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Delaware has been the most popular venue for mega bankruptcies this year, but the Southern District of Texas remains a favored destination despite the fallout from Judge David R. Jones’s controversial departure.

A 9fin review of court filings shows that out of 31 cases this year each with more than $500m in estimated liabilities — the criteria we’re using to define “mega bankruptcies” — 12 have been filed in the District of Delaware as of 31 July of this year.

Meanwhile, nine such cases have appeared in the Southern District of Texas in the same period.

For comparison, of the 35 mega cases filed during the same period last year, 19 were in SDTX and 8 ended up in Delaware. The District of New Jersey and the Southern District of New York each saw 4 cases in that period.

The figures indicate that Houston — which became a center for restructurings under the tenure of Judge David R. Jones before a romance scandal precipitated his departure — still appeals to bankruptcy professionals.

“Houston will continue to be popular,” said Holland & Hart partner George Singer. “A lot of those decisions have precedential value, and people will look to those as a basis for going there, particularly if you have key issues that need to be resolved that are almost case dispositive.”

Even so, other courts have gained traction as venues for large cases where decisions can have broad implications both for investors and the wider restructuring world.

Source: Bankruptcy filings. Note: YTD 2024 numbers are through 31 July 2024

Companies filing for bankruptcy protection have broad discretion over where they do so. Under the Bankruptcy Reform Act of 1978, they can choose a venue based on where they are incorporated, where they are headquartered, or where their major assets are located. That allows businesses, alongside counsel, to steer filings toward certain venues.

One key reason for SDTX’s drop in the standings is that Kirkland & Ellis, the largest bankruptcy firm in the US, hasn’t filed any cases in SDTX for nearly a year after filing 10 mega cases there in 2023. Of those, five were initially overseen by Judge Jones.

Judge Jones’s resignation was precipitated by revelations of potential conflicts arising from an undisclosed relationship with former Jackson Walker partner Elizabeth Freeman. Jackson Walker served as local counsel to Kirkland for all 37 of its filings in SDTX from 2020-2023, and according to the Wall Street Journal, Judge Jones approved more than $1m in fees for Jackson Walker related to large Chapter 11 cases that Freeman worked on.

Kirkland did not immediately respond to requests for comment. Jackson Walker declined to comment.

The shakeup in Texas also gave rise to a series of mega bankruptcy filings in New Jersey, all but one of them by Kirkland. While only three mega cases have been filed there so far this year and none since February, some of last year’s largest filings — including WeWork and RiteAid — ended up in the Garden State.

“Venue shopping” or “judge shopping” — terms that refer to attempts by law firms to file with judges who they think will rule favorably — is a controversial issue in the restructuring world, and the Judge Jones scandal put renewed focus on it.

Part of SDTX rocketing to prominence among the 94 bankruptcy venues in the US was the formation of a two-judge panel that would hear virtually all of the largest and most complex cases filed there. Proponents of that system and ones like it have argued they created more consistent results, but detractors such as the former head of the US Trustee Program Cliff White have said it gives counsel too much power to select judges.

Historically, the Southern District of New York and Delaware were two of the most prominent venues for large cases. In a seminal paper on forum shopping from 2018, Professor Jared Ellias found that those two courts had overseen more than 60% of the “large bankruptcy cases” filed in the prior 25 years.

But SDTX has pulled ahead of SDNY recently. This might be a consequence of the SDNY’s decision to enact subdivision (f) of Local Bankruptcy Rule 1073-1, which imposes a random selection of judge and courthouse for mega cases regardless of the courthouse in which the case was filed, thereby preventing debtors from filing in the White Plains courthouse of the SDNY to ensure receiving oversight from one of three judges. This rule came after the controversy surrounding Purdue Pharma filing in White Plains, which was largely considered a more debtor-friendly venue.

Of the 169 mega cases filed between 2020 and 2023, 62 were heard in Delaware and 71 were heard in SDTX, per 9fin’s review of court filings. Only 17 landed in SDNY, and a total of eight landed in the District of New Jersey, with six of those filings concentrated in 2023.

Mega cases have also been cropping up in venues that haven’t played host to them historically, if at all.

Red Lobster this year filed in US Bankruptcy Court for the Middle District of Florida, which has only heard one other mega case between 2020 and now. Enviva filed in the Eastern District of Virginia, a venue that was a relatively popular spot for filings until a dispute over fees led to it losing traction among restructuring professionals.

Texas bankruptcy court maintains popularity amid ex-Judge Jones fallout

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