1930s, some companies that manufactured or utilized asbestos products began improving ventilation, offering employees medical checkups and supplying them with protective gear such as dust masks and coveralls. Others simply downplayed the causal link. For decades.

By the 1970s, as the carcinogenic risk of asbestos became scientifically irrefutable, an alphabet soup of new federal agencies took action: The Occupational Safety and Health Administration (OSHA) issued exposure limits for the mineral. The Environmental Protection Agency (EPA) and Consumer Product Safety Commission (CPSC) barred its use in products such as spray-on insulation and joint compound that permitted airborne fibers to make their way into people’s lungs.

Over time, dozens of countries banned asbestos outright. But in the US, restrictions mostly applied to consumer products such as toothpaste and crayons. In the face of relentless lobbying from industry groups, US authorities continued to allow asbestos in construction materials like sewage pipes, insulation and roofing. Nevertheless, the rising death toll from mesothelioma triggered a barrage of lawsuits against businesses, which attorneys of sick clients argued should have known better. Eventually the legal action achieved what US product-safety regulators had failed to do: Asbestos products were rendered unusable because expected litigation costs made them uninsurable.

As retired employees or contractors who’d come into contact with asbestos continued to age, and doctors detected mesothelioma ever more reliably, dozens of industrial businesses faced growing numbers of legal claims. By the mid-2010s, almost 3,000 people were diagnosed with the disease each year, leading to sharp competition among attorneys seeking to represent them. Soon personal-injury lawyers were collectively spending tens of millions of dollars a year on advertising to find potential claimants. But for the lawyers—and the victims—the money paid off, yielding tens of billions in damages over the years.

Then about a decade ago, an enterprising attorney in Dallas dreamed up a defense strategy designed to relieve corporations of burdensome liabilities on the cheap. And lawyers, as they are wont to do, coined a cutesy nickname for this tactic: the Texas Two-Step. The footwork in this legal shuffle begins by shifting your official headquarters to the Lone Star State and creating a new business that holds your asbestos liabilities. The next step is to immediately move that company to North Carolina and declare bankruptcy, because courts there have shown a willingness to allow such cases to proceed. You’re still on the hook for liabilities, but since the company that’s responsible is now bankrupt, you can theoretically put a lid on the damages you’ll face.

A trio of bankruptcy cases being heard in a Charlotte courthouse will likely determine the viability of the maneuver. If successful, these could remold the civil justice system and undermine decades of consumer protection regulation. But as the legal wrangling approaches a second decade, thousands of ill and dying Americans are being left without the resources they need to deal with life-threatening ailments—and many blame the companies involved. “They spend billions of dollars on attorney fees to keep this from being settled,” says Lori Knapp, whose father died from mesothelioma in 2020 after using Georgia-Pacific products containing asbestos for decades. “They don’t care that they have harmed anybody.”

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