Houston, Texas — Tehum Care Services Inc., a healthcare provider for inmates, has received court approval to emerge from bankruptcy through a unique personal injury settlement. This reorganization enables claimants, including incarcerated individuals, to opt out of a $75 million settlement and pursue potentially larger awards for alleged inadequate medical care in state courts.
The decision allows numerous claimants, particularly those pursuing personal injury and wrongful death lawsuits, to maintain their legal rights against Tehum’s parent company, Corizon Health Inc., and affiliate YesCare Corp. This marks a significant shift from the typical Texas Two-Step legal strategy, which typically seeks to insulate parent companies from liabilities by transferring those responsibilities to newly created subsidiaries.
Lindsey Simon, a bankruptcy professor at Emory University, stated that the atypical approach reflects an understanding that achieving complete finality may not be feasible. She noted that most entities involved in similar settlements typically resist leaving the door open for further claims.
On March 5, Tehum’s bankruptcy attorneys declared the plan as unprecedented for a confirmed Chapter 11 framework within a Texas Two-Step divisional merger case after receiving approval from the U.S. Bankruptcy Court for the Southern District of Texas. However, legal experts pointed out that this case deviates from traditional Texas Two-Steps, which usually aim to completely shield parent entities from future liabilities by creating new subsidiaries.
While the majority of claimants opted for the settlement, the unique opt-out provision distinguishes Tehum’s case from other high-profile bankruptcies, such as those involving Georgia-Pacific and Johnson & Johnson, where such rights have not been preserved. This ability for creditors to retain the right to sue effectively nullifies the contentious discussions surrounding the appropriateness of the Texas Two-Step strategy.
Tehum had previously separated its tort liabilities from operational responsibilities by delineating its corporate structure, creating a situation where the affiliate YesCare could continue handling healthcare contracts. According to Simon, even though Tehum achieved a sizable agreement with many claimants, the added option for claimants to receive potential compensation through litigation signifies a notable win for the company, offering $25 million to affected individuals.
Jason Brookner, an attorney representing Tehum, highlighted the complexities the case faced from the outset but expressed confidence that the court’s approval validates their approach and lays a foundation for future stakeholder engagement.
In an effort to distribute funds fairly, Tehum established a tiered compensation structure for over 200 tort claims; this includes amounts ranging from $1.2 million to $1.6 million for wrongful death claims. One claimant, David Hall, who was injured while incarcerated, stands to receive approximately $385,000 under the settlement for his serious injuries, according to his attorney.
The reorganization plan further detailed the establishment of two separate settlement trusts aimed at addressing personal injury, wrongful death, and general unsecured claims. Participants had to consent to relinquish claims against related entities, like YesCare and Corizon, in order to receive their compensation.
As legal experts have noted, the outcome of Tehum’s bankruptcy case suggests a critical distinction for companies trying to resolve personal injury claims through bankruptcy processes. Clay Thompson, a mesothelioma trial lawyer, emphasized that companies attempting such resolutions must allow claimants the option to pursue full state law damages if desired.
In contrast to companies like Johnson & Johnson, which have primarily utilized the Texas Two-Step for litigation surrounding asbestos-related claims, Tehum’s case offers little guidance for other large corporations seeking similar protections. The stark differences in their business models—between a distressed healthcare provider and a major corporate entity—underscore the unique landscape of bankruptcy law and corporate restructuring following personal injury lawsuits.
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