Texas Two-Step Bankruptcy and DBMP
Executive Summary
The Texas Two-Step is the name lawyers give to a two-part maneuver: a company uses a Texas "divisional merger" to split itself in two, placing its asbestos liabilities in one new company, and that new company then files for bankruptcy. The Fourth Circuit described the label this way: lawyers "often, and perhaps pejoratively, refer to the divisional merger and bankruptcy filing as the 'Texas Two-Step'".[2]
CertainTeed used the maneuver in October 2019. Its asbestos liabilities went to a new company, DBMP LLC, which filed for Chapter 11 bankruptcy in January 2020 in the Western District of North Carolina.[2] The filing automatically stayed asbestos lawsuits against DBMP, and the bankruptcy court also entered a preliminary injunction barring asbestos claims against the new CertainTeed, affiliated entities and the old CertainTeed's distributors.[2] As of the court's July 28, 2026 hearing agenda, the case was still pending.[3]
In Herlihy v. DBMP, LLC, decided February 11, 2026, the Fourth Circuit affirmed, 2–1, a ruling that refused to lift the stay for three claimants.[2] On September 17, 2026, the claimants asked the U.S. Supreme Court to review that decision (No. 26-394), and DBMP's response is due October 22, 2026.[4]
At a Glance
Texas Two-Step and DBMP at a glance:
- Divisional merger: in October 2019, CertainTeed split itself into two companies under Texas corporation law[2]
- What DBMP received: all of the old CertainTeed's asbestos liabilities, $25 million in cash, and the Millwork & Panel siding and trim business[2]
- Funding agreement: an uncapped agreement obligates the new CertainTeed to satisfy DBMP's asbestos liabilities[2]
- Bankruptcy: DBMP filed for Chapter 11 in January 2020, Case No. 20-30080 in the Western District of North Carolina[2][3]
- Lawsuits paused: the automatic stay and a preliminary injunction halted asbestos suits against DBMP, the new CertainTeed, affiliates and the old CertainTeed's distributors[2]
- Fourth Circuit: affirmed the refusal to lift the stay on February 11, 2026, with Judge King dissenting[2]
- Supreme Court: petition No. 26-394 filed September 17, 2026; response due October 22, 2026[4]
- Question presented: whether a Texas Two-Step bankruptcy lacks good faith, so that "cause" exists to lift the automatic stay[1]
- Stipulation offered: after the 2021 hearings, DBMP offered a stipulation that pending asbestos claims would be preserved, without impairment of damages, even if the claimant later dies; the opinion records the offer, not whether the court entered it[2]
Key Facts
| Measure | Finding (Source) |
|---|---|
| CertainTeed asbestos products | Cement pipe, asphalt roofing products, gypsum products and railroad insulation products, 1930s to 1990s (Fourth Circuit opinion)[2] |
| Asbestos costs, 2002–2019 | Roughly $2 billion defending and resolving over 300,000 asbestos lawsuits; about $1.5 billion paid out of pocket after insurance was exhausted (Fourth Circuit opinion)[2] |
| Pending claims in 2019 | Approximately 60,000 (Fourth Circuit opinion)[2] |
| Assets assigned to DBMP | $25 million cash plus Millwork & Panel, with projected 2020 earnings before taxes of $16 million and an estimated fair market value of $150 million (Fourth Circuit opinion)[2] |
| Funding agreement | Uncapped; the new CertainTeed must satisfy DBMP's asbestos liabilities and, in bankruptcy, pay the costs of a Chapter 11 reorganization, including a Section 524(g) trust (Fourth Circuit opinion)[2] |
| First lift-stay ruling | August 10, 2021: the bankruptcy court denied the claimants' committee's motion in a 79-page opinion (Fourth Circuit opinion)[2] |
| Herlihy and Bergrud motions | Filed April 2024; denied May 28, 2024; district court affirmed October 28, 2024 (Fourth Circuit opinion)[2] |
| Fourth Circuit decision | Affirmed February 11, 2026; Judge Niemeyer for the court, joined by Judge Harris; Judge King dissented (No. 24-2109)[2] |
| Rehearing | Denied April 20, 2026 (Supreme Court docket)[4] |
| Supreme Court petition | No. 26-394, filed September 17, 2026, after an extension granted by the Chief Justice on July 16, 2026 (Supreme Court docket)[4] |
| Response due | October 22, 2026 (Supreme Court docket)[4] |
What Is the Texas Two-Step?
