Creditors and debtors in a Texas Two-Step bankruptcy case in Houston reached an agreement Wednesday that both sides believe will resolve more than 200 medical malpractice claims brought by inmates against prison healthcare provider Tehum Care Services, a subsidiary of Corizon Health.
Tehum, which filed for Chapter 11 bankruptcy protection in 2023, agreed to pay $75 million to creditors, including the plaintiffs who accuse Corizon and Tehum of providing inadequate medical care that led to injuries and deaths at about 50 prisons in more than two-dozen states.
Lawyers representing the plaintiffs had sought combined damages of more than $750 million.
Facing a mountain of litigation, Tennessee-based Corizon employed a legal strategy known in mass tort and bankruptcy circles as the Texas Two-Step in which Corizon split its company into two entities — YesCare, which contained the primary assets and the viable business operations, and Tehum, which was stuck with the parent company’s legal liabilities.
In March 2023, Tehum filed for bankruptcy in the Southern District of Texas, which allowed Corizon to protect its core assets.
The inmates’ attorneys objected, as did various members of Congress and the U.S. Trustee’s office.
Tehum originally proposed a $54 million settlement agreement, which was opposed by creditor’s counsel and rejected by U.S. Bankruptcy Judge Christopher Lopez in Houston after a four-day trial this past March. Judge Lopez also rejected motions by the creditor’s committee to dismiss the bankruptcy and allow their claims to proceed outside of bankruptcy.
After a lengthy mediation, the parties agreed to increase the settlement to $75 million, which the two sets of creditors — the injured inmates and the commercial creditors seeking payments on past work — splitting the funds.
Judge Lopez must still approve the agreement, which could occur at the end of 2024 or early 2025.
The lawyers involved in the Chapter 11 include:
Eric Goodman of Brown Rudnick, who is co-lead attorney representing the Tort Claimants’ Committee;
Nicholas Zluticky of Stinson is counsel for the Unsecured Creditors Committee; and
Jason Brookner, Amber Carson, Aaron Kaufman and Lydia Webb of Gray Reed are debtor’s counsel for Tehum.
The case is Tehum Care Services, Bankruptcy SDTX, No. 23-90086.