Reform of bankruptcy sites | Greenberg Glusker LLP
At the end of last year, I co-wrote a item in the Los Angeles Daily Journal with fellow bankruptcy attorneys Elissa Miller and Zev Schectman on the need for bankruptcy scene reform. Even though we haven’t seen the onslaught of bankruptcy filings in the wake of the COVID-19 pandemic, the essence of this article still holds true: almost all major bankruptcy filings in the past two years have been filed in a few courts: White Plains – New York, Delaware, Eastern District of Virginia and Southern District of Texas.
Current law allows a business to file for bankruptcy in any state where it does business, or where it or an affiliate is incorporated. Debtor companies choose these selected locations for several strategic reasons, known as “forum shopping”. First, privileged courts are known for their “predictability”, as there are few judges in these courts. Second, these courts are known to have “rockets”, meaning that judges process cases very quickly, often giving the parties involved a limited opportunity to be heard. Third, these courts are notorious for tolerating the high billing rates of lawyers at large law firms, even when most creditors receive minimal returns. Finally, these courts are generally receptive to legal arguments from banks and other sophisticated parties who often control the case. Few opportunities and voices are given to local employees and business creditors who cannot easily appear in a case and afford a lawyer, thousands of miles away. The process is particularly useful for businesses and their lenders looking to get out of bankruptcy quickly.
These companies can file bankruptcy cases in jurisdictions far from their domicile is inconsistent with the way the place is usually determined. If a business dispute or personal injury case is based on events in California, the lawsuit would be filed in the county or district of California where it all happened. The same should be true of bankruptcy.
The application of the general rules of jurisdiction in bankruptcy makes sense in the context of due process. People affected by corporate bankruptcy should be able to participate personally in the process – not be forced to pay lawyers to represent their interests away from home.
Many would say that only certain judges and only certain practitioners are capable of handling more important cases. However, there is little evidence of this. Certainly, in the complex civil disputes handled by federal courts across the country, we have not heard that only certain federal courts are capable of handling complex disputes.
The above is not to say, however, that it is not for the judges of the various federal judicial districts to organize their rules and conduct their affairs in such a way as to give the bar assurance that complex bankruptcy cases can be dealt with. in an efficient and predictable manner.