Working Paper No. 09-29:
The New Forum Shopping Problem in Bankruptcy

Author(s):

G. Marcus Cole, Todd Zywicki

Date Posted: June 2009

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Abstract:

The American bankruptcy system is a hybrid of state law and federal bankruptcy law.  Under the Butner principle, federal bankruptcy courts preserve non-bankruptcy law substantive entitlements in bankruptcy unless bankruptcy policies compel a contrary result.

This hybrid system, however, gives rise to the threat of forum-shopping if parties attempt to invoke bankruptcy jurisdiction for improper purposes, namely to rearrange non-bankruptcy entitlements to advance no coherent bankruptcy policy.  Modern developments in bankruptcy law, as exemplified in the case of Marshall v. Marshall raise a novel threat of bankruptcy forum-shopping.  Marshall involved the bankruptcy of tabloid starlet Anna Nicole Smith and her efforts to recover from the estate of deceased billionaire oilman J. Howard Marshall.  Rather than deferring to the processes of the Texas probate court, Smith raced into bankruptcy court in California to capture a large share of Marshall's estate.  The technical issue in the case concerns whether the dispute constituted a "core" matter under federal bankruptcy law and thus the timing of the entry of a final judgment by the bankruptcy court.  If the Marshall Bankruptcy Court's decision is allowed to stand, it could set a precedent for rampant forum-shopping by dissatisfied parties seeking a more favorable resolution of claims in federal bankruptcy court than that to which they would be entitled under state law.