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In 2007, a group of six federal judges in Wilmington, Del., won a competition most Americans didn’t know was going on. The competition was for the billion-dollar-a-year business of reorganizing America’s largest bankrupt companies. The competition results from a legislative drafting error more than 30 years ago. The error gave big bankrupts like Enron, Kmart, Northwest Airlines or Federal Mogul the right to forum shop. That is, each could choose its bankruptcy court from any of the 200 or so bankruptcy courts in the nation. The problem with forum shopping is that it lets one side in litigation pick the judge, putting the other side at a disadvantage. The identity of the judge is particularly important in bankruptcy because there are no juries and only limited rights to appeal. Bankruptcy forum shopping developed slowly because would-be shoppers weren’t sure they could get away with it. The chosen court is legally bound to transfer the case if it really belongs elsewhere. Eventually, however, shoppers realized that transfer was a hollow threat. Shopping has been rampant for decades, yet not a single billion-dollar case has ever been transferred over the objection of the debtor who filed it. The Delaware bankruptcy court was a one-judge backwater when it began competing for big cases in 1990. Continental Airlines was one of two Delaware landed that year. Judge Helen Balick ruled aggressively for Continental, and big bankrupt companies began flocking to her court. By 1996, the Delaware bankruptcy court had two judges and an astonishing 87% market share. Of the 15 large public companies that filed bankruptcy in the United States that year, 13 filed in Delaware. The initial reaction to Delaware’s near-monopoly was outrage. In 1997, the National Bankruptcy Review Commission recommended that Congress fix the drafting error. Senator Joseph Biden, D-Del., blocked that effort in the Senate. Spurred by their local bankruptcy lawyers, the bankruptcy courts in other cities tried to compete by making their courts more attractive to shoppers. Coincidentally, the biggest big-case bankruptcy boom in history began in 1999 and continued through 2002. The Delaware bankruptcy court � still only two judges � couldn’t handle its avalanche of new cases. The biggest bankrupts turned to other competing courts. New York got Enron, WorldCom, Adelphia and Global Crossing. Chicago got Kmart, United Airlines, National Steel and Conseco. By 2003, the bankruptcy boom was over and the flow of cases to Chicago had stopped. New York emerged as the new leader in the competition. Nearly every big company that filed in 2005 � Northwest Airlines, Delta Airlines, Refco, Delphi and Calpine � chose New York. Early that year, however, Biden helped push the Bankruptcy Abuse Prevention and Consumer Protection Act through Congress. The legislation rewarded Delaware with four additional bankruptcy judges � raising the total to six. In 2006, the new judges took the bench and the cases started coming back to Delaware. Of the 13 large public companies that filed in the United States in 2007, 10 (77%) chose the Delaware court. Delaware’s awkward position as a six- judge court in a state with only enough in-state business to keep one judge busy, virtually guarantees that the Delaware judges will do whatever it takes to keep the out-of-state cases coming. Any Delaware judge that didn’t do what was necessary would face not only the wrath of Delaware’s legal community, but possible reassignment to less desirable work in some other court. Judges accommodate shoppers Just doing a good job is not enough to keep the cases coming. Those who place the cases want approval of their substantial fees. They want to set the terms of reorganization without interference from the court or prepetition creditors. And when cases are contested, they want to know they will win. Knowing the Delaware judges’ predicament, the shoppers know they can count on the judges’ support for pretty much whatever they want to do. What this means to everyone else who may be involved in a big bankruptcy case � landlords, bondholders, stockholders, employees, suppliers, customers and every other kind of prepetition creditor � is that they had better hope they live somewhere near Wilmington. Even if they make it to court, they should wonder whether judges who must entice their opponents (and not them) can really provide them with fair hearings. Lynn M. LoPucki teaches commercial law at the University of California at Los Angeles and Harvard law schools and is the author of Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts (University of Michigan Press 2005).

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