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Cocktails and dinner are always followed by a topical program, but none more so than last week’s presentation, which featured UCLA Professor Lynn LoPucki and, as his foil and counterpart, Tom Salerno, a Phoenix bankruptcy attorney. </div> <bR> <div> Professor LoPucki has just published a book, “Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts,” published by the University of Michigan Press. His premise, arrived at after years of research and interviews with leading bankruptcy practitioners nationwide, is that forum shopping, as encouraged by the current bankruptcy venue statute, has corrupted the United States bankruptcy system, resulting in attorneys choosing courts that offer the most favorable outcome for their bankrupt clients, rather than the courthouse in which the company is headquartered where there might be more favorable treatment of creditors. The courts, attracted by the power and prestige that mega cases draw, then tailor their local rules and procedures to those most able to place these cases and ignore not only key provisions of the Bankruptcy Code, but the best interests of creditors, solely to compete in what LoPucki describes as “the beauty contest” in hopes of attracting these high-profile cases. According to Professor LoPucki, all of this has resulted in a litany of failed reorganizations of America’s most prominent companies through carefully made decisions by the very executives who brought about the demise of their companies. </div> <bR> <div> Although I have not yet read the book in its entirety, I can assure all of you that as a result of Professor LoPucki’s willingness to name names and call individual judges to task, this book is nothing short of the most controversial exposé on our shared practice in recent years, and will certainly spark considerable debate, especially in light of currently pending bankruptcy reform legislation.</div> <bR> <div> Professor LoPucki starts out by analyzing the Enron filing, one of the biggest bankruptcy cases in U. S. history, asserting that whichever court ended up with that case would remain in the center of the bankruptcy world’s spotlight for a very long time, overseeing the payout of many millions of dollars to those bankruptcy professionals fortunate enough to be involved. He then goes on to analyze Delaware’s dominance in the mega-case arena and the “competition” with other districts, namely the Southern District of New York, that was spawned from this dominance.</div> <bR> <div> “Courting Failure” asserts that the competition first broke out amongst U. S. Bankruptcy Courts during the 1990s as a result of Delaware’s dominance and other jurisdictions’ desire to attract a portion of the overwhelming number of large cases that were being filed there, adding that this competition was spurred on when the National Bankruptcy Review Commission’s recommendation to eliminate the venue provision large companies were relying upon to end up in Delaware was not enacted. In response, LoPucki maintains that judges in districts which sought to compete became more responsive and accessible to lawyers and other professionals, allowing fees to increase and relaxing conflict of interest standards, not to mention indemnification of those concerned for liability brought on by their own conduct, as well as allowing payments of substantial bonuses to retain the services of these very executives. Another casualty of the competition was the failure to appoint trustees in even the most egregious cases of fraud, thereby allowing the executives of the reorganizing companies, themselves potential targets of litigation a trustee might bring, to pick their own, more friendly, successors. All of this, LoPucki believes, has resulted in a far greater percentage of failed reorganizations, leading many of these entities to refile within a year or two of plan confirmation.</div> <bR> <div> Perhaps most controversial is Professor LoPucki’s assertion the bankruptcy judicial bar is actively involved in the competition, purportedly for one or more of the following reasons: (1) the opportunity to work with leading professionals in the fields of bankruptcy and finance, which in turn makes that judge the most powerful person in the room, with millions and occasionally billions of dollars resting on that judge’s decision on any given matter; and (2) the celebrity and the benefits that flow from presiding over such cases, including invitations from professional organizations to travel to resort cities at the organizations’ expense to give speeches and receive various honors, leaving the door open to a return to private practice at a much higher level of visibility. </div> <bR> <div> Finally, while Professor LoPucki does concede that when forced to choose between popularity and integrity, most judges will choose integrity, he concludes that to corrupt the bankruptcy system, it is only necessary to corrupt a few bankruptcy judges, which, as evidenced by the title of his book, he believes has occurred. </div> <bR> <div> Whether you agree or disagree with LoPucki’s premise or find fault with any of the numerous sets of statistics he provides, you will have to agree that few books have been as frank or candid in identifying not only the cause of the current state of affairs, but also many of the individuals responsible for bringing it about.</div> <bR> <bR> <div> <B>Alan I. Nahmias</B></div> <div> Plotkin, Rapoport & Nahmias</div> <div> 16633 Ventura Boulevard, Suite 800,</div> <div> Encino, CA 91436-1836</div> <div> Phone: 818-995-2555</div> <div> Fax: 818-907-9261</div> <div> Email: <FONT SIZE="4" COLOR="#0000FF" FACE="Times New Roman" ><A HREF="mailto:anahmias@prnlaw.com" TARGET="_top" TITLE="mailto:anahmias@prnlaw.com"><U><U>anahmias@prnlaw.com</U></U></A></FONT></div> <div> Web site: <FONT SIZE="4" COLOR="#0000FF" FACE="Times New Roman" ><A HREF="http://www.prnlaw.com" TARGET="_blank" TITLE="http://www.prnlaw.com"><U><U>http://www.prnlaw.com/</U></U></A></FONT></div> <bR> <bR> <bR> </td> </tr></table></body>