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The procession of huge bankruptcy cases filed recently reveals a significant trend for U.S. bankruptcy courts and venue selection. After a decade-long dalliance with the U.S. Bankruptcy Court in Wilmington, Del., bankruptcy lawyers and their clients are once again favoring the Southern District of New York. Over the last eight months, starting with Enron’s December 2001 filing, there have been an astonishing six new entries to the ranks of the 10 biggest-ever bankruptcy filings. Five of those companies — WorldCom Inc., Enron Corp., Global Crossing Ltd., Adelphia Communications and NTL Inc. — filed for reorganization in the Southern District of New York. Only one filed elsewhere — Kmart Corp., in the U.S. Bankruptcy Court for the Northern District of Illinois. Conspicuously absent from the list is the Delaware court, which had been the most popular venue for corporate bankruptcies during much of the 1990s. Bankruptcy practitioners see a number of reasons for the move, including the Delaware court’s overloaded docket and the high quality of recent appointees to the New York court’s bench. One long-time bankruptcy court watcher — UCLA Law Professor Lynn LoPucki — sees something more sinister at work. He thinks that both courts have gained popularity not so much because of inherent virtues, but because they have made a conscious effort to attract insolvent corporations by readily acceding to their demands, an indulgence that LoPucki thinks has been a disservice to the long-term health of those corporations. NEW YORK-DELAWARE ROADMAP The travels of Marc Abrams, a partner in New York’s Willkie Farr & Gallagher and the lead attorney for Adelphia, form almost a roadmap of the back-and-forth between the Delaware and New York courts. In 1984, he moved from Delaware, where there wasn’t enough bankruptcy work, to New York, because the Southern District was, as he puts it, the “epicenter” of corporate bankruptcy filings. That was true until about 1991, he said, when Delaware emerged as the new epicenter and Abrams found himself having to take the train to Delaware on a regular basis. After 2000, Abrams began taking the train less often as the trend reversed, he added. The figures bear out Abrams’ perception. According to Chris Stuttard of BankruptcyData.com, last year 68 public companies filed for bankruptcy in the Delaware court, compared to only 25 in the New York Southern District. So far this year, the New York court has been in the lead, with 28 filings to Delaware’s 22. LoPucki, who tracks only companies having prebankruptcy assets of $220 million or more, says that 40 such companies filed in Delaware last year, compared to 15 in the New York court. At mid-year 2002, Delaware remains in the lead, with 13 filings, but the New York court, with 10 filings, has closed the gap significantly. When making these comparisons, it’s easy to fall into language suggesting a battle between the two courts. According to Abrams, “There’s not a battle at all.” The Delaware court was, and remains, a popular venue because the local bar is very capable and because Delaware is the state of incorporation for so many companies, he said. But, he added, Adelphia filed in New York because, “The sheer number of cases filed in Delaware made getting court time and hearing time unworkable. The court is overwhelmed with filings.” The New York court has become more attractive, he said, with the appointment of new judges with solid credentials in bankruptcy law, while the Delaware court has had to resort to visiting judges and local district court judges less conversant in bankruptcy matters. Stuttard agreed that the Delaware court is overwhelmed, but he speculated that one reason for the New York court’s ascendancy may be “the Weil Gotshal factor,” pointing to the fact that New York-based Weil, Gotshal & Manges is handling three of the recent big filings — Enron, WorldCom and Global Crossing — and appears to favor New York filings. Martin J. Bienenstock, lead counsel for Enron and co-head of Weil Gotshal’s business finance and restructuring department, dismissed the idea that there is a “Weil Gotshal factor”: “There’s no firmwide recommendation about where to file. That’s a decision made by the small group of attorneys working on a particular matter in consultation with the client.” He also swore off any personal favoritism: “I’ve spent the bulk of my career handling cases outside of New York; in Houston, Dallas, California and Delaware and other places. I will continue to file cases in Delaware.” In the Enron case, there were two deciding factors, he said. First, it became clear during negotiations prior to filing that Enron creditors and their advisors were mostly located in New York. Secondly, he said, “We knew there would be a need for an inordinate amount of court time, something difficult to get in the overworked Delaware court.” The desire for a convenient location was the decisive factor for NTL, whose headquarters are in New York, according to its attorney, Kayalyn Marafioti, a partner in the New York office of Skadden, Arps, Slate, Meagher & Flom. Two Weil Gotshal attorneys — Marcia Goldstein, representing WorldCom, and Paul Basta, representing Global Crossing — did not return phone calls seeking comment on why they chose New York as their venue. Lynn Hiestand, a partner in Skadden Arp’s Chicago office who represents Kmart, would not comment for this article, citing client confidentiality. OVERINDULGENCE? Stuttard speculated that the Delaware court may have lost some business because Professor LoPucki has made stinging criticisms of the way the court handles corporate reorganizations. “I’d like to think I have that kind of effect, but I don’t think it’s so,” is how LoPucki replied. It’s true that LoPucki has accused the Delaware court of being too indulgent toward corporate filers’ wishes, with the result, he claimed, that many companies don’t really work through their problems and have to file again. But, in LoPucki’s view, the Southern District of New York is not doing much better. In an article due to be published in November in the Vanderbilt Law Review, he reports that 42 percent of large companies emerging from Delaware reorganizations and 19 percent emerging from the Southern District had to file again within five years. The rate for other courts that he surveyed was only 4 percent. LoPucki believes the two courts are popular with corporations precisely because they are indulgent. He says that Delaware may re-emerge as the leading venue if Congress creates four new bankruptcy judgeships there. The bill has languished for five years, tied up in controversy over provisions toughening consumer bankruptcy laws.

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