Warren Urges Justice Department Scrutiny of Corizon’s Bankruptcy System Abuse
In October 2023, Warren and Lawmakers Probed Corizon’s Use of the “Texas Two-Step” to Evade Liability
Washington, D.C. – United States Senator Elizabeth Warren (D-Mass.) sent a letter to Tara Twomey, Director of the Executive Office for United States Trustees, and Kevin M. Epstein, U.S. Trustee for the Southern and Western Districts of Texas, raising concerns about the abuse of the bankruptcy system by Corizon Health, Inc. (Corizon) and urging the U.S. Trustee to:
- Promptly assess the merits of asking the judge to dismiss Corizon’s bankruptcy
- Oppose the new bankruptcy plan on the basis that it provides plainly insufficient recovery for victims and includes nonconsensual non-debtor releases (among other issues)
- Continue to ensure victims are adequately represented and provided proper notice to assert their rights
“Corizon is misusing the bankruptcy system to evade accountability and block the company’s victims and their families from obtaining justice,” said Senator Warren. “The U.S. Trustee’s office has acted powerfully to protect the rights of victims harmed by corporations that seek to escape liability. Likewise, it should stand up to Corizon’s abusive tactics for the sake of our bankruptcy system.”
Corizon, formerly one the nation’s largest private providers of prison health care, developed an alarming record of patient neglect and malpractice across many of the correctional facilities it served. To evade liability, Corizon undertook the “Texas Two-Step,” a bankruptcy maneuver in which a company splits into two or more entities, assigning all or most of its assets to one of the entities and assigning its debts and legal liabilities to the other, which promptly files for bankruptcy. The goal of the tactic is to shield assets from victims and other bankruptcy creditors. Corizon split into YesCare Corporation (YesCare) and Tehum Care Services, Inc. (Tehum) (together, “Corizon”), and assigned most of its assets to YesCare and its liabilities to Tehum. Tehum filed for bankruptcy shortly thereafter.
In October 2023, Senators Warren and Dick Durbin (D-Ill.) led a letter to Tehum and YesCare, raising concerns about Corizon’s use of the Texas Two-Step. In response, the companies failed to answer basic questions about Corizon’s bankruptcy and the two companies’ ownership and corporate structure, and refused to identify the majority investors in the private equity firm that acquired Corizon. The only investor that the responses identify, Isaac Lefkowitz, is reported to have mentioned the Texas Two-Step to Corizon’s lawyers as a way to “force plaintiffs into accepting lower settlements.” YesCare inexplicably claimed its ownership structure is unknown even to the company itself.
“Corizon knowingly has used the ‘Texas Two-Step’ maneuver to attempt to evade the countless wrongful death, medical malpractice and other tort claims against it — principally to the detriment of incarcerated creditors harmed by Corizon,” wrote Senator Warren in her letter. “Indeed, evading liability appears to have been Corizon’s goal from the moment it came under new ownership.”
“As I wrote to Tehum and YesCare, the assurances of ‘corporate separateness’ between YesCare and Tehum are a plainly unconvincing attempt to shelter assets and avoid adequately compensating victims,” continued Senator Warren. “The links between Corizon and YesCare accentuate questions about whether the company should even be in bankruptcy proceedings, and further highlight the insufficiency of the bankruptcy plan’s proposed offer to victims.”
Senator Warren’s letter elevated her serious concerns with Corizon’s bankruptcy to the U.S. government’s bankruptcy watchdog, who is responsible for protecting the integrity of the bankruptcy system and has already raised red flags with respect to Corizon’s bankruptcy in its opposition to Corizon’s initial bankruptcy plan.
