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]

Patent filings in Eastern District of Texas fall 68% after TC Heartland decision

For many years, plaintiffs in patent infringement cases flocked to the Eastern District of Texas, spurred by welcoming judges, rocket docket scheduling, and a belief that they would find plaintiff-friendly juries. Defendants in the same cases naturally chafed at having to defend in the Eastern District, especially when there was little, if any, connection between that location and the allegedly infringing activity.  This led to hundreds of defense motions to transfer venue to another federal district court–motions that were usually denied by the local judges who wanted to keep the cases in their district. The Eastern District dominated the national patent docket, with well over a thousand infringement cases filed in the district each year.

That all changed last year, when the Supreme Court’s in TC Heartland v. Kraft Foods read the federal venue statutes to severely limit where patent infringement cases could be brought. No longer could a plaintiff assert a reasonable connection to the Eastern District of Texas just because some defendant sold an allegedly infringing product there. Unsurprisingly, the new restrictions have led to a drastic drop in filings in the Eastern District, and a growth in filings in the District of Delaware (where many business defendants are incorporated), among other venues.

It will be interesting to see where things settle in the coming years.