Working Paper No. 05-16:
Is Forum-Shopping Corrupting America's Bankruptcy Courts? - Review of Lynn M. LoPucki, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts

Author(s):

Todd Zywicki

Date Posted: 2005

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Abstract:

In his new book, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts, Professor Lynn LoPucki's book argues that that current bankruptcy venue rules have spawned an improper "competition for big cases' that has 'corrupted' America"s bankruptcy courts.  LoPucki argues that this competition has harmed the bankruptcy system and the economy, transferring wealth from creditors and employees to incumbent management and bankruptcy professionals.  He also argues that the competition that has corrupted the American bankruptcy system is being replicated internationally, resulting in a similar competition and similar harm on the global stage. 

This essay reviews LoPucki's book and its central theoretical and empirical arguments.  LoPucki offers powerful empirical evidence that something is amiss with much of current American bankruptcy practice.  This essay will try to flesh out in more detail the model and theoretical foundations that implicit underlie LoPucki's indictment of bankruptcy forum-shopping (and other forms of forum-shopping as well).  Empirical evidence standing alone is insufficient to draw conclusions about whether forum-shopping is in general good or bad without a clearly-stated hypothesis to test.  Instead, it is necessary to also have a theoretical model sufficient to generate testable hypotheses as a predicate both for determining whether forum-shopping is good or bad on net, as well as the likely effects of reform proposals.  Although LoPucki identifies several problem areas in the current Chapter 11 reorganization process, it is not as clear that all of these problems can be clearly attributed to runaway forum-shopping.  Instead, they may simply be good-faith errors or mistakes, for which continued competition may be beneficial, in that the competition may actually expedite the process of self-correction. 

This review essay develops a model of the institutions and incentives governing the forum-shopping competition described by LoPucki in an effort to determine whether the empirical observations proffered by LoPucki can be best explained as the outcome of improper forum-shopping competition.  The essay then closes with an analysis of provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, noting that many of the provisions in the legislation offer substantive responses to many of the problems identified by LoPucki.