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When Enron Corp. collapsed three years ago, it filed for bankruptcy in Manhattan. That didn’t sit well with John Cornyn, then the attorney general of Texas. Cornyn, joined by the lawyers for numerous Enron creditors, asked Manhattan federal court judge Arthur Gonzalez to move the case to Houston, where the energy company once employed more than 7,000 people and had its headquarters. But Gonzalez denied the request. The venue spat still rankles Cornyn, now the junior U.S. senator from Texas. In February he introduced a bill that would force companies to file for bankruptcy where their principal place of business or their principal assets are located. His proposal would stop a corporation from filing for bankruptcy in a location that’s simply the home of a subsidiary, or the state in which it’s incorporated. In a statement, Cornyn said the Fairness in Bankruptcy Litigation Act would “prevent corporate debtors from moving their bankruptcy cases thousands of miles away from the communities and their workers who have the most at stake. And it will prevent bankrupt corporations from effectively selecting the judge in their own cases — because picking the judge isn’t far off from picking the verdict.” The venue issue has been a hot topic in the bankruptcy bar ever since Delaware courts began to attract more bankruptcy filings two decades ago. In response, judges in New York and elsewhere stepped up their efforts to woo debtors, largely by streamlining their court procedures. According to Lynn LoPucki, the result has been a concentration of bankruptcy cases in Wilmington and Manhattan. A law professor at the University of California at Los Angeles, LoPucki testified before a House subcommittee last year. He told legislators that according to his research, more than half of all bankruptcy petitions by large public companies since 1982 have been filed in New York and Delaware. That’s led to a lot of grumbing among lawyers outside the Northeast Corridor, who have quickly thrown their support behind Cornyn’s bill. “I think it’s an essential idea for fairness,” says Hugh Ray, head of the bankruptcy practice at Andrews Kurth in Houston. “Everyone who is not a regular habitu� of the Metroliner [the Amtrak train that links New York and D.C.] would love it. Cases, quite candidly, are filed in Wilmington and [Manhattan] for the convenience of counsel. A company should not be allowed to run away from where its creditors are.” LoPucki says venue shopping isn’t just unfair to those with claims against a bankrupt corporation; he argues that it also hurts the company. In his new book, “Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts,” LoPucki says that more businesses have been returning to bankruptcy court ever since judges started competing for their filings. That’s because judges have tried to attract more big cases by issuing softball rulings designed to please corporate executives and their lawyers. “The forum-shopping that is going on has led the courts into a competition for the cases,” LoPucki says, which is “having an adverse effect on the companies themselves.” He maintains that his research shows a “very powerful correlation between courts competing for the cases and failure of the companies.” Enron isn’t the only big corporation to spurn its hometown for a Chapter 11 filing. Clinton, Miss.-based WorldCom, Inc., for one, also chose to bring its bankruptcy action in Manhattan. But Enron’s Yankee preference generated considerable anger among Texas attorneys, which has helped make it the poster child for the evils of venue shopping. Rhett Campbell, a bankruptcy partner at Thompson & Knight in Houston, says that hearing Enron’s case in New York is “tremendously unfair” to the company’s creditors and shareholders. Campbell argued the motion that asked Judge Gonzalez to send Enron back home. “I represent a number of creditors and claimants in the case,” Campbell explains. “I have specific examples of where lawyers for Enron will go to New York, I will go to New York, my client from Houston will go to New York, Enron’s principals will go to New York, witnesses will go to New York, everybody will go to New York — except the judge.” But Martin Bienenstock, a partner at New York’s Weil, Gotshal & Manges who is Enron’s lead bankruptcy attorney, says Judge Gonzalez made the right call. “A lot of the Enron personnel were in Houston,” Bienenstock admits. “On the other hand, a lot of the creditors, the biggest bank lenders, the investment bankers, the joint venture partners, were in New York and around the rest of the country. People were going to be flying to any hearing no matter where the case was.” According to Bienenstock, “By a landslide, the bulk of the [major parties] wanted the case to be in New York.” He adds, “There’s no question in my mind that if the bulk of the parties wanted it to be in Houston,” Judge Gonzalez would have moved the case. Further, Bienenstock maintains that the New York venue hasn’t been an extraordinary inconvenience. He says that throughout the case, Judge Gonzalez has conducted hearings via telephone when necessary and used the Internet for pleadings. Cornyn’s bill isn’t necessary because it discounts the ability of a bankruptcy judge to decide the correct venue for a particular bankruptcy, Bienenstock says. He argues that the senator’s proposal “takes away the flexibility of a judge to put a case in the right court.”

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