The Power of Forum Selection in Corporate Bankruptcies
In the complex world of bankruptcy law, law firms wield significant influence over which districts handle billion-dollar cases and receive substantial legal fees. This practice, known as forum or judge shopping, is notably employed by Kirkland & Ellis LLP, the largest law firm internationally by revenue. While Kirkland didn’t invent this strategy and isn’t the only firm employing it, an analysis of its practices reveals how a single firm can significantly impact the bankruptcy court landscape.
Kirkland’s Dominant Position in Bankruptcy Cases
Kirkland & Ellis has established itself as a powerhouse in corporate bankruptcies. From 2011 to 2020, the firm represented debtors in over 20% of large public company bankruptcies, more than double its nearest competitor. This dominant position allows Kirkland to exert considerable influence over bankruptcy courts across the United States.
Strategic Shifts in Filing Locations
Kirkland’s approach to court selection is notably fluid. When rulings don’t favor the firm or controversies arise in courts where it has been a frequent filer, Kirkland often redirects its business elsewhere. This pattern has been observed in at least three instances where the firm shifted its focus from one district to others following questions or controversies in cases it was handling.
Case Study: Houston’s Southern District of Texas
A prime example of Kirkland’s court shopping strategy is seen in its dealings with the Southern District of Texas in Houston. Since 2019, Houston had been the primary focus of Kirkland’s bankruptcy docket, with the firm handling 49 cases filed in this district. However, following an ethics controversy involving a judge and a local lawyer in October 2023, Kirkland abruptly ceased filing new cases in Houston.
The Delaware Dip
Another instance of Kirkland’s strategic shifts occurred in Delaware. After a judge raised sharp questions in a 2015 bankruptcy case where Kirkland was debtor’s counsel, the firm temporarily stopped bringing cases to Delaware. This absence, lasting from May 2016 to October 2017, sent a clear message about the firm’s willingness to redirect its substantial caseload.
The Impact on Bankruptcy Courts
Kirkland’s ability to shift its cache of major bankruptcies to favored courts has significant implications. These filings can deliver a financial boost to local legal communities and transform relatively quiet bankruptcy districts into bustling centers of activity.
Market Power Over Courts
Georgetown University law professor Adam J. Levitin noted in a 2023 law review article that “Unlike any other firm around, Kirkland exercises market power over bankruptcy courts”. This power stems from the firm’s ability to provide or withhold a substantial portion of a court’s caseload.
The Debate Over Forum Shopping
The practice of forum shopping in bankruptcy cases is controversial. While some argue that it allows companies to have their complex cases heard by experienced courts, others raise concerns about firms choosing courts they believe will rule in their favor.
Potential Consequences
Critics argue that forum shopping can undermine the perception of bankruptcy as a uniform system. Laura Coordes, a professor at Arizona State University’s Sandra Day O’Connor College of Law, points out that these actions “indicate that firms are chasing the court(s) that they believe will give them the best outcome”.
Kirkland’s Response
When questioned about its court selection practices, Kirkland issued a statement saying that its venue choices have been deemed appropriate by courts. The firm maintains that it considers numerous factors before recommending a venue, including applicable law, likely rulings on key issues, and experience with potential judges
The Future of Bankruptcy Court Shopping
As the debate over forum shopping continues, the actions of influential firms like Kirkland & Ellis will likely remain under scrutiny. The practice raises important questions about the fairness and uniformity of the bankruptcy system, as well as the power dynamics between law firms and courts.
In conclusion, while the strategy of court shopping may provide advantages for firms and their clients, it also highlights the need for ongoing discussions about the structure and regulation of the bankruptcy system to ensure equitable outcomes for all parties involved.
