Venue in Chapter 11 cases has been a hot topic, particularly after a recent venue battle in Caesar’s and the ABI Commission declined to recommend changing existing law, which gives debtors a broad choice for venue. Do current venue laws afford debtors, influential creditors, and their advisors too much leeway in electing where to file? And if so, should venue law be reformed? Last week, over a dozen bankruptcy professionals offered their views in the Wall Street Journal’s “Examiners” panel.
There was near-consensus among the WSJ’s Examiners that existing venue law—while perhaps imperfect—works well.
Anders Maxwell and Sharon Levine claimed, as did several others, that the large volume of filings in Delaware and the Southern District of New York renders those districts more efficient. Levine explained that “[t]he large volume of cases adjudicated within these two districts encourages further filings which in turn gives these courts even more of a track record, predictability and specialization.” Jack Butler argued that broad venue choice is a boon, since “[i]t creates opportunities for jointly-administered, cost-efficient filings, allowing fiduciaries to exercise their business judgment about what filing location might maximize enterprise value or reduce execution risk or both.” Moreover, “parties-in-interest actually seek to transfer venue in [only] a fraction of the cases filed.”
Companies also must consider “legal differences within the circuits” in deciding where to file, according to Richard Chesley. Differences in law, he explained, “can spell the difference between a confirmable plan of reorganization and liquidation.” Mark Roe judged that although the debtor might choose to file where it would be favored, that concern is offset by the expertise that courts hearing and deciding large, complex cases develop through repetition and experience. Venue restrictions that would disperse big firm filings would fail to capitalize on this expertise and experience. If more uniformity were needed, Roe argues, a nationwide intermediate appellate court would be the best approach.
The most vocal opponent of wide venue choice, Lynn LoPucki, wrote in his 2005 book, Courting Failure, that venue law degrades the bankruptcy courts, because the courts compete for large, prestigious cases by (i) advancing favorable precedent to attract debtors and (ii) tolerating high fees to curry favor with restructuring professionals, who influence where the case will be filed. This leads to a detrimental “race-to-the-bottom” style of “forum shopping,” which, he argues, facilitates the disproportionately large percentage of filings in Delaware and the Southern District of New York.
Visit the WSJ’s Bankruptcy Beat website to read the rest of the Examiners’ views on modern venue law.
This post was written by Aaron David (J.D. ’15).