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Courting Failure

How Competition for Big Cases Is Corrupting the Bankruptcy Courts

Lynn Lopucki

Publication Year: 2005

LoPucki's provocative critique of Chapter 11 is required reading for everyone who cares about bankruptcy reform. This empirical account of large Chapter 11 cases will trigger intense debate both inside the academy and on the floor of Congress. Confronting LoPucki's controversial thesis-that competition between bankruptcy judges is corrupting them-is the most pressing challenge now facing any defender of the status quo." -Douglas Baird, University of Chicago Law School "This book is smart, shocking and funny. This story has everything-professional greed, wrecked companies, and embarrassed judges. Insiders are already buzzing." -Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School "LoPucki provides a scathing attack on reorganization practice. Courting Failure recounts how lawyers, managers and judges have transformed Chapter 11. It uses empirical data to explore how the interests of the various participants have combined to create a system markedly different from the one envisioned by Congress. LoPucki not only questions the wisdom of these changes but also the free market ideology that supports much of the general regulation of the corporate sector." -Robert Rasmussen, University of Chicago Law School A sobering chronicle of our broken bankruptcy-court system, Courting Failure exposes yet another American institution corrupted by greed, avarice, and the thirst for power. Lynn LoPucki's eye-opening account of the widespread and systematic decay of America's bankruptcy courts is a blockbuster story that has yet to be reported in the media. LoPucki reveals the profound corruption in the U.S. bankruptcy system and how this breakdown has directly led to the major corporate failures of the last decade, including Enron, MCI, WorldCom, and Global Crossing. LoPucki, one of the nation's leading experts on bankruptcy law, offers a clear and compelling picture of the destructive power of "forum shopping," in which corporations choose courts that offer the most favorable outcome for bankruptcy litigation. The courts, lured by big money and prestige, streamline their requirements and lower their standards to compete for these lucrative cases. The result has been a series of increasingly shoddy reorganizations of major American corporations, proposed by greedy corporate executives and authorized by case-hungry judges.

Published by: University of Michigan Press

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A Note on the Statistics in This Book

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pp. xi

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...

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pp. 1-8

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 governor of New Jersey. The muckraking journalist Lincoln Steffens...

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pp. 9-24

In late 2001, the Enron Corporation was preparing to ‹le what remains to this day the biggest bankruptcy case in history.1 At the time, a half dozen or more U.S. bankruptcy courts were competing to attract big cases. For those courts, Enron was the ultimate prize. The court that got Enron would be the focus of the bankruptcy...

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1. New York’s Game: 1980–86

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pp. 25-48

For decades before 1980, big company bankruptcies had been rare. Some said it was because modern firms were “too big to fail.” The bankruptcy lawyers saw it differently. Bankruptcy was not a financial condition. Bankruptcy was a legal proceeding. Firms fled...

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2. The Rise of Delaware: 1990–96

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pp. 49-76

Throughout the entire decade of the 1980s the U.S. bankruptcy court in Wilmington, Delaware, presided over only a single large public company bankruptcy. The company, Phoenix Steel, had all of its operations in Delaware. In November and December 1990, the...

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3. The Federal Government Strikes Back

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pp. 77-96

To get its 87 percent market share in 1996, the Delaware bankruptcy court sucked the lifeblood out of bankruptcy practice in the rest of the nation. The number of big cases ‹led in any given city had never been large, but each one was a bonanza for lawyers in...

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4. Failure

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pp. 97-122

In the spring of 2000, UCLA law student Sara Kalin and I made a shocking discovery. The companies that had reorganized in Delaware from 1990 through 1996 were failing at an alarming rate....

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5. The Competition Goes National

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pp. 123-136

To understand how competition is corrupting the U.S. bankruptcy courts, begin by distinguishing court competition from mere forum shopping. Courts inevitably differ in ways that advantage one litigant over another. A court may interpret a law differently or...

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6. Corruption

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pp. 137-182

To understand how competition is corrupting the U.S. bankruptcy courts, begin by distinguishing court competition from mere forum shopping. Courts inevitably differ in ways that advantage one litigant over another. A court may interpret a law differently or favor a particular kind of litigant or case. One court may process...

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7. The Competition Goes Global

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pp. 183-206

Forum shopping within the United States is tame in comparison with what goes on internationally. The law governing forum shopping domestically is highly permissive and often ignored, but it exists. If a court does not follow that law, the injured party may be...

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8. Global and Out of Control?

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pp. 207-232

The potential for economic harm from international forum shopping is greater than the potential for harm from domestic shopping. By choosing a different city’s court within the United States the domestic shopper can gain only a different interpretation or application...

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9. Ideology

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pp. 233-244

In recent decades, Americans have become strong believers in markets. Professor Lynn Stout recently wrote:..

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10. Conclusions

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pp. 245-260

As of this writing, the bankruptcy court competition continues to hang in the balance. The cases ‹led in 2003 and early 2004 were distributed about one-quarter in Delaware, about one-quarter in New York, and about half through the rest of the country. After its...


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pp. 261-300


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pp. 301-308


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pp. 309-322

E-ISBN-13: 9780472024315
E-ISBN-10: 0472024310
Print-ISBN-13: 9780472031702
Print-ISBN-10: 0472031708

Page Count: 336
Illustrations: 4 charts, 13 tables
Publication Year: 2005