The Texas Two-Step has two steps. In the first, a company uses a procedure in Texas corporation law, called a divisional merger, to divide itself into two companies and assign its liabilities and assets between them. In the second, the company that received the asbestos liabilities files for Chapter 11 bankruptcy.[2]
The Fourth Circuit explained the CertainTeed version this way: "CertainTeed split itself into two companies under Texas corporation law — which is curiously referred to as a 'divisional merger' — by forming two new entities and assigning to them CertainTeed's liabilities and assets." One new company kept the CertainTeed name, the other was DBMP LLC, and the original company "ceased to exist."[2]
People describe the maneuver very differently depending on which side they are on. The petition to the Supreme Court calls it "an increasingly familiar maneuver by which a profitable, non-distressed enterprise seeks the benefits of bankruptcy for its tort liabilities without bearing any of bankruptcy's burdens."[1] The Fourth Circuit majority described CertainTeed's decision as taking advantage of the Section 524(g) reorganization provision, "which was enacted in 1994 specifically to manage and resolve ongoing and future asbestos-related claims in circumstances like those facing CertainTeed."[2]
How Did CertainTeed Create DBMP?
In the divisional merger, the old CertainTeed "assigned all of its asbestos liabilities to DBMP, as well as $25 million in cash and all the equity of a cashflow-producing siding and trim business, Millwork & Panel." Its remaining liabilities and assets went to the new CertainTeed.[2]
At the same time, DBMP and the new CertainTeed signed an uncapped funding agreement. Under it, the new CertainTeed must satisfy DBMP's asbestos-related liabilities and, in bankruptcy, pay the costs of the Chapter 11 case, including the cost of resolving asbestos claims through a Section 524(g) trust. The court wrote that, under this agreement, "none of Old CertainTeed's assets were protected from liability to pay the asbestos claims, but those claims were isolated so that they could be managed under a § 524(g) plan."[2]
DBMP then filed for Chapter 11. The opinion's dissent records the restructuring in October 2019 and DBMP's voluntary petition in January 2020.[2] DBMP is a wholly owned subsidiary of CertainTeed LLC, which is itself a subsidiary of the French company Compagnie de Saint-Gobain S.A.[1]
What Did the Fourth Circuit Decide in Herlihy v. DBMP?
Michael Herlihy, Ann Herlihy and the Estate of Peter Bergrud have asbestos lawsuits against DBMP in state courts in Washington and California. In April 2024, they asked the bankruptcy court to lift the stay, on their own behalf only, so those suits could go forward. They argued DBMP obtained the stay "in bad faith" because it is "non-distressed, massively wealthy, and fully capable of paying all claims in full."[2]
The bankruptcy court denied the motions on May 28, 2024, and the district court affirmed on October 28, 2024.[2] On February 11, 2026, the Fourth Circuit affirmed. Its holding, in its own words: "the bankruptcy court did not abuse its discretion in refusing to lift the automatic stay on finding that DBMP filed its Chapter 11 petition with the legitimate purpose of pursuing a § 524(g) plan, that it qualified for such a reorganization, and that the plaintiffs failed to present any evidence that DBMP had acted in bad faith."[2]
The standard of review matters to how that holding reads. The Fourth Circuit asked whether the bankruptcy court abused its discretion, applying the factors from its 1992 decision in In re Robbins. The bankruptcy court had found that lifting the stay would prejudice the debtor's estate, reduce judicial economy and "imperil" its ability to "treat consistently and fairly all similarly situated claimants in a 524(g) plan."[2]
Judge King dissented. His opinion begins: "Slowly but surely — and to my great regret — 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."[2] The Fourth Circuit denied rehearing on April 20, 2026.[4]
What Is the Supreme Court Being Asked?
The claimants filed a petition for a writ of certiorari on September 17, 2026, docketed as No. 26-394. DBMP's response is due October 22, 2026.[4] The petition presents one question: "Does a debtor's pursuit of bankruptcy as part of a Texas Two-Step scheme lack good faith, such that 'cause' exists to lift the automatic stay under 11 U.S.C. § 362(d)?"[1]
The petition argues that the Fourth Circuit's decision "squarely splits with the Third Circuit," pointing to the Third Circuit's ruling in the LTL bankruptcy of a Johnson & Johnson subsidiary.[1] A petition is a request, not a ruling: the Supreme Court decides whether to take the case at all, and it has not acted on this petition.[4]
What Does This Mean for Pending CertainTeed Asbestos Claims?
While the bankruptcy is pending, asbestos lawsuits against DBMP are stayed, and the preliminary injunction bars asbestos claims against the new CertainTeed, affiliated entities and the old CertainTeed's distributors.[2]
After the 2021 hearings, DBMP offered a stipulation that "the personal injury claims of any claimant with a pending asbestos claim shall be preserved, with no impairment of damages, even if the claimant subsequently dies."[2] The opinion records that offer; it does not say whether the bankruptcy court entered the stipulation or relied on it.
The case is still being litigated. On the court's July 28, 2026 agenda, the asbestos claimants' committee and the Future Claimants' Representative were pressing a motion to compel production of Compagnie de Saint-Gobain S.A.'s documents or to modify the preliminary injunction, in adversary proceedings they brought against DBMP, CertainTeed and Saint-Gobain entities.[3]
Frequently Asked Questions
What is a Texas Two-Step bankruptcy?
