Federal Judiciary Called on to End Bankruptcy Judge Shopping

Advocates are urging the federal judiciary to require that large bankruptcy cases be randomly assigned among all judges within a district as a way to curb judge shopping.

Local court rules that funnel large bankruptcies to certain judges “undermine public confidence in the Chapter 11 system,” several bankruptcy academics and industry groups said Friday in a letter to H. Thomas Byron III, rules committee chief counsel with the Administrative Office of the US Courts.

The request comes comes as venue shopping has become a broader area of concern in the federal judiciary for civil cases. The US Justice Department recently called on the federal judiciary to implement a rule addressing concerns raised over “forum shopping,” or lawsuits filed in certain courts seeking to obtain rulings from judges against the federal government.

The bankruptcy academics and industry groups proposed rule changes in Friday’s letter to the Judicial Conference—the federal court system’s policymaking body—that would narrow the wide latitude bankruptcy courts have to make up rules for their own, local case assignment systems. Those rules have led to large Chapter 11 cases being concentrated in certain districts and allowed debtors to essentially choose their judges, the letter said.

“A Federal Rule is necessary to provide uniformity across all bankruptcy courts to provide a level playing field and to avoid debtors creating the perception of a two-tiered justice system,” the letter said.

The Southern District of Texas bankruptcy court in Houston has become the biggest target of criticism for the practice. Two months ago, one of the judges in the district confirmed that a two-judge panel that handles complex Chapter 11 cases in Houston will remain intact for now, despite controversy surrounding the judge who helped found it. The panel is popular among attorneys representing large, corporate Chapter 11 debtors.

Rule changes ushered in by former Bankruptcy Judge David R. Jones have been credited with turning the Southern District of Texas into a corporate bankruptcy hub by creating a complex case panel that assigned large Chapter 11 cases to either himself or one other Houston-based judge. The system, launched in 2016, gave troubled companies the reassurance of knowing which judges would handle their bankruptcies.

Bankruptcy academics and industry groups in November called on the Southern District of Texas bankruptcy court to abolish the two-judge panel and randomly assign cases to all bankruptcy judges within the district. That same month, complex panel member Judge Christopher M. Lopez said the panel would remain.

Some bankruptcy districts have changed their rules amid controversy over alleged forum shopping. In 2021, the Southern District of New York, one of the most sought-after bankruptcy venues, announced it would randomly assign its judges to large Chapter 11 cases, regardless of which of its three courthouses throughout the district first received a new bankruptcy petition. The Eastern District of Virginia made similar changes in 2022.

The letter notes that the federal judiciary’s Advisory Committee on Court Administration and Case Management for Civil Cases will address at its April meeting case assignment procedures in divisions with only one or two district judges.

The letter was signed by, among others, Georgetown University bankruptcy law professor Adam Levitin; University of Nevada, Las Vegas bankruptcy law professor Nancy B. Rapoport; the Creditor Rights Coalition; and Clifford J. White, a former director of the US Justice Department’s bankruptcy monitoring unit, the US Trustee’s office.