Document Type

Article

Publication Date

5-1999

Abstract

This Article reports the results of a comprehensive study of big-case bankruptcy forum shopping from 1980 to 1997. A description of what has occurred helps explain both the causes of Delaware's rise as the preferred Chapter 11 forum and why embarrassment forced the system to take extraordinary countermeasures. The temporal coincidence of three major changes in Chapter 11 practice obscures those causes: (1) a nationwide increase in the rate of Chapter 11 forum shopping; (2) a national trend toward faster case-processing times; and (3) the rise of "prepackaged" bankruptcy cases in which the necessary majorities of creditors have accepted the reorganization plan before the debtor files the case. Two prior studies partly illuminate the phenomenon of big-case bankruptcy forum shopping, but each analyzes fewer years of data and accounts for fewer variables than this study.

This Article casts doubt on the two common explanations for forum shoppers' attraction to Delaware: (1) that Delaware resolves bankruptcy cases more quickly, and (2) that Delaware has developed expertise in prepackaged cases. No statistically significant evidence exists that Delaware processes large Chapter 11 cases more quickly than other districts. The faster processing time that Gordon Bermant reported for Delaware, and thus Delaware's seeming comparative efficiency in resolving bankruptcy cases, is almost entirely a consequence of Delaware having a larger proportion of prepackaged cases than other districts. Moreover, Delaware does not process prepackaged cases significantly faster than other districts. We do find statistically significant evidence that New York processes cases slower than other bankruptcy courts. These findings cast further doubt on the argument that forum shopping targets the most efficient court.

Part I of this Article explains why the legal system regards big-case bankruptcy forum shopping as embarrassing while it tolerates and even encourages other kinds of forum shopping. Part II describes the data and methodology of the study. Part III discusses the pattern of big-case forum shopping, its recent increase in frequency, and its relation to the increasing number of prepackaged cases. Part IV seeks to explain the pattern of forum shopping.

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