Forum Shopping. An Important Tactic.

George Orwell wrote in Animal Farm, “All animals are equal, but some animals are more equal than others.”  W.C. Fields created a film (using one of his favorite statements) “Never Give a Sucker an Even Break.”  Each of these is an important lesson in contemporary bankruptcy and litigation practice.

Although judges are subject to great scrutiny before being accepted for their positions, not all judges are created equal, nor are all courts created equal.  There are trends and local precedential rulings that may make some courts more favorable than others.  Similarly, there are some benches that may be more or less desirable for a particular matter.

Some judges are quick in making decisions while others delay.  Some are busy yet remain sensitive to the exigencies of the matters before them, while others (as in any other trade) are more concerned with their Friday morning golf game than the emergency motion filed late on Thursday.

Some have an incredible insight to the issues before them while others, despite superior academic credentials, just can’t see the forest from the trees.

The fact is that your legal matter is important and the last thing you want is to be stuck with a judge that has a preconceived prejudice against you or your client or your legal issue.

Nearly thirty years ago, when Eastern Air Lines was preparing to file its Chapter 11 proceedings it wanted to file in New York, a favorable bankruptcy court for the issues that Eastern envisioned would be confronted.  In order to qualify to file in New York, Eastern needed an affiliated debtor that could file in the Southern District of New York.  Ionosphere Clubs, Inc., the airline’s first class lounge was located in New York and became the lead debtor in a complex case, which enabled Eastern to file in New York where it felt it would be treated better that it might be treated elsewhere.

Things have not changed since the Eastern Airlines case.

The recent Chapter 11 filings by Sears are an excellent example of the importance of forum shopping.  Sears, headquartered in Illinois, along with some 50 affiliates organized under the laws of Delaware, Michigan, Florida, Illinois, Washington, Texas, Pennsylvania and New York selected the Southern District of New York to file its cases.  And not only did they file in the SDNY, where there are three sub-jurisdictions (Manhattan, Westchester and Poughkeepsie) they filed in Westchester County, where there is only one bankruptcy judge, thus assuring the particular judge that will preside over their cases.

Whether you are a lender about to provide accommodations to a soon to be debtor-in-possession or any other party about to commence a lawsuit, it is important to know and understand the court to which you are about to subject yourself.  Should the action be commenced in state or federal court?  Should it be brought in another available jurisdiction?  Is arbitration an available method to resolve the dispute?  Each available option should be considered.

While recently researching for an article I was asked to write on merchant cash advance litigations.  I noticed that MCAs are doing better in some courts than in others. So of course, they are bringing their actions in the courts where they are treated better.

While this blog is traditionally devoted to cases in being, this posting is more generic and intended to advise lenders to be careful before committing to an unknown jurisdiction where your worst nightmares may be experienced.

Litigation remains a chess game where the strategy must be carefully considered before obligating yourself to a forum.

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