The Essential Structure of Judgment Proofing

Abstract

In order to insulate itself against debts resulting from unfavorable judgments, a business may seek to operate unencumbered by significant assets. In this essay, Professor Lynn LoPucki revisits this issue of 'judgment proofing and responds to arguments that large businesses cannot operate in judgment-proof conditions. He identifies a single structure that describes virtually all judgment proofing: a division of risks of liability and assets into two or more separate entities sharing a symbiotic relationship. An operating entity conducts the business activities and carries the risks of tort liability, while an owning entity owns the business assets. While the two entities are bound together by contract, the bifurcation of assets and risks shields the business from judgment debt. Professor LoPucki argues that current law cannot collapse the two entities into one for purposes of satisfying judgments, and concludes that large businesses of any type can successfully render themselves judgment-proof