Jones Day law partner Greg Gordon pioneered a bankruptcy tactic that has helped companies dodge an onslaught of asbestos-related lawsuits since 2017. REUTERS/Leah Millis

Four companies, led by one lawyer, have used the 'Texas two-step' to divert tens of thousands of lawsuits into bankruptcy court – without filing for Chapter 11 themselves. Now, a whistleblower is providing insight into the secretive process.

Attorney Greg Gordon sat before a packed hotel ballroom of bankruptcy lawyers who had come to hear him hold court on his pioneering strategy for companies seeking to dodge billion-dollar lawsuits: the “Texas two-step.”

The tactic has made the Jones Day partner a polarizing figure. It involves splitting a company in two, dumping the legal liability into one of the entities, and then putting that new firm into bankruptcy. Companies love it. Plaintiffs’ attorneys hate it. Judges so far seem split on it.

Gordon, grinning at his audience, made a bold claim about his maneuver, which he contends benefits both companies and plaintiffs. The two-step, he said, is “the greatest innovation in the history of bankruptcy.”

The remark prompted laughter at the April bankruptcy conference in Washington. But the two-step is no joke: Gordon’s innovation could radically reshape corporate liability law, legal scholars say, by allowing companies to easily divert any lawsuits against them into bankruptcy court – without filing for bankruptcy themselves.

Gordon has executed the maneuver for...

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