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Chapter 11 Locale

posted by Stephen Lubben

For nearly two decades, the fact that many really large chapter 11 cases file in two districts has been a point of controversy.  On the one hand, the present system makes some sense from the perspective of debtor’s attorneys, and many DIP lenders, who value the experience and wisdom of the judges in these jurisdictions and the predictability that filing therein brings.  On the other hand, for those not at the core of the present system, it reeks of an inside game that is opaque to those on the outside.  And it is not clear the judges outside the two districts could not handle a big case; indeed, most could.

Where big chapter 11 cases should file is an issue again, at least among bankruptcy folks, given the possibility that the pending Cornyn-Warren venue bill might pass as part of some bigger piece of legislation, perhaps the pending S. 2155 (whose Title IV is so misguided it certainly warrants a separate post).

I have long been frustrated by the discussion of chapter 11 venue.  On the one hand, the present system has developed largely by accident, with little thought for the broader policy implications.  On the other, there is certainly some merit in concentrating economically important cases before judges who are well-versed in the issues such cases present.  The issue calls for careful study, but, as with most political issues these days, we are instead presented with a binary choice.

I have often contemplated concentrating the biggest chapter 11 cases among a group of bankruptcy judges, trained in complexities of multi-state or even global businesses.  A small panel of such judges could be formed in various regions around the country, such that the parties would never have to travel further than to a neighboring state for proceedings.  Geographically larger states – i.e., California and Texas – might comprise regions all by themselves.

Such an approach would ensure that cases would capture some of the benefits of the present system, without the drawbacks of having a Seattle-based company file its bankruptcy case on the East Coast.  Comments are open, what do readers think about developing a nationwide group of "big case" judges?

Comments

Good idea. Certainly better than the ridiculous idea of having big cases scattered to Fairbanks, Frankfort, Harrisburg and Honolulu. Have you seen a good summary of the complaints about the current system?

You might want to think of Section 921(b), which authorizes the chief judge of the relevant circuit court of appeals to designate the bankruptcy judge for a Chapter 9 case. If I remember, the DC local rules contain some provision for a specialist judge in an OLA case.
On the other hand, there is much to be said about random selection of judges. There are a lot of state courts, for example, where the prosecutors can pick the judges. The federal criminal system has some of this, too.

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