“The Trustee Program has the responsibility and power to view the bankruptcy system as a whole, assess systemic trends, and take forceful action in the interest of justice. Rarely is such action more important than when powerful corporations with well-resourced backers try to corrupt the bankruptcy process to deprive thousands of victims of the ability to achieve justice… I have no doubt that other corporations are watching to see whether Corizon and its allies will be able to successfully deploy the Texas Two-Step to shield their assets from the myriad legitimate claims they face. The U.S. Trustee’s actions, together with those of the bankruptcy judge, are of crucial importance not just for this case but also for the future of the bankruptcy system,” concluded Senator Warren.
Senator Warren is asking the U.S. Trustee’s Office to answer a set of questions about its plans regarding the Corizon bankruptcy proceedings by February 14, 2024.
Senator Warren has long fought to hold big corporations accountable for harms to individuals, to combat abuses of the bankruptcy system, and to improve health care for incarcerated people:
- In October 2023, Senators Warren and Durbin, along with Senators Mazie Hirono (D-Hawaii), Jeff Merkley (D-Ore.), Richard Blumenthal (D-Conn.), Ron Wyden (D-Ore.), Bernie Sanders (I-Vt.), Peter Welch (D-Vt.), and Cory Booker (D-N.J.) sent a letter to Corizon condemning its use of the Texas Two-Step to evade liability and requesting greater transparency surrounding the company’s bankruptcy.
- In February 2023, Senators Warren and Durbin led lawmakers in calling on the Seventh Circuit to reject 3M’s attempt to use a maneuver similar to the Texas Two-Step to evade accountability to military veterans.
- In November 2021, Senator Warren joined Senators Durbin and Blumenthal, former Representative Carolyn B. Maloney (D-N.Y.), and Representative Raja Krishnamoorthi (D-Ill.) in a letter to Johnson & Johnson, which objected to the company’s efforts to manipulate bankruptcy laws to evade accountability for harm caused by its products.
- In September 2021, Senators Warren and John Cornyn (R-Texas) introduced the Bankruptcy Venue Reform Act, which would require large corporations to file for bankruptcy in their home state, or where significant assets are located.
- In July 2021, Senator Warren introduced legislation to prohibit the use of nonconsensual, non-debtor releases that have helped entities and individuals, like members of the Sackler family, escape accountability for wrongdoing through bankruptcy proceedings. In addition, the legislation would direct judges to dismiss bankruptcies by companies that have employed the Texas Two-Step maneuver.
- In May 2021, Senators Warren, and other lawmakers wrote Secretary of Health and Human Services Xavier Becerra, asking him to use new funding authorized by Congress in the American Rescue Plan Act of 2021 and his authority under the Public Health Service Act to take immediate and aggressive action to help manage COVID-19 outbreaks in federal, state, and local correctional facilities.
- In March 2021, Senators Warren, Booker, and Durbin sent a letter to the U.S. Department of Justice Office of the Inspector General urging it to conduct a comprehensive review of all COVID-19-related deaths of incarcerated individuals in the custody of the Federal Bureau of Prisons (BOP) and BOP staff since the beginning of the pandemic.
- In January 2021, Senator Warren sent a letter to Genesis Healthcare, Inc. (Genesis), one of the nation's largest nursing home chains and the possible owner of YesCare, asking why its top executives, including its recently retired former CEO, have received millions of dollars in bonuses after more than 2,800 of their residents died of COVID-19 and despite the fact that the company has accepted $300 million in taxpayer-funded aid.
- In March 2021, Senator Warren released Genesis’s response to her January 2021 letter and sent a letter to the company, revealing new information that the company’s CEO — who left the company in near bankruptcy in January 2021 — has been awarded $8 million in salary and bonuses since the start of the pandemic. Senator Warren raised new questions about why the company lavishly rewarded its CEO after more than 2,800 of its residents died of COVID-19 and despite the fact that he left the company in dire financial conditions.
- In December 2020, Senator Warren released the findings of the May 2019 investigation she opened into the American Correctional Association (ACA) — the nation's largest accreditor of prisons and immigration detention Facilities — and its relationship with the three largest private prison companies that receive ACA accreditation: CoreCivic, GEO Group, and Management & Training Corporation.
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