Two federal bankruptcy courts move to combat forum shopping

Mayer Brown’s blog, Real Bankruptcy Intel, explains:

Following the controversy surrounding Purdue[‘s careful filing of a bankruptcy petition designed to land specifically with Judge Robert Drain], as well as a lull in filings nationwide, in November, the SDNY elected to adopt a random case assignment system. Specifically, subdivision (f) of Local Bankruptcy Rule 1073-1 now states:

    1. Mega Chapter 11 Cases. Notwithstanding subdivision (a) of this rule, the Clerk shall assign a mega chapter 11 case to a Judge in the District by random selection irrespective of the courthouse in which the case is filed. A chapter 11 case qualifies as a mega chapter 11 case if the assets or liabilities of the debtor are equal to or greater than $100 million. A multi-debtor chapter 11 case qualifies as a mega chapter 11 case if the cumulative assets or cumulative liabilities of the filing debtors are equal to or greater than $100 million.[5]

Therefore, as of December 1, cases filed in the SDNY are to be assigned on a random basis to judges irrespective of the courthouse in which they are filed. As part of this rule, any SDNY judge can preside over a case in a courthouse where he or she is not usually assigned. Chief Judge Cecelia G. Morris explained that she hopes the adoption of this system will result in a more balanced utilization of judicial resources.[6] Judge Drain himself also commented that he “supported the change unanimously.”[7] Such adaptation now places the SDNY on par with the District of Delaware—another longstanding hotspot for mega chapter 11 cases—which already had a random assignment system in place. This move is likely to prevent debtors from “judge shopping” within the district.

Within a month of the SDNY’s announcement, the Bankruptcy Court for the Eastern District of Virginia (the district that contains Richmond and Alexandria) also implemented a similar rule.[8]