THE ESSENTIAL STRUCTURE OF JUDGMENT PROOFING

In order to insulate itself against debts resulting from unfavorable j udgments, a business entity may seek to operate unencumbered by signif icant assets. In this essay, Professor Lynn LoPucki revisits this issu e of ''judgment proofing'' and responds to arguments that large busine sses cannot operate in judgment-proof conditions. He identifies a sing le structure that describes virtually all judgment proofing: a divisio n of risk of liability and assets into two or more separate entities s haring 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 ar e bound together by contract, the bifurcation of assets and risk shiel ds the business from judgment debt. Professor LoPucki argues that curr ent law cannot collapse the two entities into one for purposes of sati sfying judgments, and concludes that large businesses of any type can successfully render themselves judgment-proof.