Introduction
Forum shopping has long been a controversial issue in corporate bankruptcy, but in recent years, judge shopping has emerged as a significant concern. Large Chapter 11 reorganizations are increasingly concentrated before a small subset of judges, with just three out of 375 bankruptcy judges handling most major cases. This trend raises serious concerns about fairness, legal integrity, and the procedural safeguards in bankruptcy proceedings. The case of Purdue Pharma, where the Sackler family maneuvered the assignment of Judge Drain, exemplifies how corporations manipulate case assignment rules to secure favorable outcomes. Such practices create systemic issues, including a chilling effect on creditors, diminished attorney advocacy, and outcome determinacy in bankruptcy rulings. The most effective solution to this growing problem is the implementation of random case assignment.
Forum Shopping in Chapter 11
A. Bankruptcy Venue Rules
Under 28 U.S.C. § 1408, corporations can establish venue based on their headquarters or where their principal assets are located. The 180-day rule, applicable to all venue grounds, enables corporations to strategically relocate before filing for bankruptcy. Additionally, the affiliate filing rule has allowed corporations to create subsidiaries specifically for venue manipulation, a practice known as "bootstrapping." This has led to the concentration of bankruptcy cases in districts like Delaware and the Southern District of New York (SDNY), where corporations expect debtor-friendly rulings.
B. Motivations for Forum Shopping
The primary motivation behind forum shopping in bankruptcy is not just legal certainty but the debtor’s expectation of a favorable ruling. Factors influencing forum selection include predictability in judicial rulings, precedents set by specific judges, and leniency in oversight. In some cases, forum shopping even results in the application of different laws across jurisdictions.
C. Judicial Competition for Megacases
While judges typically do not have an incentive to attract more cases, some bankruptcy judges actively seek complex, high-profile cases. Judges with Chapter 11 reorganization backgrounds often prefer handling these cases, and some may even have post-employment opportunities in law firms handling major bankruptcies. LoPucki has documented how some judges signal their receptiveness to high-profile cases by modifying local rules to favor debtors, swiftly ruling on first-day motions, and resisting requests to transfer cases to other jurisdictions. By offering procedural advantages such as expedited approvals and refusing to appoint examiners or trustees, these judges attract megacases, consolidating power within a small judicial subset.
From Forum Shopping to Judge Shopping
Initially, forum shopping was focused on selecting a favorable district. However, recent trends indicate that debtors now specifically seek out particular judges within these districts. Two key factors enable judge shopping: local case assignment rules and complex case panel rules.
A. Local Divisional Case Assignment Rules
Judges are assigned cases based on geography, local rules, and the number of available judges. When districts have a limited number of judges, debtors can file strategically to increase the likelihood of assignment to a preferred judge.
B. Complex Case Assignment Rules: The Rule of Two
Many jurisdictions designate complex cases to specialized panels or specific judges. However, when there are only two judges eligible for complex cases in a district, debtors can effectively guarantee assignment to a particular judge. This system has been exploited by judges like Chief Judge Jones of Texas, who actively attracted megacases to his district, leading to a decline in bankruptcy attorneys elsewhere in Texas.
The Effects of Judge Shopping on Bankruptcy Venue
A. A Shift in Preferred Filing Venues
Data from recent years demonstrates a shift in preferred filing venues for large bankruptcies. The trend has moved from traditional hubs like New York and Delaware to Houston, Texas, where certain judges have become known for favorable debtor rulings.
B. Consolidation of Megacases into a Few Districts
By 2020, 91% of all large bankruptcy cases were filed in just four districts: Delaware, SDNY, the Southern District of Texas (SDTX), and the Eastern District of Virginia (EDVA). Law firms like Kirkland & Ellis have played a key role in steering cases toward these districts, exacerbating the concentration of power in the hands of a few judges.
C. Concentration of Megacases Before Three Judges
Despite there being 375 bankruptcy judges nationwide, only three judges oversee the majority of corporate reorganizations. This extreme concentration raises concerns about fairness, accountability, and judicial impartiality.
The Effects of Judge Shopping on Case Outcomes
A. Chilling Effect on Creditors
Judge shopping discourages creditors from actively contesting bankruptcy plans, as they perceive the process to be predetermined. This leads to weaker negotiations and settlements that disproportionately favor debtors.
B. Chilling Effect on Lawyers
Attorneys, fearing repercussions, are less willing to challenge the chosen venue. This reduces their ability to zealously advocate for clients, further undermining procedural fairness.
C. The Rise of Drive-Thru Bankruptcies
A particularly concerning trend is the emergence of "drive-thru" bankruptcies, where judges approve Chapter 11 plans within hours or days, often with minimal oversight. While efficiency is desirable, these expedited processes often result in substantive fairness issues.
The first generation of drive-thru cases began in 2006, with companies like Blue Bird Body Company receiving swift approvals. The second generation saw corporations manufacturing venues to expedite proceedings further. A case study of Belk Department Stores illustrates this phenomenon, as its bankruptcy plan was approved in just 24 hours.
Drive-Thru Cases and the Judicial Expertise Fallacy
The justification for judge shopping is often framed as judicial expertise. However, since bankruptcy judges are appointed based on merit, all should theoretically be capable of handling complex cases. The consolidation of cases before a select few judges does not necessarily enhance expertise but rather increases the risk of bias and procedural irregularities.
Fixing Judge Shopping
The most effective solution to judge shopping is random case assignment. By removing the ability of debtors to select specific judges, bankruptcy courts can restore procedural fairness, reduce bias, and enhance judicial accountability. Implementing uniform randomization policies across all districts would ensure that no single judge or district becomes the default venue for large bankruptcy cases.
Conclusion
Judge shopping in corporate bankruptcy undermines the integrity of the legal system by consolidating power within a small subset of judges, disadvantaging creditors, and facilitating drive-thru bankruptcies. The systemic concentration of megacases before three judges demonstrates the extent of the problem. To preserve the fairness and credibility of bankruptcy proceedings, courts must adopt random case assignment rules and enforce stricter venue regulations to curb opportunistic filings. Without these reforms, judge shopping will continue to erode trust in the bankruptcy system, allowing corporations to manipulate proceedings at the expense of creditors and legal integrity.
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