A company uses a Texas divisional merger to split itself in two, assigns its asbestos liabilities to one of the new companies, and that company files for Chapter 11. The Fourth Circuit notes that lawyers use the name "often, and perhaps pejoratively."[2]
What is DBMP LLC?
DBMP is the company that received the old CertainTeed's asbestos liabilities in an October 2019 divisional merger. It filed for Chapter 11 in January 2020 and is a wholly owned subsidiary of CertainTeed LLC.[2][1]
Can I still sue CertainTeed over asbestos exposure?
While DBMP's bankruptcy is pending, asbestos suits against DBMP are stayed and a preliminary injunction bars asbestos claims against the new CertainTeed, its affiliates and the old CertainTeed's distributors. The Fourth Circuit upheld the refusal to lift that stay for three claimants in February 2026.[2]
What happens to a pending claim if the person who filed it dies?
The Fourth Circuit opinion records that, after the 2021 hearings, DBMP offered a stipulation that "the personal injury claims of any claimant with a pending asbestos claim shall be preserved, with no impairment of damages, even if the claimant subsequently dies." The opinion does not say whether the court entered that stipulation, so whoever represents the claim is the person to ask how it applies.[2]
Is there a CertainTeed asbestos trust?
A Section 524(g) trust would come from a plan in DBMP's Chapter 11 case, and that case is still pending: in July 2026 the claimant representatives were still litigating discovery and the preliminary injunction. Under the funding agreement, the new CertainTeed must pay the cost of resolving the asbestos claims through such a trust.[2][3]
What happens next at the Supreme Court?
DBMP's response to petition No. 26-394 is due October 22, 2026. After that, the Court decides whether to hear the case.[4]
Quick Statistics
- October 2019: CertainTeed's divisional merger[2]
- January 2020: DBMP files for Chapter 11[2]
- $25 million: cash assigned to DBMP, plus the Millwork & Panel business[2]
- 300,000+: asbestos lawsuits CertainTeed defended or resolved from 2002 to 2019[2]
- About 60,000: asbestos claims pending against CertainTeed in 2019[2]
- 2–1: the Fourth Circuit's vote in Herlihy v. DBMP, February 11, 2026[2]
- No. 26-394: the Supreme Court petition, filed September 17, 2026[4]
- October 22, 2026: DBMP's response deadline[4]
External Links
- Supreme Court docket No. 26-394, Herlihy v. DBMP, LLC
- Fourth Circuit opinion, Herlihy v. DBMP, LLC, No. 24-2109
- Danziger & De Llano: Asbestos Bankruptcy Trust Fund Guide, an overview of asbestos bankruptcy trusts
Related Pages
- Section_524(g)_Bankruptcy_Trusts: the bankruptcy framework behind asbestos trusts
- Asbestos_Trust_Funds: active asbestos trusts and their payment percentages
- Trust_Fund_Filing_Guidance: how trust claims are filed
- Mesothelioma_Lawsuit: how asbestos lawsuits work
- Cement_Masons: asbestos-cement products, including CertainTeed's
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Petition for a Writ of Certiorari, Herlihy v. DBMP, LLC, No. 26-394, filed September 17, 2026 (question presented; corporate disclosure; related proceedings). Retrieved October 3, 2026.
- ↑ 2.00 2.01 2.02 2.03 2.04 2.05 2.06 2.07 2.08 2.09 2.10 2.11 2.12 2.13 2.14 2.15 2.16 2.17 2.18 2.19 2.20 2.21 2.22 2.23 2.24 2.25 2.26 2.27 2.28 2.29 2.30 2.31 2.32 2.33 2.34 2.35 2.36 2.37 2.38 2.39 2.40 2.41 2.42 2.43 2.44 2.45 Herlihy v. DBMP, LLC, No. 24-2109 (4th Cir. Feb. 11, 2026) (published opinion; Niemeyer, J., joined by Harris, J.; King, J., dissenting). Retrieved October 3, 2026.
- ↑ 3.0 3.1 3.2 3.3 3.4 3.5 Agenda of Matters Scheduled for Hearing on July 28, 2026, In re DBMP LLC, Case No. 20-30080 (AAE) (Bankr. W.D.N.C.), filed July 24, 2026, Adv. Pro. No. 21-03023, Doc 519. Retrieved October 3, 2026.
- ↑ 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 Docket No. 26-394, Herlihy v. DBMP, LLC, Supreme Court of the United States: petition filed September 17, 2026, "Response due October 22, 2026"; rehearing denied below April 20, 2026; extension application 26A66 granted July 16, 2026. Retrieved October 3, 2026.