On February 11, 2026, a split panel of the U.S. Court of Appeals for the Fourth Circuit affirmed the lower courts’ decisions that denied motions of asbestos claimants to lift the automatic stay in the bankruptcy case of DBMP, LLC (an affiliate of CertainTeed Corp.), so they could proceed with state-court litigation on their claims. The opinion provides guidance for companies facing mass tort exposure—particularly those utilizing a “Texas Two-Step” structure (i.e., a Texas divisional merger) to manage legacy liabilities.
Background
DBMP, LLC was created through a Texas Two-Step structure that allocated all of “old” CertainTeed’s asbestos-related liabilities to DBMP and substantially all of its assets and operations to “new” CertainTeed, which simultaneously agreed to an uncapped funding agreement that obligated it to pay all of DBMP’s asbestos liabilities, including in bankruptcy. DBMP then filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Western District of North Carolina, seeking to resolve current and future asbestos claims through a trust under 11 U.S.C. § 524(g).
DBMP’s bankruptcy filing triggered the automatic stay under 11 U.S.C. § 362 and led to the subsequent entry of a preliminary injunction protecting “new” CertainTeed and its affiliates, halting thousands of pending asbestos lawsuits. Certain claimants (Herlihy and the Bergrud Estate) moved to lift the stay to liquidate their state-court claims, arguing that DBMP’s bankruptcy filing was made in bad faith because it was solvent and merely served as a litigation tactic rather than a legitimate restructuring effort. The bankruptcy court denied the relief, and the district court affirmed.
The Fourth Circuit’s Ruling
Writing for the majority, Circuit Judge Neimeyer described the “narrow question” presented on appeal as whether the lower courts correctly applied the standard for lifting the automatic stay articulated in In re Robbins (964 F.2d 342 (4th Cir. 1992)), and declined to reach issues raised by Circuit Judge King’s lengthy dissenting opinion. The Court emphasized that a motion for stay relief is committed to the bankruptcy court’s discretion and is reviewed for abuse of that discretion.
The Court found that the bankruptcy court not only correctly applied the Robbins factors but provided extensive explanation as to why those factors suggested that granting relief from the stay would effectively destroy the bankruptcy case—such as reducing judicial economy by releasing tens of thousands of asbestos cases back into the court system and undermining the uniform treatment of present and future claimants pursuant to a 11 U.S.C. § 524(g) structure.
The Court then noted that a bad faith cause for dismissal of a petition or for granting relief from the stay is not without boundaries—requiring a showing of subjective bad faith and objective futility, citing Carolin Corp v. Miller (886 F.2d 693 (4th Cir. 1989)).
Importantly, the majority rejected arguments that DBMP’s lack of financial distress or the use of a Texas Two-Step structure, per se, demonstrated “bad faith” to warrant stay relief—noting that 11 U.S.C. § 524(g) expressly contemplates the use of the Chapter 11 bankruptcy process to address asbestos liabilities and does not impose a strict insolvency requirement.
The Dissenting Opinion
Circuit Judge King dissented in an extensive opinion in which he lamented that “our Circuit has become the ‘safe haven’ for ultra-wealthy corporations seeking to evade asbestos-related civil tort liability under the guise of the Bankruptcy Code.”
Stating that Robbins was inapposite and Carolin was inapplicable, Circuit Judge King opined that the record reflected ample evidence of bad faith sufficient to warrant stay relief as DBMP, “backed by the full faith and credit of CertainTeed” through funding agreements, “was not, and never will be, in any financial distress” and “is not seeking to reorganize for a legitimate purpose.” Rather, he describes DBMP as “a stooge subsidiary … pursuing a sham Chapter 11 bankruptcy” for the benefit of CertainTeed (a fully solvent corporation) “for the sole purpose aimed at denying thousands of victims of their right to a jury trial, and also to coerce favorable settlements from those victims in its preferred bankruptcy forum” without CertainTeed itself having to undergo any of the scrutiny, transparency and risk that a Chapter 11 bankruptcy entails.
Key Takeaways from the Decision
- High Bar for Stay Relief: Claimants face significant hurdles in seeking to lift the automatic stay to break out of the centralized 524(g) process in mass tort bankruptcies.
- Funding Agreements Not Dispositive: Access to financial backing does not, in itself, negate a valid bankruptcy purpose.
- Solvent-Debtors Section 524(g) Venue: Continued validation of solvent-debtor 524(g) cases, as well as extension of the automatic stay to non-debtor affiliates, reinforces North Carolina as an attractive venue for such cases.
- Continued Circuit Divergence: The decision reinforces a developing split among federal courts regarding the treatment of Texas Two-Step restructurings and the role of financial distress in good-faith analysis. See In re LTL Mgmt., LLC, 64 F.4th 84, 110 (3d Cir. 2023) (“Because LTL was not in financial distress, it cannot show its petition served a valid bankruptcy purpose and was filed in good faith under Code § 1112(b).”).
The decision underscores that, in the Fourth Circuit, Chapter 11 remains a viable, court-approved path for managing large-scale asbestos liabilities—even for a solvent company—and that individual claims face steep obstacles to pursue litigation outside of bankruptcy. However, as more circuits weigh in, there may be increasing pressure for Supreme Court review to resolve the split—shaping the future of mass tort restructurings nationwide.
