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N.Y. Mega Bankruptcies to Get Random Judges After Purdue Furor (2)

Nov. 22, 2021, 6:39 PMUpdated: Nov. 22, 2021, 11:21 PM

The Southern District of New York, one of the most sought-after bankruptcy venues, will randomly assign its judges to large Chapter 11 cases that are worth at least $100 million, regardless of which of its courthouses first received the initial filing.

The new rule on “mega” Chapter 11 cases, which goes into effect Dec. 1, will result in a “more balanced utilization of judicial resources,” the U.S. Bankruptcy Court for the Southern District of New York said Monday.

As a result of the new rule, an SDNY judge who’s assigned to a case may preside over it in a courthouse where he or she isn’t usually assigned.

The change is related to recent trends in bankruptcy cases, Chief Judge Cecelia G. Morris told Bloomberg Law.

“There’s a lull in case filings nationwide,” she said Monday. “This gives us a chance to balance the caseload for newly filed cases.”

The Southern District of New York has three bankruptcy courthouses: one in Manhattan, White Plains, and Poughkeepsie. White Plains and Poughkeepsie each have only one sitting bankruptcy judge, while the rest are based in Manhattan.

The district’s rule change comes amid controversy over alleged forum shopping in bankruptcy, particularly in New York.

Purdue Pharma LP’s seeming ability to handpick Judge Robert Drain to oversee its bankruptcy case has gotten attention from federal lawmakers and the public.

Stamford, Conn.-based Purdue filed its case in the Southern District of New York’s White Plains courthouse six months after changing the corporate address of one of its units to that location. The move ensured that proceedings ended up with Drain, the only jurist at the suburban courthouse who hears corporate bankruptcies.

Drain plans to retire in June.

Purdue previously said its White Plains entity has been in New York state since the pharmaceutical company was incorporated in 1990.

Federal legislation that would crack down on forum shopping in bankruptcy also recently gained the backing of a majority of state attorneys general. The nearly identical House and Senate bills would help build more public confidence in the bankruptcy court system, and reduce undue burdens placed on consumers and others, the attorneys general said.

Three bankruptcy judges out of 375 heard 57% of all large public company Chapter 11 cases in 2020, according to research by Georgetown Law professor Adam Levitin.

But Drain is retiring and the Southern District of New York is losing the mega bankruptcy venue race to places like the U.S. Bankruptcy Court for the Southern District of Texas, Levitin said Monday.

“This is a good change,” Levitin told Bloomberg Law. “Unfortunately it comes too late. The cow’s already out of the barn door.”

(Story updated with comments from Judge Cecelia Morris and Professor Adam Levitin.)

To contact the reporter on this story: James Nani in New York at jnani@bloombergindustry.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com