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Sarah Jones

Abstract

In the wake of highly publicized and contentious corporate bankruptcies, scholars and policymakers are reevaluating the Bankruptcy Code’s flexible venue statute amid a forum shopping crisis. The current statute allows a corporate debtor to file bankruptcy in any state where it has an affiliate. Big corporations, anxious to choose favorable judges, create affiliates on the eve of bankruptcy to manufacture venue in a given court. Oftentimes, local court rules guarantee that a particular judge will preside. This strategic maneuvering has significant consequences for pending tort claims and other junior claimants who must appear in whatever venue the debtor selects. Some scholars argue that bankruptcy judges are complicit in debtor forum shopping abuse and that the venue statute must be revised to restore the public’s faith in the system. Under this theory, bankruptcy judges make decisions that favor incumbent management and senior creditors to attract Chapter 11 mega-cases. But there is no direct empirical evidence that bankruptcy judges change their substantive rulings to court the favor of large corporate filers. The empirical evidence shows that debtors in conjunction with creditors choose venues which are the most efficient and predictable. Revising interrelated Code provisions can preserve the benefits of the current venue statute while strengthening procedural protections for junior claimants. Recent scholarship has neglected to consider how other mechanisms in the Code could be used to address the forum shopping crisis. Revising the Code’s abstention and venue transfer statutes would allow bankruptcy judges to respond to unfair gamesmanship without destroying the benefits of the current venue statute. This Note takes inspiration for these revisions from a new line of decisions by bankruptcy judges responding to unfair, but legal, forum shopping in their jurisdictions.

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