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February 11, 2005

Courting Failure

This may seem a bit odd coming on the heels of the previous post, but UCLA law professor Lynn LoPucki's long-awaited new book -- Courting Failure : How Competition for Big Cases Is Corrupting the Bankruptcy Courts (UM Press 2005) -- is finally available.

As noted in this earlier post, Professor LoPucki has been studying for many years the issue that he characterizes as the "race to the bottom" -- i.e., bankruptcy courts in certain jurisdictions bending federal bankruptcy law to market themselves to debtors' lawyers who often are instrumental in choosing the venue of big business reorganization cases.

The cost attributable to this "race to the bottom" is considerable because the two main bankruptcy venues -- Delaware and the New York City -- commonly approve professional fees in big reorganization cases that are at the highest level of the profession. In comparison, the high hourly rates being charged and routinely approved in the Enron reorganization case in New York would likely not have been approved if the case had been filed in Houston where Enron is based and which is a far more convenient venue for the vast majority of Enron creditors. In addition, Professor LoPucki argues in his new book that the "race to the bottom" has also caused a decline in the quality of bankruptcy reorganizations and a parallel rise in chapter 22's (i.e., repeat reorganizations).

By the way, the bankruptcy reform legislation referred to in the previous post fails to address this "race to the bottom" issue. So it goes.

Posted by Tom at February 11, 2005 7:23 AM |

Comments

To take action against the misguided bankruptcy "reform" bill, visit this link:

http://hq.demaction.org/dia/organizations/movingideas/campaign.jsp?campaign_KEY=403

Posted by: Julia Busch at February 23, 2005 9:07 AM

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