How Competition for Big Cases Is Corrupting the Bankruptcy Courts
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LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Courting Failure LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Courting Failure How Competition for Big Cases Is Corrupting the Bankruptcy Courts Lynn M. LoPucki The University of Michigan Press Ann Arbor LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Copyright © by the University of Michigan 2005 All rights reserved Published in the United States of America by The University of Michigan Press Manufactured in the United States of America c Printed on acid-free paper 2008 2007 2006 2005 4321 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, or otherwise, without the written permission of the publisher. A CIP catalog record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data LoPucki, Lynn M. Courting failure : how competition for big cases is corrupting the bankruptcy courts / Lynn M. LoPucki. p. cm. Includes index. isbn 0-472-11486-7 (cloth : alk. paper) 1. Bankruptcy—United States. 2. Forum shopping— United States. 3. Judicial corruption—United States. I. Title. kf1526.l67 2005 346.7307'8—dc22 2004021715 ISBN13 978-0-472-11486-3 (cloth) ISBN13 978-0-472-03170-2 (paper) ISBN13 978-0-472-02431-5 (electronic) LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution To Frances, who made it happen LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Acknowledgments My work on this book was supported by grants from the National Conference of Bankruptcy Judges Endowment for Educa- tion and the American Bankruptcy Institute Endowment for Edu- cation. The content of the book is based in part on work supported by the National Science Foundation under grant SES-8618353 and also in part on ‹ndings from a series of research projects conducted and reported with coresearchers and coauthors. These colleagues are Professor William C. Whitford of the University of Wisconsin Law School; Professor Theodore Eisenberg of the Cornell Law School; Joseph W. Doherty, associate director of the Empirical Research Group at the UCLA Law School; and Sara Kalin, a grad- uate of the UCLA Law School who currently practices with the Securities and Exchange Commission. I thank Mike Campion, Christian Dodd, Scott Halvorsen, L. Nicolle Hollingsworth, Michael Kovaleski, Drew LoPucki, and Richard Scheelings for assistance with research and Frances H. Foster, Jim Reische, Gary D. Rowe, Lynn A. Stout, Elizabeth War- ren, and Jay L. Westbrook for comments on the manuscript or por- tions of it, and Susan Rabiner for guidance. Jim Reische, my editor at the University of Michigan Press, did a marvelous job of rescu- ing this project from obscurity and guiding me through the publi- cation process. I am also deeply indebted to the dozens of bankruptcy lawyers and judges who furnished leads for my investigations. Their only reward will be the contribution they made to the integrity of the bankruptcy system; nearly all of them requested anonymity. With- out their help, I would not have found the facts and documents that make the case presented in this book. LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Contents A Note on the Statistics in This Book xi Prologue 1 Introduction 9 1. New York’s Game: 1980–86 25 2. The Rise of Delaware: 1990–96 49 3. The Federal Government Strikes Back 77 4. Failure 97 5. The Competition Goes National 123 6. Corruption 137 7. The Competition Goes Global 183 8. Global and Out of Control? 207 9. Ideology 233 10. Conclusions 245 Notes 261 Glossary 301 Index 309 LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution A Note on the Statistics in This Book Most of the statistics that appear in this book are based on data contained in the author’s Bankruptcy Research Database (BRD). The BRD includes data on all bankruptcy cases ‹led by or against large public companies in the U.S. bankruptcy courts since October 1, 1979—presently a total of 683 cases. Cases are considered “large” if the debtor’s assets exceeded $220 million, measured in current dollars as of the time of ‹ling ($100 million in 1980 dollars). They are “public” if the company was required to ‹le annual reports with the Securities and Exchange Commission in any of the three years before bankruptcy. (About 80–90 percent of the com- panies large enough for their cases to be included in the BRD are public companies.) Unless otherwise speci‹ed, the numbers of “big” or “large” cases reported in this book are the numbers of such cases in the BRD. The cases included in the BRD are not a sample. They are all cases ‹led by or against large public companies. For that reason, it was neither necessary nor possible to calculate the likelihood that the BRD cases are representative of some larger group. They are the larger group. An abbreviated version of the BRD is available without charge at http://lopucki.law.ucla.edu. Using that version, readers can examine the data behind most of the statistics reported in this book, calculate statistics not reported in this book, and see how the pattern of big bankruptcy reorganizations has changed since the publication of this book. LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution A Judge Shall Avoid Impropriety and the Appearance of Impropriety in All of the Judge’s Activities. —Canon 2, American Bar Association Model Code of Judicial Conduct (1990) Any . judge . of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned. —Title 28, United States Code, § 455(a) LoPucki, Lynn M. Courting Failure: How Competition for Big Cases Is Corrupting the Bankruptcy Courts. E-book, Ann Arbor, MI: University of Michigan Press, 2005, https://doi.org/10.3998/mpub.93480. Downloaded on behalf of Unknown Institution Prologue In 1884, James B. Dill was a young lawyer with a small New York City practice and a big idea. He had already pitched the idea to the New York political bosses, and they had turned him down. Now he had a second chance—with Leon Abbett, the Democratic gover- nor of New Jersey. The muckraking journalist Lincoln Steffens later described the meeting. [Dill] was . taken aback to be directed from the capitol at Trenton to the governor’s law of‹ce in New York, but he went there; and there, to the governor “in his shirt sleeves,” he showed how Jersey, by granting license to business to do what other states were trying to forbid, might become the Mecca of corporations and make an enormous revenue.1 In essence, Dill proposed that the state of New Jersey enter the already competitive business of selling corporate charters.2 A corporate charter is the document that brings a corporation into existence. Once the corporation is in existence, its affairs are governed by the law of the charter-issuing state. If New Jersey issued a corporation’s charter, the corporation was a “New Jersey corporation.” That corporation could operate anywhere in the United States, subject only to New Jersey law.3 Under today’s law and practice, the chartering state’s exclusive control extends only to the “internal affairs” of its corporations. But in the late nine- teenth century, that control extended more broadly, covering much LoPucki, Lynn M.