Pluralistic: One of America's most corporate-crime-friendly bankruptcy judges forced to recuse himself (16 Oct 2023)

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A Victorian caricature of a bewigged judge as a coin-operated 'verdict machine.' He holds signs in each hand reading 'VERDICT FOR DEFENDANT' and stands atop a base with a plaque reading 'TRY YOUR CASE.' His robe of office has signs reading 'To obtain a verdict, put a penny in the slot' and 'with costs.' There is a coin-slot in his chest. He is blindfolded. He has been placed against the flag of Texas.

One of America's most corporate-crime-friendly bankruptcy judges forced to recuse himself (permalink)

"I’ll believe corporations are people when Texas executes one." The now-famous quip from Robert Reich cuts to the bone of corporate personhood. Corporations are people with speech rights. They are heat-shields that absorb liability on behalf of their owners and managers.

But the membrane separating corporations from people is selectively permeable. A corporation is separate from its owners, who are not liable for its deeds – but it can also be "closely held," and so inseparable from those owners that their religious beliefs can excuse their companies from obeying laws they don't like:

Corporations – not their owners – are liable for their misdeeds (that's the "limited liability" in "limited liablity corporation"). But owners of a murderous company can hold their victims' families hostage and secure bankruptcies for their companies that wipe out their owners' culpability – without any requirement for the owners to surrender their billions to the people they killed and maimed:

Corporations are, in other words, a kind of Schroedinger's Cat for impunity: when it helps the ruling class, corporations are inseparable from their owners; when that would hinder the rich and powerful, corporations are wholly distinct entities. They exist in a state of convenient superposition that collapses only when a plutocrat opens the box and decides what is inside it. Heads they win, tails we lose.

Key to corporate impunity is the rigged bankruptcy system. "Debts that can't be paid, won't be paid," so every successful civilization has some system for discharging debt, or it risks collapse:

When you or I declare bankruptcy, we have to give up virtually everything and endure years (or a lifetime) of punitive retaliation based on our stained credit records, and even then, our student debts continue to haunt us, as do lawless scumbag debt-collectors:

When a giant corporation declares bankruptcy, by contrast, it emerges shorn of its union pension obligations and liabilities owed to workers and customers it abused or killed, and continues merrily on its way, re-offending at will. Big companies have mastered the Texas Two-Step, whereby a company creates a subsidiary that inherits all its liabilities, but not its assets. The liability-burdened company is declared bankrupt, and the company's sins are shriven at the bang of a judge's gavel:

Three US judges oversee the majority of large corporate bankruptcies, and they are so reliable in their deference to this scheme that an entire industry of high-priced lawyers exists solely to game the system to ensure that their clients end up before one of these judges. When the Sacklers were seeking to abscond with their billions in opioid blood-money and stiff their victims' families, they set their sights on Judge Robert Drain in the Southern District of New York:

To get in front of Drain, the Sacklers opened an office in White Plains, NY, then waited 192 days to file bankruptcy papers there (it takes six months to establish jurisdiction). Their papers including invisible metadata that identified the case as destined for Judge Drain's court, in a bid to trick the court's Case Management/Electronic Case Files system to assign the case to him.

The case was even pre-captioned "RDD" ("Robert D Drain"), to nudge clerks into getting their case into a friendly forum.

If the Sacklers hadn't opted for Judge Drain, they might have set their sights on the Houston courthouse presided over by Judge David Jones, the second of of the three most corporate-friendly large bankruptcy judges. Judge Jones is a Texas judge – as in "Texas Two-Step" – and he has a long history of allowing corporate murderers and thieves to escape with their fortunes intact and their victims penniless:

But David Jones's reign of error is now in limbo. It turns out that he was secretly romantically involved with Elizabeth Freeman, a leading Texas corporate bankruptcy lawyer who argues Texas Two-Step cases in front of her boyfriend, Judge David Jones.

Judge Jones doesn't deny that he and Freeman are romantically involved, but said that he didn't think this fact warranted disclosure – let alone recusal – because they aren't married and "he didn't benefit economically from her legal work." He said that he'd only have to disclose if the two owned communal property, but the deed for their house lists them as co-owners:

(Jones claims they don't live together – rather, he owns the house and pays the utility bills but lets Freeman live there.)

Even if they didn't own communal property, judges should not hear cases where one of the parties is represented by their long term romantic partner. I mean, that is a weird sentence to have to type, but I stand by it.

The case that led to the revelation and Jones's stepping away from his cases while the Fifth Circuit investigates is a ghastly – but typical – corporate murder trial. Corizon is a prison healthcare provider that killed prisoners with neglect, in the most cruel and awful ways imaginable. Their families sued, so Corizon budded off two new companies: YesCare got all the contracts and other assets, while Tehum Care Services got all the liabilities:

Then, Tehum paid Freeman to tell her boyfriend, Judge Jones, to let it declare bankruptcy, leaving $173m for YesCare and allocating $37m for the victims suing Tehum. Corizon owes more than $1.2b, "including tens of millions of dollars in unpaid invoices and hundreds of malpractice suits filed by prisoners and their families who have alleged negligent care":

Under the deal, if Corizon murdered your family member, you would get $5,000 in compensation. Corizon gets to continue operating, using that $173m to prolong its yearslong murder spree.

The revelation that Jones and Freeman are lovers has derailed this deal. Jones is under investigation and has recused himself from his cases. The US Trustee – who represents creditors in bankruptcy cases – has intervened to block the deal, calling Tehum "a barren estate, one that was stripped of all of its valuable assets as a result of the combination and divisional mergers that occurred prior to the bankruptcy filing."

This is the third high-profile sleazy corporate bankruptcy that had victory snatched from the jaws of defeat this year: there was Johnson and Johnson's attempt to escape from liability from tricking women into powdering their vulvas with asbestos (no, really), the Sacklers' attempt to abscond with billions after kicking off the opioid epidemic that's killed 800,000+ Americans and counting, and now this one.

This one might be the most consequential, though – it has the potential to eliminate one third of the major crime-enabling bankruptcy judges serving today.

One down.

Two to go.

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