Modern Forum Shopping in Bankruptcy

Abstract

In 1978, changes to the venue rules for bankruptcy cases created surprisingly permissive venue-selection procedures. Since that time, corporate bankruptcy cases have been characterized by harmful forum shopping. Recently, some skeptics have argued that forum shopping in bankruptcy is vastly overstated – a phenomenon that peaked many years ago. An empirical review of the 159 largest bankruptcy cases filed from January 1, 2007 to June 30, 2012 establishes that this assessment is false. 69% of the bankruptcy cases in my study group forum shopped. Over a two-decade period, the frequency with which large corporate debtors forum shopped increased 14%, and the absolute number of such debtors who forum shopped increased 130%. The data indicate a concentrated problem that must be addressed. This Article relies on empirical data and rigorous theoretical analysis to propose a variety of solutions that effect changes to the bankruptcy venue statute and procedures. These changes culminate in a truly unprecedented recommendation that alters fundamental elements of our bankruptcy court structure. Based in part on the system for appeals of patent and trademark rulings, this Article proposes the creation of the U.S. Court of Appeals for Bankruptcy. This appellate court would establish a critical mass of bankruptcy experts fully devoted to addressing disparate treatment of case-dispositive issues across the circuits. The creation of this court will ultimately enhance uniformity of bankruptcy law and, when taken together with this Article’s other proposed changes, alter forum shoppers’ incentives and means.

Keywords: forum shopping, bankruptcy, empirical analysis