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Toys "Я" US's Curious Bankruptcy Venue

posted by Adam Levitin

Toys "R" Us filed for bankruptcy with impeccable timing--the very morning I was teaching my Financial Restructuring class about the commencement of the bankruptcy process. I decided to take my class through the TRU petition on PACER. Some 19 TRU entities filed in the Eastern District of Virginia, Richmond division. Only one of those 19 entities is a Virginia entity. I don't know the domicile of the other entities, but TRU is headquartered in New Jersey, and I'd be shocked if there wasn't at least one Delaware entity in the family.  

This left me puzzled. It would seem that TRU likely had at least two respected venues for large Chapter 11s:  District of New Jersey, and District of Delaware. Yet TRU chose to file in Virginia, and in Richmond to boot. 

After a few minutes of sleuthing on the LoPucki-UCLA WebBRD, I discovered that TRU's counsel, Kirkland & Ellis seems to have a cottage industry of Chapter 11 filings in Richmond:  5 cases in recent years. Again, this is puzzling. Richmond is hardly a convenient venue for K&E (with a bankruptcy practice based in Chicago and NY), nor is it a convenient venue for really anyone else--all of the financial creditors are likely to be NY-based, while the suppliers are from all over.  Nor is there obviously better law in the 4th Circuit for a retail bankruptcy (as far as I know, and if there is, it doesn't explain why Richmond rather than Alexandria). Are EDVA judges more lenient on fee applications or less likely to push back against overreaching DIP financing agreements? I don't know, but clearly there's something on tap in Richmond that K&E likes.  

Now here's what else I discovered--there are only two bankruptcy judges in Richmond, and K&E seems to keep getting the same one for its cases. I don't know how cases are assigned in EDVA, but it seems that K&E has discovered a sort of one-judge venue, much like Reno, NV. And what lawyer wouldn't want to pick the judge?  

I'm curious for others' thoughts.  I'd like to think that the chances of bankruptcy venue reform have increased with the departure of Joe Biden from the Senate (or Naval Observatory), not that we're likely to see any legislative action in the foreseeable future.  


Interesting post. As far as the single-judge, I will note that there is lore to the effect that practitioners in a lot of places can "game" which judge they get. One way I have heard that they do this is by watching filing numbers and waiting to press "submit" on their petition until they know the next number will be a filing number that they have figured out will be assigned to the preferred judge (all filings with even/odd last digits, for instance, might be assigned to judge A instead of judge B). Obviously, if anyone cared enough to assign cases on a truly random basis, this could be prevented easily, but my understanding is at least in a lot of places, it persists.

Sure would be nice if venue reform got back on the radar. Hard to defend our system.

Kirkland is avoiding Delaware because it is unhappy with its treatment by Judge Sontchi in Samson Resources. This was discussed in a TheDeal Alert ("Kirkland Pursues New Strategy in Retail Bankruptcies: Avoid Delaware").

Eastern District of VA, Richmond division is home to one major retail bankruptcy in the last decade - Circuit City. While I don't know about Kirkland, I wonder if that case has any decisions relevant to the TRU case.

The Alexandria division had the 2 US Airways bankruptcies. Not retail, but still big cases and likewise may have had some helpful decisions.

On the single-judge idea, EDVA has 4 divisions, and unlike some districts the judges typically don't rotate. The divisions each have one or two judges, so it is likely pretty predictable.

I don't know about EDVA specifically but Kirkland has done something similar in the oil and gas cases it files in the SDTX. It files them in the Victoria division to ensure they get Judge Jones, who is VERY debtor friendly. They just used this strategy with the Seadrill filing.

Circuit City is not the only major retail bankruptcy in Richmond. Kirkland also represents Gymboree in Richmond.

In older retail cases, RoomStore, Movie Gallery and Heilig-Meyers were all also filed in Richmond.

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