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The last several years have seen a marked increase in the number of large chapter 11 cases filed in Delaware and lower Manhattan. To be sure, this increase may be traced in large measure to the current state of the national economy and the uptick in bankruptcy filings generally. The disproportionate number of filings in these two jurisdictions has made the bankruptcy choice-of-venue rules a hot topic among commentators and legislators alike.
In the context of the individual debtor (whether natural person or corporate entity), the question of venue is frequently a straightforward one, and opportunities for the strategic selection of venue (a.k.a. "forum shopping") are virtually nonexistent. For the natural person, the proper venue will correspond in almost all instances to the district in which the prospective debtor resides (for this author, the Northern District of Texas). The single-entity business seeking relief in bankruptcy generally faces a similarly straightforward analysis. Should the local dry cleaner in a local neighborhood or the owner of the author's sister-inlaw's apartment building seek relief in bankruptcy, venue will again be a straightforward assessment.
Large companies with far-flung operations and subsidiaries operating in multiple states, on the other hand, enjoy a surprising degree of freedom in their choice of venue. The relative flexibility afforded by 28 U.S.C. §1408! offers a corporate entity the potential for a wide choice of venues based on domicile and the location of its principal assets or principal place of business. "Since the test is in the alternative, venue may properly lie in more than one district."2 The larger corporate enterprise has even more options, since §1408(2) permits every affiliated entity in a corporate structure to file in any venue appropriate for any one of them. For an enterprise with operations in all 50 states, the potential exists for it to seek bankruptcy relief literally anywhere in America. Section 1408(2) is sometimes referred to as the "venue hook."
Perhaps not surprisingly, the broad choice of venue selection available to large companies has attracted a lot of attention from both commentators and Congress.3 In 2005, Prof. Lynn LoPucki argued in his book Courting Failure that the venue statutes are far too permissive and called for the elimination of the venue hook, among other reforms.4 Around...